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Shanghai exchange eyes IPO crown to celebrate 30th anniversary

Deregulation and links to Hong Kong propel Chinese bourse up global rankings

SHANGHAI -- The Shanghai Stock Exchange is just a stone's throw away from becoming the world's top destination for initial public offerings, only 30 years since its revival, though concerns over state intervention into the bourse still loom large.

Kexing Biopharm, a drugmaker based in Shandong Province, on Thursday began book building for a planned IPO on the Shanghai exchange's STAR market -- a board that is focused on science and technology stocks and was the brainchild of Chinese President Xi Jinping.

A total of 197 companies have debuted on the STAR market since its launch 16 months ago. With several others also looking to list there, Kexing Biopharm could become the 200th.

The Shanghai Stock Exchange was re-established on Nov. 26, 1990, after being shut down in 1949 shortly before the founding of the People's Republic of China. Despite a limited number of listed companies, investors poured money into the exchange once operations began the following month, leading to a wild cycle of bubbles and busts -- like when the stock index doubled during a single session in May 1992.

The Shanghai exchange has grown into one of the world's largest bourses. The 1,700 companies listed there include Kweichow Moutai, a liquor maker with a market capitalization of over $300 billion, and big state-owned corporations like Industrial & Commercial Bank of China and PetroChina.

A Shanghai brokerage from around 1990: Chinese stocks have been on a wild cycle of bubbles and busts since the Shanghai exchange was revived three decades ago.

The STAR market, in particular, has drawn a diverse set of companies like Semiconductor Manufacturing International Co., one of China's most advanced chipmakers, whose main listing is in Hong Kong. The board alone has a total market capitalization of over 3 trillion yuan ($456 billion).

Like Japan's Nikkei Stock Average, the Shanghai Composite index is far below its peak marked years ago -- hovering around 3,300 on Thursday, compared with its 6,124 record from October 2007.

Still, the index has recovered from the low of 2,655 logged in January 2016 after a stock market crash the year prior. The boost resulted largely from deregulatory efforts by Xi, who was forced to take action in order to prevent capital flight.

China updated capital restrictions in response to MSCI's demands when the compiler decided in 2017 to include Chinese stocks in one of its indexes. The country launched a stock connect between the Shanghai and Hong Kong exchanges in 2014, then between the Hong Kong and Shenzhen exchanges in 2016, opening these links to bond trades as well in 2017. Chinese authorities also eased requirements for establishing new brokerages and asset management companies.

The stock links have brought over 1.1 trillion yuan into the mainland. Eased restrictions and the recovery in the stock market have led to a slew of initial public offerings in Shanghai as well.

A total of 274.7 billion yuan was raised through IPOs in Shanghai during the first nine months of 2020, outpacing Nasdaq, according to Deloitte. The Chinese bourse could end up competing with the New York Stock Exchange for the top spot this year even without Ant Group's highly anticipated and now-delayed listing.

But the Ant saga also highlights the limitations that companies can face on China's state-influenced bourses.

Ant, a financial services arm of e-commerce company Alibaba Group Holding, had received the green light earlier for what was expected to be the world's largest IPO. But authorities pulled the approval at the last minute after Alibaba co-founder Jack Ma appeared to criticize China's financial regulators.

Rumors are still swirling in China's financial circles over what exactly happened behind the scenes. Some say Xi himself gave the order to delay Ant's IPO.

With China now bolstering financial regulations, it is unclear whether Ant can maintain its fast pace of growth. Many expect that Ant's IPO will be delayed by at least six months, and end up raising less money than originally expected.

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