The Shanghai Stock Exchange's new Technology Innovation Board will allow still-unprofitable hi-tech companies -- including biopharmas -- to IPO on the exchange, though each IPOing company must have a valuation of at least $600 million to qualify. Also, biopharmas must target a significant market with approval for at least a Phase II clinical trial of one innovative new drug. China regulators will examine company filings to validate the descriptions of the companies, but they will not exercise any further control over IPOs on the new board.

The new exchange will compete with the Hong Kong Exchange, which initiated a process for IPOs of pre-revenue China biopharmas last summer.

The goal of the new board is to give younger tech companies a chance to raise capital. It offers companies several sets of minimum listing requirements to qualify: companies with $7.5 million of profit over the past two years and a capitalization of at least $150 million are welcome. So are unprofitable companies with at least $45 million in sales during the previous year.

In addition, the Technology Innovation Board will accept companies with a dual-class shareholding structure, a favorite form of stock ownership among tech companies. The same is true for foreign-funded China companies with a variable interest entity (VIE) ownership structure. The new Shanghai exchange will be the only China-Hong Kong exchange to provide an IPO venue for VIE companies, which will be required to issue China depositary receipts (CDR). Under the CDR system, some of a firm’s shares are transferred to a custodian bank, which sells them on an exchange abroad.

For IPOs on other exchanges, China regulators attempt to protect investors by slowing or stopping new offerings if the stock market is weak. They also attempt to make sure investors will profit from any new offerings. Neither of these considerations will apply to the new hi-tech board.

The Technology Innovation Exchange will allow shares to rise or fall by a maximum of 20% on any single trading day -- the Shanghai main board and Shenzhen exchanges stop trading in a stock after a 10% move.

To invest on the new exchange,  China mainland retail investors must prove they have at least $75,000 in trading capital and two years of equity trading experience. 

China regulators have released the rules for the new exchange as a proposal; interested parties have until February 20 to comment on the rules. The exchange is expected to launch later this year. 

Disclosure: none.