Shanghai opens STAR Market to 5 unprofitable tech sectors in reform push

Shanghai on July 23 released 20 measures to expand the STAR Market's fifth-set listing standards, allowing pre-revenue companies in controlled nuclear fusion, embodied AI, large models, quantum computing and brain-computer interfaces to go public. The Shanghai Stock Exchange will publish specific listing review guidelines for AI, low-altitude economy and other emerging sectors, according to the document.

"This directly addresses the financing needs of frontier technology at a stage when traditional profitability metrics don't apply," said Han Zhida, vice president at Guotai Haitong Securities. "The policy and market reforms are now moving in sync."

The package also establishes a social security science and technology fund, creates an S-fund-of-funds to boost secondary-market liquidity for private equity stakes, and builds a direct financing pilot zone in Shanghai's high-tech clusters. The city plans to expand the share transfer platform's services nationwide and explore exempting S-funds from nested-layer investment restrictions, according to the document.

The reform targets a structural gap in China's tech financing: deep-tech ventures with development horizons spanning years or decades before generating revenue. By lowering the profitability bar, Shanghai aims to channel domestic savings into sectors that previously relied on venture capital or offshore listings — a shift that could reshape the composition of China's public equity markets.

Closing the Exit Gap

The policy package also tackles a bottleneck in China's venture capital ecosystem: exit channels. By establishing an S-fund-of-funds — a fund investing in secondary private equity stakes — regulators aim to provide liquidity for early investors seeking to exit before an IPO. Shanghai is exploring ways to attract insurers, financial asset investment companies and asset management corporations to participate in S-fund transactions, while also studying whether to exempt S-funds from nested-layer investment limits.

The STAR Market, launched in June 2019 as Shanghai's answer to Nasdaq, now lists more than 500 companies with a combined market capitalization exceeding 5 trillion yuan ($690 billion). The fifth-set standards were originally designed for pre-revenue biotech and pharmaceutical companies. Extending them to AI, advanced energy and quantum computing broadens the pipeline at a time when Chinese tech IPOs in Hong Kong and the US have slowed amid heightened geopolitical scrutiny.

The social security science and technology fund represents a new source of long-term capital. Shanghai will select professional market-oriented investment institutions to manage specialized sub-funds, creating what officials described as a pricing and valuation benchmark for early-stage technology companies.

Cao Yanwen, deputy director of the Shanghai Financial Office, said the city will focus on improving early-stage investment pricing capabilities, building a continuous equity investment mechanism and strengthening the capital market's role as a hub. Wang Dengyong, deputy director of the Shanghai bureau of the China Securities Regulatory Commission, said the regulator will push for pilot reforms in equity and debt financing, mergers and acquisitions, and offshore finance in Shanghai.

The measures also include support for refinancing by technology companies, allowing firms listed under unprofitable standards and those trading below their IPO price to raise additional capital. The city is pushing to implement a shelf-registration system for follow-on offerings, which would streamline the approval process for secondary share sales.

Yin Jiong-yu, senior partner at Shanghai Angel Club — a platform backed by the Shanghai Institute of Science and Technology Finance — said the policy's emphasis on early-stage innovation is encouraging for angel investors. "Angel investment carries the highest risk and most needs patient capital participation," he said. "Angel investors are an indispensable force in technology innovation."

This article is for informational purposes only and does not constitute investment advice.