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TheMK sport Resolution of the Central Committee of the Communist Party of China (CPC) on Further Deepening Reform Comprehensively to Advance Chinese Modernization, recently adopted at the third plenary session of the 20th CPC Central Committee, has made an important commitment to developing a financial system for scientific and technological innovation to provide greater support for major national science and technology programs and sci-tech small and medium-sized enterprises (SMEs).

The sci-tech innovation board of the Shanghai Stock Exchange, also known as the STAR Market, celebrated its fifth anniversary in June. 

Over the past five years, as a testing ground for China's capital market reforms, the STAR Market has continuously improved in areas such as registration-based IPO, market trading, supporting systems, delisting mechanisms, and the protection of rights and interests. It has successfully completed the task of implementing comprehensive registration-based IPO reforms, effectively played the role of market-price discovery, and provided successful experiences for other market players to learn from.

The positioning of the STAR Market is clear, focusing on high-tech innovative enterprises that serve the national strategic direction, support the development of a large number of major technology frontier enterprises, and providing capital support for the development of the real economy and the transformation of economic structure. 

In the continuous adjustment and improvement of the guiding system for the sector, the positioning of the STAR Market to support the development of core innovations is becoming increasingly clear.

Currently, the STAR Market has completed approximately 570 IPOs, generating a total market value of about 4.9 trillion yuan ($686 billion). The market is operating smoothly, liquidity is gradually increasing, and it continues to provide financing support for high-tech innovative companies.

The STAR Market has attracted a large number of enterprises belonging to a new generation of information technology, bio-medicine, and advanced equipment manufacturing sectors, continuously opening up more convenient financing channels and more mature trading mechanisms for technology innovation enterprises at the institutional level. This enhances investment convenience and international openness, continuously providing capital support for listed companies. 

The reform of the STAR Market covering various aspects such as IPOs, listing, trading, mergers and acquisitions, and delisting is all gradually maturing. 

The diversified and inclusive listing conditions of the STAR Market meet the differentiated financing needs of different types of sci-tech enterprises. The market-oriented pricing mechanism for IPOs and the trading mechanism in the early stage of listing have been implemented. 

At the same time, the STAR Market has carried out targeted innovative explorations in refinancing, mergers and acquisitions, equity incentives, shareholding reduction, information disclosure, and continuously optimized and improved them.

Currently, the average price-to-earnings ratio of companies listed on the STAR Market is significantly higher than that of the two main trading bourses in Shanghai and Shenzhen, and slightly higher than that of the board of growth enterprises - ChiNext Index. However, their liquidity and activity remain below where market observers expect it to be.

The reason behind this is that the STAR Market serves technology innovation companies that meet national strategic requirements, break through key core technologies, and have high market recognition. 

These listed companies have strong development potential, but often require further development and long-term support. In a market with the structure of investors dominated by individuals, the current liquidity is a normal phenomenon. Furthermore, the STAR Market's level of openness is still increasing, and the channel for foreign capital entry will open up further.

In the future, through a series of institutional and structural optimizations, the STAR Market will play a greater role in leading China's high-quality economic development and solving the "bottleneck" problem in sci-tech development. 

These measures could include adhering to information disclosure obligations, guiding companies to gradually move toward market-based pricing for IPOs, reducing market sentiment disturbances; continuously improving trading mechanisms, expanding financial product offerings, guiding long-term funds into the market; increasing institutional openness, introducing international capital, continuously expanding the connectivity mechanism; accelerating the improvement of delisting channels, increasing the delisting rate, ensuring market liquidity, and forming a healthy competition mechanism.

The author is associate dean and chair professor of finance, PBC School of Finance, Tsinghua University. [email protected]