Article/Guan Qingyou, columnist of Sina Financial Opinion Leader Column (WeChat official account kopleader)
The essence of Shanghai Stock Exchange's Science and Technology Innovation Board and registration system pilot is to provide financing services for the development of scientific and technological innovation enterprises. It will improve the efficiency of enterprise financing, reduce the cost of enterprise financing through market-oriented institutional construction, and help more scientific and technological innovation enterprises develop capital markets through differentiated institutional arrangements. With the continuous development of the market, it may become the Chinese version of NASDAQ.
On the morning of November 5, 2018, the first China International Import Expo opened. President Xi Jinping attended the opening ceremony and delivered a keynote speech. Xi Jinping said that the Science and Technology Innovation Board will be set up in Shanghai Stock Exchange and the registration system will be piloted. Subsequently, the CSRC said that the Science and Technology Innovation Board aims to complement the weakness of the capital market in serving scientific and technological innovation. It is an incremental reform of the capital market. It will make more appropriate differentiated arrangements in terms of profitability, equity structure, etc., and enhance the inclusiveness and adaptability of innovative enterprises. The long-awaited incremental market reform of the capital market is coming. In fact, as early as 2015, the concept of the science and technology innovation board (the science and technology innovation board) was put forward. On December 28, 2015, the board was officially opened in the Shanghai Equity Trusteeship Trading Center. By the end of September 2018, 120 companies listed on the science and technology innovation board had realized equity financing of 1.73 billion yuan. However, this is only the establishment of a regional equity trading place (OTC market) in Shanghai, which is quite different from the positioning of the science and technology innovation board to be set up in the Shanghai Stock Exchange (OTC market) this time.
1、 Positioning of SSE Science and Technology Innovation Board: China's NASDAQ
The launch of the SSE Science and Technology Innovation Board and the pilot registration system is a historic and significant innovation for China's capital market to attract scientific and technological innovative enterprises to connect with the development of the capital market through market-oriented means.
1. The Science and Technology Innovation Board is the improvement and supplement of China's multi-level capital market system
At present, China's capital market is mainly divided into the main board, small and medium-sized board, GEM, NEEQ and regional equity trading markets. Previously, the main board market was the main place for large and mature enterprises to go public for financing. The small and medium-sized board was mainly for enterprises with stable development, and the GEM was mainly for small and medium-sized enterprises with scientific and technological growth, which constituted the over-the-counter market in China's capital market. The NEEQ and regional equity trading markets constitute the OTC market of China's capital market. With the development of the market and the homogenization of the IPO approval system, the homogenization of all sectors of the market has also resulted, that is, the GEM's function of helping small and medium-sized enterprises with scientific and technological growth to connect with the development of the capital market is not obvious. Therefore, in order to help scientific and technological innovation enterprises connect with capital development, China's OTC market needs to have differentiated sectors in the system. The registration system of the pilot project of the Science and Technology Innovation Board is the differentiated institutional arrangement that distinguishes it from other sectors. With the launch of the Science and Technology Innovation Board, it will greatly make up for the gap in the rapid growth of scientific and technological innovation enterprises in China's multi-level capital market that cannot connect with the development of the capital market.
2. The Science and Technology Innovation Board is a sharp weapon to compete for scientific and technological innovative enterprises
In 2018, the global capital market started the battle for scientific and technological innovation oriented new economy enterprises. The Hong Kong Stock Exchange has introduced a "new policy for Hong Kong shares", and the US shares own NASDAQ. However, China's capital market does not currently have the competitive advantage of technological innovation enterprises. Under the influence of stricter regulation of the A-share market, in the first three quarters of 2018, the number of new shares issued in the A-share market was 87, down 75.14% year on year, and the amount of capital raised was 115.424 billion yuan, down 34.36% year on year. At the same time, the IPO of China's science and technology innovation enterprises in Hong Kong and the United States in 2018 showed a "blowout" trend. In the first three quarters of 2018, a total of 158 new shares were issued in Hong Kong (including 60 mainland enterprises, accounting for 38%), an increase of 49% year on year. The amount of capital raised was HK $243.4 billion (Mainland enterprises were HK $231.4 billion, accounting for 95%), an increase of 184% year on year. Similarly, the IPO of Chinese enterprises in the US in 2018 also ushered in the highest level after Alibaba's listing in the US in 2014. In the first three quarters of 2018, the number of new shares was 28, with a year-on-year growth of 1.33 times, and the scale of raised capital was 48.773 billion yuan, with a year-on-year growth of 5.29 times. Scientific and technological innovation oriented enterprises have the characteristics of strong scientific research ability, rapid market expansion and development, strong explosiveness, but small initial profit scale. Before 2000, China's A-share market had always been an approval system. At that time, the capital market mainly provided financing services for large state-owned enterprises. Since 2000, IPO has successively implemented the non market-oriented inquiry system and approval system, and has set strict profit indicators and other requirements for a long time. It has audited the listing of enterprises through the non market-oriented approval system, which has caused a series of scientific and technological innovation enterprises such as Alibaba, Tencent, Baidu, JD, etc. to go overseas to list and raise funds for development during the rapid growth period. Only by setting up an exclusive market and promoting differentiated institutional arrangements such as the reform of the registration system can scientific and technological innovation enterprises achieve listing and financing development.
