China previously attempted this and was focusing on large companies like Alibaba Group, but the plan never came to fruition due to a number of factors, including trade tensions and a lack of political support.
The new rules, put forth by securities regulations and officials at the stock exchange, could be unveiled in the next few days. The rules will cover startups as well as companies with international listings.
The rules will apply to the new Science and Technology Board, also known as the Star market, on the Shanghai Stock Exchange.
Foreign companies and Chinese businesses that are incorporated outside of China will now be able to list on the mainland. They’ll also be able to get capital funding from investors outside of the mainland as well.
China is also going to lower the market-cap threshold for companies that are listed overseas to 100 billion yuan ($14.29 billion) or less.
Previously, the “200 billion yuan threshold kept a lot of quality companies out, and regulators want to change that,” a person familiar with the matter said.
The rules are meant to help with some of the more technical issues Chinese startups have dealt with, like the repatriation of proceeds and limitations on shareholders in terms of selling shares. The country’s controls on capital also make it difficult to move money out of country after an IPO.
David Chin, head of Investment Bank, Asia Pacific, at UBS, said a Star listing wasn’t as convenient as going public in the U.S. or Hong Kong.
“There’s more than 100 companies now in the pipeline,” Chin said. “If you submit the application today, it could easily take 12 to 15 months before seeing the light, or even longer. Combined with the post-IPO lockup period, it can take three to five years before investors can exit.”