China Opens Funding Channels to Loss-Making Firms to Foster High-Tech Industries, Launches IPO Crackdown as Bubble Fears Mount

China lowers listing barriers for loss-making technology companies to foster strategic industries
Valuations soar amid frenzied subscriptions, only for shares to plunge after market debuts
Regulators launch sweeping review of IPO underwriters’ due diligence amid concerns over market confidence

A growing number of loss-making technology companies are launching initial public offerings (IPOs) in China. Seeking to cultivate strategic industries such as artificial intelligence (AI), semiconductors and robotics, the Chinese government has opened capital-market financing channels to companies with technological capabilities and growth potential, even if they are not yet profitable. Subscription funds have poured into companies carrying hundreds of millions of dollars in accumulated losses, while some stocks have surged to more than five times their offering prices on their first day of trading. However, a string of post-listing share-price collapses has fueled concerns over an “IPO bubble” and begun to erode investor confidence in the primary market. Chinese financial regulators have consequently embarked on a belated effort to separate viable companies from weaker ones by intensifying scrutiny of inadequate due diligence and internal control failures at securities firms.

China Accelerates Capital-Market Reform

According to Chinese financial news outlet Yicai on Sept. 4, IPO applications from loss-making companies have risen markedly as Chinese financial regulators have shifted toward permitting and supporting their listings, producing a succession of successful market debuts. The momentum behind the listing boom has come from the Chinese government’s capital-market reforms. In recent years, Beijing has revised its regulations to allow loss-making companies in high-growth sectors to pursue IPOs.

Chinese financial regulators began by introducing the “Eight Measures for the STAR Market” in June 2024 to support listings by high-quality, unprofitable science and technology companies. In June last year, they established a new “Growth Tier” within the STAR Market and reinstated the application of its fifth listing standard to loss-making companies. In April this year, regulators added a fourth listing standard to Shenzhen’s ChiNext board that does not impose profitability requirements, before expanding the scope of support in June to include AI, quantum technology, biomanufacturing and humanoid robotics. The fifth listing standard allows companies to go public even if they are not yet profitable, provided they meet specified thresholds for market capitalization, core technological capabilities and commercial viability. The framework is widely seen as a mechanism for drawing companies in strategic industries such as semiconductors and AI—which require substantial research and development (R&D) investment and long lead times before reaching profitability—into the capital markets.

Valuations Soar Despite Accumulated Losses

As listing barriers have fallen, successful IPOs by loss-making companies have become increasingly common. According to Chinese market-data provider Wind, 65 companies had listed on the Shanghai and Shenzhen stock exchanges while still in the red as of Aug. 27. Of these, 64 debuted on the STAR Market and one on ChiNext. A prominent example is semiconductor company DapuStor (大普微). The company posted losses for four consecutive years from 2022 through 2025, accumulating a deficit of approximately $237 million, yet successfully listed on ChiNext in April this year. Its shares, priced at approximately $6.42 in the IPO, surged by more than 430% on their first trading day to approximately $34.13. The company’s market capitalization exceeded approximately $13.93 billion on its debut.

AI chipmaker Enflame Technology, which recorded a net loss of approximately $599 million over the past three years, also attracted bids equivalent to 6,109 times the shares available in its IPO subscription conducted on Sept. 2. The offering price was set at approximately $19.62 per share, with the company expected to raise approximately $844 million. The IPO price implied a 2025 price-to-sales ratio (PSR) of 61.8, indicating that China’s push for AI chip self-sufficiency and expectations of future growth were reflected far more strongly in the valuation than the company’s current financial performance. Investor enthusiasm also showed signs of overheating, with more than 7.03 million accounts applying online for 42.066 billion shares.

Foundry operator CanSemi (粤芯), which remained unprofitable from 2022 through the first half of 2025, is likewise pursuing a ChiNext listing. The company plans to raise approximately $1.04 billion through the IPO and invest approximately $483 million of the proceeds in expanding its 12-inch wafer production line. CanSemi aims to secure monthly production capacity of 40,000 wafers and target the industrial and automotive semiconductor markets. However, its accumulated deficit stood at approximately $1.39 billion at the end of 2025, while heavy depreciation charges and R&D expenses make a near-term return to profitability difficult to guarantee.

Table 1. IPO Cases Involving Loss-Making Chinese Companies

One in Three Newly Listed Companies Loses Half Its Value

China opened its stock markets to loss-making companies largely to support capital raising by businesses in strategic industries such as AI, semiconductors and quantum technology, which typically require considerable time to reach profitability. Yet a successful IPO does not guarantee continued share-price gains after listing. According to Bloomberg, approximately one-third of companies newly listed in China during the third quarter saw their shares fall by more than 50% from their peaks. IPO proceeds reached approximately $16.45 billion during the same period, even as enthusiasm for AI investment and stock-market liquidity rapidly weakened. As available capital proved insufficient to absorb the flood of new shares, early post-listing premiums began to evaporate.

