STAR Market at 7: Upgrading the Full-Lifecycle Financial Ecosystem for Hard Tech
Seven Years of the STAR Market: A Structural Breakthrough in Building a Full-Lifecycle Financial Ecosystem for “Hard Tech”
On June 13, 2024, the Science and Technology Innovation Board (STAR Market) marked its seventh anniversary since launch. This milestone is far more than a simple chronological marker—it represents a pivotal inflection point where institutional evolution converges with geopolitical technological competition. In an editorial republished by Xinhua News Agency—originally appearing in China Securities Journal—titled Leveraging STAR Market Reform to Secure the Future of “Hard Tech”, the authors explicitly state: “We must fully leverage the STAR Market’s strong ‘hard tech’ credentials and continuously enrich the full-lifecycle financial services available to technology enterprises.” This strategic framing signals that the STAR Market has formally transitioned from its initial phase of “incremental pilot reform” into a new era of “deep empowerment,” centered squarely on serving China’s national strategic science and technology capabilities. Underlying this shift lies a profound reality: the main battleground of U.S.–China technological competition is rapidly shifting—from 5G and end-user applications toward foundational technologies such as AI infrastructure, semiconductor manufacturing, and advanced computing. And at the heart of this protracted contest lies financing capacity—the most concealed yet decisive determinant of victory.
U.S. Export Controls Force Restructuring of Financing Chains: From “Throttling” to “Supply-Chain Disruption”
Over the past year, U.S. technological containment against China has escalated from isolated sanctions to systemic encirclement. The Anthropic case serves as a potent symbol: the U.S. government invoked the International Emergency Economic Powers Act (IEEPA) to halt all foreign access—including for non-U.S. citizens physically present within the United States—to Anthropic’s latest large language models, Fable 5 and Mythos 5. This was no isolated incident: Amazon Web Services (AWS) simultaneously revoked global user access to these models, confirming Washington’s designation of foundational AI models, computing infrastructure, EDA toolchains, and high-end optical chips as “strategically embargoed goods.” In response, China’s Ministry of Commerce stated that the U.S. side is abusing the concept of “national security,” politicizing economic and trade issues and overextending security concerns—seriously undermining the legitimate rights and interests of Chinese enterprises.
When physical channels for technology import are severed, indigenous substitution becomes the sole viable path. Yet substitution is not merely laboratory-based technical validation; it demands industrial-scale execution—a multi-year, multi-billion-dollar capital-intensive marathon. Historically, startups in China’s semiconductor equipment, domestic EDA tools, and high-speed optical modules sectors have long been trapped in the “valley of death”: early-stage fundraising remains difficult in the primary market due to high risk and long time horizons; while in the secondary market, uncertain profitability and ambiguous valuation logic constrain liquidity. If the STAR Market remains only a “listing channel,” it cannot support hard-tech enterprises through their full-cycle leap—from seed stage (0→1), to growth stage (1→10), and finally to scale-up (10→100). The core mission of the seventh-anniversary reforms is precisely to construct a financial infrastructure capable of penetrating the technology maturity curve and aligning with the distinct risk–return profiles across development stages.
Expanding Full-Lifecycle Services: From IPO Gateway to Capital-Cycle Closure
The regulatory authorities’ call for “full-lifecycle financial services” is no empty slogan—it translates concretely into three upgraded mechanisms:
First, strengthening the front-end “seed-cultivation” mechanism. The Shanghai Stock Exchange (SSE) is partnering with local governments and industrial funds to establish dedicated “hard-tech incubation master funds,” prioritizing seed-stage projects that hold proprietary patent barriers—even if not yet profitable. For example, R&D teams developing critical components for ion implanters and etching equipment required for sub-28nm process nodes receive up to five years of interest-free R&D loans coupled with binding equity co-investment commitments—significantly lowering early-stage failure costs.
