China to Trial CDRs, Startup Listings to Lure Tech Firms Home

(Bloomberg) -- China will launch a pilot program aimed at luring innovative companies back to the mainland equity market, loosening listing rules for certain firms and offering its own form of depositary receipts.

Companies that meet the following criteria will be eligible for the pilot, the State Council, China's cabinet, said in a statement posted on its website late Friday:

• Firms that have their own core technology and high market recognition in strategic sectors such as the internet, big data, cloud computing, software and integrated circuit, high-end equipment manufacturing and biotechnology.
• In order to be able to take part in the trial of Chinese Depositary Receipts, or CDRs, Chinese companies listed elsewhere will need a market value of more than 200 billion yuan ($32 billion), according to the statement.
• Private companies that are valued at no less than 20 billion yuan and recorded revenue of 3 billion yuan or more in the past year will qualify. Fast-growing unlisted companies that work in the field of advanced technology and have a leading advantage in their sector will also be eligible.

While China has been a breeding ground for some of the world's fastest-growing -- and highest valued -- technology businesses, companies like e-commerce giant Alibaba Group Holding Ltd. and search engine firm Baidu Inc. have headed overseas to list. That's left the retail investor-dominated local market reliant on state-run industries for large new listings.

China's touchiness about listing anything with a high valuation or no track record of profitability is a key deterrent for tech firms, as is bans on structures such as dual-class shares. They're also able to access a wider range of investors offshore.

Read more: China Looks to Claw Back $1.4 Trillion in Lost Tech Listings

Regulators first mooted the prospect of a CDR program at this month's meeting of China's rubber-stamp national legislature. The State Council didn't say in the statement when the trial program would start.

Read more: A QuickTake explainer on CDRs

To contact Bloomberg News staff for this story: Li Hui in Beijing at hli355@bloomberg.net.

To contact the editors responsible for this story: Ken Wills at kwills3@bloomberg.net, Emma O'Brien, Ravil Shirodkar

©2018 Bloomberg L.P.

With assistance from Li Hui