A prominent example is Chinese humanoid robotics company Unitree Robotics. Unitree shares, which debuted on Aug. 19 at an offering price of approximately $20.83, soared as high as approximately $151.93 intraday before ending their first session at approximately $122.71. Although the closing price represented a 460% gain from the IPO price, the stock fell to approximately $83.26 on Aug. 25 and closed at just approximately $84.95 on Aug. 27. Over that period, the company’s market capitalization declined from approximately $62.39 billion to approximately $34.88 billion. Investors who bought the stock at its first-day peak were left with paper losses of approximately 44% in just six days.

The stock’s limited free float has been identified as a major source of the extreme volatility. Only 7.44% of Unitree’s total share capital was available for trading during the initial listing period, concentrating subscription demand on a limited supply of shares. Analysts say expectations of policy support and a scarcity of tradable stock drove the price higher before investors had sufficient opportunity to assess the company’s financial performance and level of commercialization. Once momentum buying weakened, however, the supply-demand imbalance quickly turned into selling pressure. If large IPOs continue while enthusiasm for AI investment cools and government-backed funds become net sellers, existing technology stocks will inevitably face mounting liquidity pressure.

Questions surrounding Unitree’s commercialization record also contributed to the correction. The company generated approximately $236 million in revenue and approximately $39.6 million in net profit last year, but industrial applications accounted for only 9% of sales. With universities and research institutions contributing more than 70% of revenue during the first three quarters of last year, converting demand for technology demonstrations and research into large-scale industrial orders remains a significant challenge. Nomura Securities consequently set a target price of approximately $51.11 based on a projected PSR of 25 for next year. The valuation established on the first trading day was widely viewed as having excessively priced in several years of future growth.

Chinese Regulators Tighten IPO Scrutiny

As sharp share-price swings increasingly diverge from companies’ underlying performance, the Chinese government is again tightening its grip on listing reviews. Even if regulators intend to support capital raising by loss-making companies, allowing large numbers of weak businesses into the stock market could undermine confidence across the primary market. If retail investors repeatedly incur losses after buying shares at elevated prices immediately following listings, demand for new offerings could also contract rapidly. Having widened access to public markets for technology companies, Beijing now faces pressure to identify inflated valuations and financially unsound applicants before investors turn away.

Securities firms serving as IPO “gatekeepers” have become the first targets of the crackdown. According to Chinese financial news outlet Jiemian, regulators issued 39 disciplinary notices involving investment-banking operations at 23 securities firms between the beginning of this year and Aug. 25. A total of 50 sanctions were recorded against institutions and individuals, of which 43 involved deficiencies in due diligence. Regulators uncovered numerous cases in which IPO underwriters failed to properly verify corporate revenue and customer transactions or conducted inadequate reviews of information systems and R&D expenditure data. The findings indicate that securities firms entrusted with validating companies’ reported performance and business outlooks failed to fulfill their responsibilities.

Regulators also imposed substantial accountability on the individuals responsible for due diligence. Of the 50 sanctions recorded, 30 were directed at individuals, while four people were designated “unfit persons” and barred from relevant work for one year. Zhongtian Guofu Securities had its financial advisory operations suspended for six months after regulators identified false statements in documents related to a 2017 private placement as well as inadequate verification of major financial and transaction data. Guosen Securities and Western Securities were also sanctioned for failing to adequately examine the authenticity of reported revenue and customer transactions. The measures are interpreted as an effort to treat deficient due diligence as a failure of internal corporate governance and hold both frontline practitioners and senior personnel accountable.

The Challenge of Restoring Confidence in IPOs

Corruption cases within the financial regulatory establishment have also contributed to the tougher stance. Last year, Yang Zhaohong, former head of a supervisory division within the China Securities Regulatory Commission’s (CSRC) Department of Public Offering Supervision, was expelled from the Chinese Communist Party for allegedly using his official authority and post-retirement influence to acquire shares in companies preparing to list through nominee accounts and reap substantial profits. The case was subsequently transferred to prosecutors. Chinese media outlets including Caixin and Sina Finance reported at the time that authorities had discovered between approximately $266 million and $396 million in cash at his residence, weighing as much as three metric tons. Allegations that a key official with influence over listing approvals maintained improper financial interests in prospective issuers became a decisive catalyst for doubts about the fairness of the IPO review process.

Market observers say the crackdown could provide an opportunity to overhaul not only underwriters’ due diligence practices but also financial regulators’ internal controls. If procedural weaknesses and conflicts of interest are left unaddressed amid a surge in listing applications, suspicions that favored companies received preferential treatment could recur and ultimately undermine the legitimacy of listing decisions. Analysts say the success of Beijing’s effort to separate viable companies from weaker ones will depend on whether regulators can apply review standards consistently and disclose their decisions transparently to the market.