A jump of 520%. The value of shares on the all-new "Nasdaq Chinese-style", dubbed Star (Science and Technology Innovation Board) Market, has experienced a meteoric rise allowing listed companies to raise $ 7 billion on the inauguration day, Monday 22nd of July. Even if the euphoria should, in the opinion of the main observers, fall again in the days to come, these thunderous beginnings are good news for a project supported up to the highest level of the Chinese state.

This initiative was indeed announced in November 2018 by Chinese President Xi Jinping in person. About 140 companies in the tech sector have already expressed their wish to live their trading life in this new financial center located in Shanghai. These companies specialize in software, biotech or the construction of microprocessors.

The first wave of quotations was only opened for 25 of them, chosen by the stock market authorities. The others will have to wait a few more weeks before being admitted to the Star Market.

Chinese stock markets not well adapted to the needs of start-ups

This new financial center aims to attract innovative Chinese start-ups and companies that, up to now, have opted for the US or Hong Kong stock exchanges. This is the paradox of the Chinese tech sector: it may be one of the most dynamic in the world, its most innovative start-ups, like the giants of e-commerce Alibaba (listed in New York since 2014) and online video DouYo (which debuted at the Nasdaq in 2019), or smartphone maker Xiaomi (entered on the Hong Kong Stock Exchange in 2018), shun national financial centers.

A disenchantment that can be explained by the specificities of Chinese stock exchange rules. To be listed in Shanghai or Shenzhen (the two main financial centers of the country), it is necessary to obtain a prior authorization from the authorities. An administrative green light that does not exist in New York or Hong Kong, where the registration and delivery of financial documents is sufficient. This additional step can take several years, which is an eternity for start-ups who need to raise money quickly to finance their growth.

But that's not all: a company can only enter the stock market in China if it already generates profits. "Not to mention that no start-up in the world or almost could be listed in Shanghai or Shenzhen, since most of them are not yet profitable in their debut on the financial markets," says the podcast TechBuzz China, specialized in Chinese tech news.

Third test

The Chinese authorities have long been aware of the problem. In the late 2000s, they launched two financial markets, also presented as alternatives to Nasdaq. The SME (Small and Medium Enterprises) Board of Shenzhen and ChiNext of Shanghai benefited from less stringent access conditions ... while keeping the obligation to generate profits. As a result, after generating a similar craze to that currently enjoyed by the Star Market, the effervescence quickly fell when start-up companies understood that New York and Hong Kong places remained more attractive.

To avoid a destiny to EMS or ChiNext (which are struggling to attract businesses and investors), the Star Market does not impose any prior authorization or obligation to be a beneficiary at the time of the IPO.

This obsession to compete Nasdaq at any price is "in line with the current Chinese policy of developing its financial market, to upgrade in order to no longer depend on international places," says Mary-Françoise Renard, director of the Institute of Economic Research of China (Idrec) of the University of Auvergne, contacted by France 24.

Trade and diplomatic tensions with Washington have made this goal even more pressing. Beijing fears that the US administration is complicating the access of Chinese start-ups to US financial markets. One of the declared goals of the American administration is to thwart Chinese technological ambitions.

As such, the Chinese authorities' eagerness to open the Star Market, less than a year after the announcement made by Xi Jinping, "is clearly a signal sent to the United States indicating that the American bellicose attitude is pushing them to take the lead and accelerate the reforms [allowing them to no longer depend on the United States, Ed], "says Mary-Françoise Renard.

A David for two Goliath

Still, start-ups must play the game in the long run. Beijing has the means "to put pressure on them, while granting tax benefits to those who agree to be listed on the Star Market," said the French expert. It adds that companies "may be worried about the evolution of relations with the United States" and prefer the stability of a local financial center to uncertainty at the international level.

The Star Market remains the David who attacks two Goliath at the same time. "Investors who operate on the Nasdaq and the Hong Kong Stock Exchange have not only more experience, they also have a much deeper knowledge of technological issues than those in China, known to have often irrational reactions, and therefore unpredictable, "says the TechBuzz podcast. The big stars of the Chinese tech scene may prefer to put their stock market in the hands of the most expert possible, despite the efforts of Beijing to praise his "Nasdaq Chinese".

The fact that none of the first 140 start-ups wanting to enter the stock market on the Star Market is part of the cream of the Chinese tech sector is, in this respect, not the most reassuring for Beijing. Above all, a name is missing from this list: Bytedance, the influential start-up behind the global phenomenon TikTok, the social video-sharing network popular with teenagers. The Chinese authorities have courted this company for several months to choose to be listed on the Star Market, said the Hong Kong daily South China Morning Post. But the young push - valued at more than $ 75 billion - has, for the moment, resisted these insistent calls from the foot and remains mysterious about where will happen what will, most likely, be the most important IPO of 2019.