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Capital Market Reforms Needed to Drive Growth of China’s New Tech Sectors: KPMG

Experts say that problems with China’s capital markets are impeding the prospects of the country’s emerging tech sectors.

Li Zhixian (黎志贤), partner at KPMG China’s capital markets development department, said to China Securities Journal that new tech sectors such as biotech and artificial intelligence are far more capital intensive than traditional industries, as well as involve far longer periods of development before profits can be reaped.

Despite recent reform and improvement of domestic capital markets, many Chinese tech firms still find themselves compelled to pursue financing abroad.

“At present China’s capital markets are providing definite support for the incubation of new industries in certain areas,” said Li. “Companies at different stages of development can use private offerings, the new third board market or the main board markets to engage in financing.”

Li nonetheless believe that there are a number of areas where China’s capital markets are in urgent need of further reform, in order to deal with issues such as the low liquidity of new third board stocks, poor refinancing capability, the large amount of time it takes to review and issue A-shares, and high thresholds for entry.

According to Li these issues pose a definite barrier to the sustainable development of finance for emerging tech sectors, and further research is needed into support policies for high-quality unicorns or new biotech firms that are unable to produce profits at the outset.

Tian Lihui (田利辉) from Financial Development Research Institute of Nankai University said to China Securities Journal that the existing regulatory framework for the review and approval of share issuance would make it hard the Chinese equity market to provide effective support to emerging tech sectors.

According to Tian this inability to provide financial support for unicorn companies has created urgent need for regulatory reform, in order to better cater to the strong importance of scale, liquidity and market share for emerging tech firms.

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