2、 Impact of Shanghai Stock Exchange's Science and Technology Innovation Board
1. For enterprises: the spring of scientific and technological innovation enterprises is coming
From the perspective of industry structure, China's capital market has been dominated by traditional industries for a long time. In the industry distribution of A-share IPO enterprises in the first three quarters of 2018, the manufacturing industry accounted for 42%, the technology, media and telecommunications industry only accounted for 16%, and the technology, media and telecommunications industry accounted for 38% in the US stock market. With the transformation of China's economic structure, more high-quality scientific and technological innovative enterprises will emerge. Previously, some scientific and technological innovative enterprises had to leave their homes and go overseas for listing, such as Weilai Automobile, with net losses of 2.573 billion yuan in 2016, 2017 and the first half of 2018, respectively, because they could not meet the profit index requirements of the A-share market approval system and could not achieve the development of A-share IPO financing Its total market value reached US $11.902 billion on the second day after its listing in the US, which shows that its technological innovation ability and enterprise value are recognized by the US capital market. In the future, through the implementation of market-oriented registration system, the Science and Technology Innovation Board will help more scientific and technological innovation enterprises connect with capital development. In addition, it can be predicted that the Science and Technology Innovation Board will set the definition of scientific and technological innovation enterprises as its entry threshold, such as the number of patents, valuation, etc., which will force enterprises to enhance their independent scientific research and innovation capabilities and achieve transformation and upgrading.
2. For equity investment institutions (PE/VC): new investment direction and exit channels
In the first half of 2018, the amount of capital raised in the equity investment market was only 380.022 billion yuan, 55% lower than that in the first half of 2017, and there was a trend of accelerated decline. In the first half of 2018, the total investment in the equity investment market was close to 579.502 billion yuan, down 10% from the first half of 2017. One of the important reasons for the decline of various indicators in the equity investment market is that the exit channel of China's A-share IPO is blocked, and the enterprises frequently "break" after choosing overseas listing. Since 2018, projects invested by equity investment institutions have no way out, and mergers and acquisitions have gradually become the mainstream of the market. With the launch of the Science and Technology Innovation Board and the pilot of the registration system, equity investment institutions will have new project exit channels and gradually establish new investment directions, which will also guide equity investment institutions to give more capital and resource support to scientific and technological innovation enterprises in the primary market.
3. For investors in the secondary market: can share the dividend of scientific and technological innovation enterprise growth
Previously, the CSRC launched CDR, and qualified innovative enterprises no longer apply to the issuance conditions of profits and no uncovered losses. This has also cleared the way for domestic investors to invest in overseas high-quality enterprises through CDR. Subsequently, six CDR funds simultaneously obtained the issuance qualification, and the investment ceiling of a single fund was 50 billion yuan. The CDR list includes Xiaomi, Baidu, Alibaba, JD, Tencent, Netease, Ctrip, Sunny Optics, etc. However, due to the subsequent turmoil in the A-share market and other reasons, the final CDR fund subscription was not satisfactory. The biggest difference between the launch of the Science and Technology Innovation Board and the pilot registration system and CDR is that it will be able to directly invest in the technology innovation enterprises that have achieved IPO through the registration system and are in the rapid growth stage to share the dividends of the rapid growth of technology innovation enterprises, instead of issuing CDR to invest after the enterprises have grown into unicorns.
4. For other A-share sectors, there will be "blood pumping effect" in the short term, and benign competition will be formed in the long term
The establishment of the SSE Science and Technology Innovation Board in the short term is bound to have a "bleeding effect" on the stock funds of other sectors in the market. However, in any mature capital market, there are different exchanges or plates forming benign competition. For example, the New York Stock Exchange and NASDAQ in the US stock market, whose years of competition have led to the continuous innovation and development of the two exchanges. The launch of the Science and Technology Innovation Board of Shanghai Stock Exchange will form the most direct positive competition with the SME Board and the GEM of Shenzhen Stock Exchange, which will force the reform of the SME Board and GEM that have become homogenized, and attract high-quality scientific and technological innovative enterprises to go public through differentiated institutional arrangements.
