Shanghai rolls out measures to bolster equity investment and tech innovation amid economic headwinds

Shanghai has unveiled a slew of measures to promote equity investment and technological innovation as part of a drive to entrench its status as a financial hub, as it ramps up efforts to reverse sluggish growth and falling foreign direct investments.
It will encourage equity investment firms based in the city to go public in domestic and overseas capital markets by way of initial public offerings or mergers and acquisitions, according to a document put forward by the Shanghai municipal government on Wednesday night.

These firms will also be given priority when selling bonds with maturities of five and 10 years to fund operations, and the local government will study the creation of a guidance fund to invest in early-stage start-ups, it said. The measures will be effective starting February 1.

“Equity investments are playing a critical role of promoting the formation of innovative capital, raising the proportion of direct financing and supporting technology innovation,” the Shanghai government said in the document. “[These steps] will attract more investment firms to start and develop businesses in Shanghai. That is where Shanghai will focus to implement the state’s drive of promoting the intertwined development of Shanghai as both financial and tech innovation centres.”

Shanghai, which has a population of 25 million people and the largest stock exchange in Asia, has not been immune to a nationwide economic slowdown in China triggered by property market woes and an exodus of foreign investment.

It risks lagging behind Hong Kong and other financial centres in the Asia-Pacific region after its economy grew by a mere 0.2 per cent from a year earlier in the third quarter of 2023, and foreign direct investment dropped 1.4 per cent to US$22 billion in the January-to-November period, according to official data.

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In 2022, Shanghai had to implement stringent Covid-19 containment policies that led to a crippling two-month citywide lockdown, which shut down even the city’s landmark Disney theme park and US electric-vehicle giant Tesla’s gigafactory.

To get the local economy back on its feet, the city’s government has been rolling out stimulus measures, such as subsidising merchants and consumers and asking state-owned property owners to waive part of rents paid by businesses hit by the lockdown.

To promote equity investment and technological innovation, the city will also encourage professionals to create an industry association for angel investments that will offer a service platform to help peer angel investors carry out joint due diligence, valuation assessments and investments, according to the document. Angel investments refers to investments in companies in early stages through stocks or convertible bonds.

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Shanghai will also set up a database to track and assess angel investors and their management teams, which will be used as a reference in investments by government-led funds and in applications for policy support, the document said.

The city will also tap the country’s 27 trillion yuan (US$3.8 trillion) wealth-management products market by encouraging commercial banks to set up such units in the city, to invest in unlisted companies and equity investment funds in the Lingang free-trade zone and the Yangtze River Delta region, according to the document.

By the end of the third quarter last year, the total assets managed by Shanghai-based private equity and start-up investment firms amounted to 2.3 trillion yuan, according to the Asset Management Association of China. About 1,843 firms managed 8,865 funds, it said.

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