Individual investors follow the stock market at a bourse in Nanjing, East China's Jiangsu Province in 2019. Photo: IC

China's NASDAQ-like board ChiNext closed higher on Tuesday after the securities regulator approved a trial of the registration-based IPO system at the start-up board in Shenzhen, South China's Guangdong Province, about one year after introducing the system on the science and technology innovation board (STAR), which also focuses on high-tech industries. 

The reform will create a more accommodative environment for Chinese high-tech and innovative companies by lowering their IPO thresholds and enhancing their financial status, experts said, with some predicting that the registration-based IPO system might be applied to the main board in 2021. 

On Tuesday, the ChiNext board opened sharply lower but soon recovered to close 0.6 percent higher at 2,030.72 points. The Shanghai Composite Index slid 0.19 percent while the Shenzhen Component Index edged up 0.47 percent. 

According to guidelines for the new IPO system, which is now open for public comment, companies wishing to list on the board must have earnings of at least 50 million yuan ($7.07 million) in the past two years or an expected market capitalization of at least 1 billion yuan. They must also have been profitable and generated revenue of at least 100 million yuan in the latest year. 

The rules provide a one-year transition period for loss-making companies to seek a listing on the board, dropping the current requirement that potential listing candidates must not have lost money in the latest period. 

The ChiNext board also supports IPOs of Chinese companies that are registered overseas, although they must either have a market capitalization of at least 10 billion yuan or revenue of at least 500 million yuan in the latest year. 

According to media reports, China will also raise the trading limit on the ChiNext board to 20 percent from the current 10 percent, while scrapping any trading limit in the first five days of a company's listing. 

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, called the reforms "big progress" that would lead the A-share market to embrace emerging industries. 

"The reform will be more inclusive for Chinese high-tech and innovative companies, such as allowing loss-making high-tech companies to float on the board," he told the Global Times.

According to Dong, the reform is in line with China's new securities law, which took effect on March 1 and prescribed the registration-based IPO reform to replace the current approval regulatory framework, which will be the trend for the domestic market in general. 

"If the reforms on the ChiNext and STAR markets advance soundly in 2020, the Chinese main board and small and medium enterprise board will introduce registration-based IPO reform starting next year," he said. 

He said it isn't necessary to worry that reform of the IPO system will disrupt the distribution of capital in the Chinese mainland markets. 

"In fact, it will offer increased opportunities to allow more capital to enter the market, thanks to the entry of many newcomers in various emerging industries," he said. 

Xi Junyang, a professor at the Shanghai University of Finance and Economics, said that market worries about capital distribution might have caused the ChiNext board to slump earlier in the day, but confidence was restored as the market realized that the reform won't necessarily lead to a faster pace of IPOs. 

"The easing of the trading limit would also boost market confidence as it allows investors more leeway in stock trading," he told the Global Times.