5. For the NEEQ market: it will become the "turning board" direction of high-quality enterprises on the NEEQ
After the new third board market entered 2018, it completely entered the cold winter period. In the first three quarters of 2018, 465 new companies were listed on the NEEQ, a significant decrease of 72.73% over the same period last year; The number of delisted enterprises was 1152, an increase of 163.01% over the same period of the previous year; 1196 enterprises listed on the New Third Board only raised 58.874 billion yuan, 56.9% of the amount raised in the same period last year. The new third board market has gradually lost its ability to attract high-quality scientific and technological innovation enterprises and help their financing development due to the lack of liquidity, loss of financing pricing function and other problems. In 2018, more scientific and technological innovation oriented NEEQ enterprises will choose to list overseas or delist to re apply for A-share IPO, and the launch of the Science and Technology Innovation Board will become a turning point for high-quality scientific and technological innovation oriented NEEQ enterprises such as Shenzhou Youche, Great Wall Huaguan, etc. In addition, the Science and Technology Innovation Board may accelerate the reform of the new three board's fine and hierarchical system.
3、 System pre judgment of Shanghai Stock Exchange Science and Technology Innovation Board
1. Science and technology innovation board registration system pilot
The registration and trial sites of the Science and Technology Innovation Board will have a great impact on the current primary and secondary market structure. First of all, after the Science and Technology Innovation Board implements the registration system, the CSRC needs to review the completeness of information disclosure of listed companies, and the Exchange reviews whether the financial indicators of listed companies meet the listing standards, but does not put forward substantive opinions on the profit prospects and the use of raised funds. After the implementation of the registration system, the market may accept an unprofitable enterprise as long as it has a bright future. The functions and roles of regulators have been adjusted, which will maintain the order of the market and ensure the transparency of information of listed enterprises, rather than making value judgments for investors. Secondly, the implementation of the registration system requires a perfect delisting system to match and form a virtuous circle of entry and exit, so that market funds will gradually focus on high-quality listed enterprises. Finally, the registration system breaks the scarcity of A-share IPO resources, which will be conducive to the real value discovery function of enterprises after listing. It is conducive to the sound development of the venture capital market and the formation of a closed loop. After the primary market projects have passed the IPO of the registered science and technology innovation board, there will be no arbitrage space between the primary market and the secondary market due to the scarcity of IPO. It will also require the primary equity investment institutions to truly return to the main line of value investment.
2. Differentiated market access institutional arrangements
The Science and Technology Innovation Board is located in the capital market that helps the development of scientific and technological innovation enterprises. In the initial market access design, it should learn from the existing experience and lessons, judge the scientific and technological innovation ability of enterprises and set relevant thresholds. Such as national high-tech enterprises, number of patents, equity financing valuation, etc. The differentiated market access system will enable the Science and Technology Innovation Board to select scientific and technological innovative enterprises more accurately, and lay the foundation for the continuous financing and development of subsequent listed enterprises in the Science and Technology Innovation Board. If there is no differentiated market access system arrangement, it will lead to unclear positioning of the Science and Technology Innovation Board, uneven quality of listed enterprises on the Science and Technology Innovation Board, and eventually lead to homogenization with other markets.
3. Expectation of "Same Share but Different Rights"
The registration system is not enough to attract scientific and technological innovative enterprises. In the early stage of development, most scientific and technological innovation enterprises need to use equity financing means to research and develop innovation and quickly occupy the market. Equity financing will continue to dilute the founder's equity, while the enterprise's IPO in China's A-share market is the "same share, same right" system, and the founder's control right will be lost due to the gradual dilution of equity, so China's A-share market has missed a large number of scientific and technological innovation enterprises, such as Alibaba, Jingdong, Xiaomi, etc. On December 15, 2017, the Hong Kong Stock Exchange announced the biggest change in 25 years: allowing "different rights for the same share", allowing the second listing, and allowing biotechnology companies that have not yet earned income to list. These three favorable policies, known as the "New Hong Kong Stock Policy", have been officially implemented since April 30, 2018. On July 9, Xiaomi became the first company listed on the Hong Kong Stock Exchange to adopt "the same share but different rights", and then Meituan Dianping became the second company. From this point of view, if the upcoming Science and Technology Innovation Board wants to attract more scientific and technological innovation enterprises, it also needs more differentiated institutional arrangements such as "the same share but different rights".
The essence of Shanghai Stock Exchange's Science and Technology Innovation Board and registration system pilot is to provide financing services for the development of scientific and technological innovation enterprises. It will improve the efficiency of enterprise financing, reduce the cost of enterprise financing through market-oriented institutional construction, and help more scientific and technological innovation enterprises develop capital markets through differentiated institutional arrangements. With the continuous development of the market, it may become the Chinese version of NASDAQ.
(The author of this article introduces: such as the president and chief economist of the Financial Research Institute.)
