Editor's Note: A previous version of this assessment incorrectly stated that the STAR Market's registration-based IPO system allows pre-profit companies to list. It has been updated accordingly. 

The STAR Market, China's equivalent to a tech-focused Nasdaq, is fueling growth in China's tech sector, but Beijing's regulation and fears of both domestic speculation and industry bubbles will constrain the exchange's potential for growth. A recent string of launches is demonstrating the STAR Market's potential power to raise capital and draw investment into the Chinese technology sector:

• China's Semiconductor Manufacturing International Corporation (SMIC) raised $6.62 billion and surged 246 percent on its first day of trading on the STAR Market on July 16 — the largest mainland listing since 2010.
• Ant Financial — the world's most valuable tech unicorn targeting a $200 billion valuation — announced July 20 that it would hold its IPO on a dual listing on Hong Kong and the STAR Market, shunning the U.S. and other global markets.
• The STAR 50, the market's first index, launched on July 23 and showed a 49 percent rise since the start of 2020 — more than doubling the gains of its U.S. counterpart Nasdaq. 

The STAR Market, known formally as the Science and Technology Innovation Board, has made it significantly easier for technology companies to list. China will likely continue to liberalize the market faster than its other domestic stock markets, as the exchange becomes increasingly central to China's overall technology ambitions amid its tech war with the United States.

• Launched in July 2019, the STAR Market was designed to be the Chinese equivalent to the Nasdaq, aimed at attracting technology- and R&D-focused companies to raise capital and list on a domestic exchange instead of foreign exchanges. 
• The STAR Market differs significantly from other Chinese stock markets in several key ways, including a registration-based IPO system, allowing pre-profit companies to list and a wider trading band for the prices of stocks.
• Shanghai's STAR Market — along with China's other tech-focused exchange, Shenzhen's ChiNEXT — are central to China's ambitions of creating a domestic environment conducive to growth for companies in emerging technology sectors, (including those in the semiconductor, artificial intelligence and fintech industries) by creating future pathways for financing, which allows for more market-based incentives and easing regulatory burdens. 
• The board has become even more critical as the United States considers increasing pressure on Chinese companies listed on U.S. exchanges, such as the Nasdaq and NYSE, by increasing auditing requirements on Chinese companies and barring them if they have connections to the Chinese military. 

The success of the STAR Market will depend on the innovativeness and quality of the companies involved in it, as well as the broader constraints to China's tech sector. Such constraints include concerns about access to international technology due to U.S. pressure, lack of competitiveness in certain industries to international peers, and government intrusion into corporate affairs and direction. Unlike other Chinese stock markets, the STAR Market is more focused on institutional investors than retail investors, but speculation around China's growing tech sector will likely remain a concern. China also fears that more liberalized stock markets could run the risk of creating more bubbles.

• The STAR board allows companies to list without being profitable, which will enable companies to raise additional capital without having to show profits first — something essential in R&D-intensive industries.
• The STAR Market's ease of listing will also enable Chinese companies to use the IPO process once venture capital sources dry up or move on, allowing for innovation to continue to grow.
• The streamlined IPO process, in particular, provides tech firms with another avenue for financing beyond loans to help grow their business. This is crucial as most tech companies lack physical assets to put up as collateral, given that their value is often derived from intangible assets, such as intellectual property.