SHANGHAI/BEIJING (Reuters) – China’s securities regulator is mulling a higher bar for initial public offerings (IPO) on Shanghai’s Nasdaq-style STAR Market, seeking to deter a wave of applicants with little involvement in the technology sector, said a person familiar with the matter.

The China Securities Regulatory Commission (CSRC) is weighing whether to require STAR market candidates to provide more proof that they are innovative and tech-focused, said the person, who declined to be named as the matter is private.

As of Tuesday, there were 236 companies listed on the STAR Market and around 100 candidates waiting in line, according to the website of Shanghai Stock Exchange (SSE).

The move highlights the tightrope Chinese regulators are walking between liberalising the IPO market and protecting investors.

China launched the STAR Market in 2019 with lower financial requirements for listing to try to encourage innovation and spur development of cutting-edge technology.

But critics say some applicants have used the market to try to avoid tougher listing requirements on the main board by superficially presenting themselves as tech companies.

“Companies could easily get certificates from local authorities defining them as tech firms,” said the person. “It turns out some of them may still have three-fourths of their revenue coming from very traditional businesses.”

The SSE has already tightened scrutiny over listing candidates via verbal guidance and inspections on sponsors even before applications are submitted for review, moves seen as raising the threshold unofficially, said a separate person familiar with the matter.

The CSRC and SSE didn’t immediately reply to requests for comments.

Bloomberg News first reported that China is weighing tougher rules for IPOs on the STAR Market.

China is also considering adjusting the investment threshold for the STAR Market to boost liquidity and improve rules for the registration system.

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