Second, deepening the mid-stage “market-making” mechanism. In 2023, the number of STAR Market market makers expanded to 20—but coverage remained concentrated among top-tier chip stocks. The latest round of reform explicitly mandates broadened coverage to include “Little Giants” (specialized, sophisticated, and innovative SMEs) with revenues under RMB 500 million—particularly those in niche segments such as optical communication devices (e.g., upstream optical engines for Tianfu Communications) and AI inference chips (e.g., Cambricon’s MLU series). Narrower bid–ask spreads and improved liquidity will directly enhance the efficiency of valuation transmission from the primary to the secondary market—when New Bright’s orders for 200G optical modules translate into stable cash flow, its secondary-market valuation anchor will no longer rely on overseas comparables but instead be re-priced based on domestic mass-production progress.
Third, widening the back-end “exit” channels. To meet mature firms’ needs for M&A and integration, the STAR Market is piloting “targeted convertible bonds + equity-based payments” as M&A consideration tools—allowing listed companies to acquire unlisted hard-tech targets by issuing convertible bonds. This approach avoids immediate cash outlays while binding acquired technical teams via conversion rights, fostering a symbiotic ecosystem of “listed platforms + technology subsidiaries.”
Cross-Market Capital Resonance: Policy Signals Behind U.S. Leveraged ETFs
Notably, amid the STAR Market’s deepening reforms, U.S.-based ProShares has filed applications for multiple leveraged ETFs focused on Chinese tech stocks—including InnoLight, New Bright, Tianfu Communications, Hygon Information, and Cambricon—all quintessential hard-tech representatives. These products do not passively track indices; rather, they employ derivatives—including futures and swaps—to deliver 2x long exposure, reflecting Wall Street’s bet on the certainty of China’s AI computing infrastructure build-out and domestic substitution momentum.
This cross-market resonance reveals a deeper logic: U.S. export controls objectively elevate the strategic scarcity value of China’s hard-tech assets—and the STAR Market’s full-cycle financial support system provides them with a verifiable commercialization pathway and liquidity assurance. As U.S. leveraged capital flows in, it does more than amplify short-term trading volume; it reinforces domestic primary-market confidence through price discovery—VC/PE investors evaluating optical-chip startups no longer assess solely technical specifications, but also reference InnoLight’s premium level in U.S. leveraged ETFs, thereby establishing a virtuous cycle of “policy guidance → capital pricing → industrial implementation.”
Investor Mindset Transformation: Liquidity Premiums, Market-Maker Benefits, and Structural Opportunities
For investors, the STAR Market has entered a critical window for value re-rating. It is imperative to move beyond the speculative mindset of “chasing small caps and new listings” and embrace three cognitive upgrades:
First, liquidity premiums are becoming institutionalized. Optimized market-making mechanisms and expanded ETF connectivity have lifted the STAR Market’s average turnover rate by 47% compared to its launch period—but more importantly, liquidity quality has improved: bid–ask spreads have narrowed to under 0.3%, substantially reducing entry/exit costs for large institutional investors. This means the historical liquidity discount on hard-tech blue chips is being systematically repaired.
Second, market-maker benefits are diffusing to niche leaders. Historically, market-making resources were concentrated on mega-cap names like SMIC and Cambricon. Now, policy-driven expansion means “hidden champions” valued between RMB 10–30 billion—such as Cambridge Industries (optical communications) and BloomTech (EDA)—are gaining deep market-maker coverage. Their stock volatility is declining and valuation benchmarks rising—becoming the new norm.
Third, broadened listing pathways for specialized, sophisticated, and innovative enterprises are catalyzing a “Little Giants” cluster effect. Among 2024 STAR Market applicants, 68% are designated “Little Giants,” with average review cycles shortened to just 180 days. Though individually modest in scale, these firms embed critical technologies into key links of the global AI server supply chain—such as high-speed connectors and liquid-cooling thermal modules. Their listings will accelerate formation of a “domestic-substitution technology matrix,” driving industry-wide synergistic valuation uplift.
Seven years is not an endpoint—but the starting point where the hard-tech financial ecosystem shifts from “building pillars and beams” to “refined cultivation.” As the United States draws a technological iron curtain through export controls, China leverages the STAR Market as a fulcrum—channeling dynamic, innovation-spanning capital. This is not merely a capital market reform; it is a generational campaign for technological sovereignty. For investors, grasping the deeper intent of this reform is essential to anchoring truly cyclical-resilient value in the hard-tech tide.