STAR Performers: High-Tech, Coastal, um, State-Owned and Military-Focused?
By Kevin Acker and Qiu Mingda
On July 22nd, China opened the Science and Technology Innovation Board (STAR) on the Shanghai Stock Exchange. The STAR Market is China’s attempt at setting up a tech-focused, Nasdaq-style board. Xinhua reports that the STAR Market will pilot stock reforms, including cutting red tape, requiring more rigorous information disclosure and allowing higher price volatility. It is also aimed at directing financing to companies in “strategic emerging sectors.” A review of the initially listed companies demonstrates how the STAR Market is not a bastion of unrestricted private enterprise, but instead reflects Beijing’s top industrial policy priorities and involves a great deal of state support.
The industries of the 25 companies initially listed on the board align closely with the industries targeted in China’s innovation policies, including Made in China 2025 and the military-civil fusion initiative. Most companies are in the electronics and telecom equipment industry (such as fabless semiconductor design), and hi-tech manufacturing (such as intelligent manufacturing and med-tech).
The geographic distribution of the STAR companies is also notable. Out of 25 companies listed, 22 companies are in China’s highly developed coastal provinces, while three are located inland – two in Shaanxi in western China and one in the northeastern rustbelt province of Heilongjiang. The three inland companies are all cleared for sensitive military equipment development. The two Shaanxi companies work on military aircraft technology, and the Heilongjiang firm develops advanced optical equipment technology primarily for military customers.
The state-owned sector is also present on the STAR Market. The Financial Times reports that 14 companies disclosed state-owned investors as their leading shareholders. Many of the companies are backed by state-owned capital from enterprises and guidance funds. China Railway Signal and Communications Corporation Limited is mainly owned (60%) by its parent SOE, China Railway Signal and Communications (Group) Corporation. Montage Technology, a Shanghai-based company specializing in manufacturing chips for cloud computing and AI, reported its largest stakeholder as China Power Investment Corporation. China Power Investment Corporation is the investment branch for a central SOE, China Electronics Corporation (CEC). In addition to the investment arm, CEC also invests in Montage Technology through a related company Jiaxing Xindian, a small capital investment firm supported by CEC. Together, CEC could control more than 17% of Montage Technology.
Six companies on the STAR Market have level-two or -three weapons equipment research and production credentials. Having the credentials means the companies can participate in “Secret” and “Highly Secret” levels of military equipment development. Four of these companies are involved in optics and imaging hardware and software, including surveillance technology, optical lenses and infrared and satellite imaging. The other two companies are involved in industrial materials production with applications for military aircraft. Some companies without credentials develop products with military applications as well, including military-grade batteries and precision measurement instruments.
Kevin Acker is a research intern at the Freeman Chair in China Studies at CSIS.
Tim Hancock and Wang Xueqiao. “State-Owned Investors Dominate China’s New Tech Exchange.” Financial Times. August 10, 2019.
Xinhua. “China’s Sci-Tech Innovation Board Starts Trading.” July 22, 2019.
Daniel Ren. “China officially launches technology innovation board, with trading expected to begin within two months.” South China Morning Post. June 13, 2019.
Shanghai National Defense Technology Industry. “Brief Introduction to Military Qualification Examination and Certification.” April 30, 2015.