The STAR Market: A New Catfish Stirring China’s Stock Market

The STAR Market: A New Catfish Stirring China’s Stock Market

Today, at the opening ceremony of the first China International Import Expo, the establishment of the STAR Market was announced. For many people, this may have been the first time they had heard of it. But for those who have long followed the development of China’s stock market, it is something that has been “long awaited.” Since the concept of the STAR Market was first proposed in 2015, more than three years of research and preparation have passed, and now it is finally becoming reality.

The timing is also notable. With the stock market having remained sluggish since the beginning of the year, launching the STAR Market now clearly reflects the hope of throwing a new “catfish” into the sardine pond—injecting fresh energy into the capital market, boosting the enthusiasm of companies and investors alike, and revitalizing the market by lowering both the listing threshold for technology firms and the investment threshold for participants. Yet the STAR Market’s mission is far greater than simply reviving the market in the short term. In the longer view, it marks a concrete step toward a freer and more open Chinese stock market, an experiment with the registration-based IPO system, and the first move toward a more standardized and market-oriented direction.

On the one hand, the introduction of the STAR Market makes it easier for technology companies to raise funds through public listing. In this sense, it resembles the Nasdaq model and reflects China’s effort to learn from and align more closely with global capital markets. With the creation of the STAR Market, innovative technology firms will face lower barriers to going public. This could encourage some high-quality companies listed in the U.S. to return, attract strong firms from the SME Board and the New Third Board, and provide a platform for many promising companies that do not yet meet the conditions for listing elsewhere. This is clearly beneficial for businesses.

Through a qualified investor system, lowering the threshold for investors is beneficial for capital as well, allowing market funds to be used more efficiently. But the most crucial element remains the introduction of the registration-based system: a listing review mechanism centered on information disclosure, with listed companies and intermediary institutions responsible for ensuring that disclosures are truthful, accurate, and complete.

However, where there is opportunity, there is also pressure. For the current stock market, for companies, and for capital itself, the introduction of the STAR Market also means a new and more intense round of competition. The less-than-satisfactory development of the SME Board and the New Third Board has, to some extent, shown that “reform without determination may be worse than preserving the status quo.” If the STAR Market cannot carry out a truly thorough transformation, it may well fall into the same disappointing pattern.

On the other hand, if the STAR Market proves successful, the existing Main Board and ChiNext may face even greater and more painful changes. Capital and companies will naturally move toward markets that are more dynamic and more active. And if the Main Board and ChiNext lose too many technology and innovative firms, their future would become worrying.

For technology companies, lower barriers to entry also mean a more complete exit mechanism. In a mature market, survival of the fittest becomes more unforgiving, placing enormous demands on a company’s actual capabilities and growth potential. Innovative firms will have to compete not only with returning overseas-listed companies, but also with businesses transferring from the SME Board and other innovation-focused boards. They will need to invest even more heavily in technology and innovation. From a macroeconomic perspective, this is certainly a positive development. But for each individual company, it will be far more demanding. Going public will no longer be the finish line achieved in one stroke, but the beginning of a new journey—and in fact, that is what the proper purpose of listing should have been all along.

From a broader perspective, breakthroughs in basic science are becoming increasingly difficult. Under the assumption that basic science remains at its current level, the best path toward sustainable development for human society may be to squeeze every remaining ounce of value out of existing science and technology through innovation. Technology and innovation are more important than ever before. Advanced manufacturing, the Internet of Things, clean energy, big data—each of these hot areas in technological innovation represents a possible path forward for humanity.

If the STAR Market can help bring about fundamental breakthroughs in science and technology, that would be more meaningful than the total market capitalization of every stock exchange in the world. And even if such extraordinary luck does not materialize, the effort itself—the institutional design and the attempt to build something better—would still be immensely valuable.

For now, however, the STAR Market is only the first step in a long march. How to make this new march a success cannot depend on leadership making the right policy decision alone. It will require much greater effort and practical work from those responsible for carrying it out. And it is precisely those efforts and that execution that will determine whether a good idea truly becomes a good reality.

Finally, let me add a few images to briefly illustrate the structure of China’s stock market and the relationships and differences among the A-share market, the SME Board, ChiNext, the New Third Board, and others.