* HKEX drafting specific rule changes to allow dual-class shares
* Rules to be put up for public consultation in early 2018
* Market supportive of launch of dual-class shares - HKEX (Adds comments by HKEX and its CEO, background)
HONG KONG, Dec 15 (Reuters) - Hong Kong is set to allow controversial dual-class shares under rule changes to be proposed by the city's stock exchange as it raises the stakes in its battle against New York for blockbuster Chinese initial public offerings (IPOs).
Hong Kong Exchanges and Clearing (HKEX), the city's exchange operator, said on Friday it had begun drafting specific rule changes that will be put up for a formal public consultation in the first three months of 2018.
Dual-class shares, which typically give one set of shareholders greater voting rights than others, have been favored by many owners of new age industries such as technology, with the extra voting power given to top executives seen as protection against pressure for short-term returns.
But they have also come in for criticism from corporate governance activists, who have warned of its potential abuse by company insiders.
Hong Kong's proposed changes, which stem from a discussion paper published in June, come as a series of hotly-anticipated Chinese tech groups are considering their options for listing next year.
These include Xiaomi, which is hearing bank pitches on Friday for a role in an IPO expected to value the smartphone maker at at least $50 billion.
In spite of Hong Kong's role as the world's biggest equity capital-raising center for four of the last 10 years, it has fallen well behind New York, its arch-rival, in the battle for hot tech stocks and other growth sectors.
Just 3 per cent of Hong Kong listings in the past decade, by market value, have been so-called "new economy" companies, compared with 47 per cent for the New York Stock Exchange, according to the June discussion paper produced by the HKEX.
The exchange said on Friday that a large majority of the 360 responses it received to its June paper were supportive of permitting dual-class shares.
The market has made it clear they want the Exchange to take action to broaden Hong Kongs capital markets access and enhance its competitiveness, HKEX chief executive Charles Li said in a statement.
By the second half of next year we hope that we will see a significant number of innovative companies beginning to choose Hong Kong.
Other stock exchanges, including London and Singapore, are also weighing allowing dual-class shares. (Reporting by Jennifer Hughes; Editing by Muralikumar Anantharaman)