A stock exchange will be set up in Beijing and the capital city will become a major base for innovative small and medium-sized enterprises (SMEs), Chinese President Xi Jinping announced. The move will improve the multi-level structure of China's capital market, making it more dynamic and resilient, and will play a significant role in the country's push for innovation-driven high-quality growth, analysts noted. Addressing the 2021 China International Fair for Trade in Services (CIFTIS) via video, Xi said that China will continue to support the innovation-driven development of SMEs by setting up a Beijing Stock Exchange as the primary platform serving innovation-oriented SMEs. China will also deepen the reform of the National Equities Exchange and Quotations (NEEQ), known as the “New Third Board”.
The role of the Beijing Stock Exchange is to serve innovative SMEs. Stock exchanges in Beijing, Shanghai and Shenzhen will be complementary and interconnect with one another. “Actually, there have been some discussions in the market about setting up a new stock exchange in China's northern or central areas, since the two other exchanges concentrate on the economically developed Yangtze River Delta and Pearl River Delta, and Beijing was one of the potential candidates,” Dong Dengxin, Director of the Finance and Securities Institute of Wuhan University, told the Global Times. Innovation-oriented SMEs have lacked a platform like the sci-tech innovation board of the Shanghai Stock Exchange or the NASDAQ-style ChiNext board of the Shenzhen Stock Exchange, as these two have higher entry thresholds in terms of both scale and requirements for high technology, said Dong. More efforts are needed to accelerate innovation among SMEs, Dong noted. The New Third Board was launched in early 2013 to supplement the Shanghai and Shenzhen stock exchanges to serve SMEs, the Global Times reports.
The NEEQ Select, the highest tier of the National Equities Exchange and Quotations system, will be upgraded into the Beijing stock exchange, retain its basic rules and pilot the registration-based public offering system, the China Securities Regulatory Commission (CSRC) said. The new market may begin trading as early as the end of the year with an initial 66 firms, market insiders said. The average operating income of the 66 firms stood at CNY390 million, up 34.6% year-on-year, while their net profits rose 37.3% to average CNY45.26 million, according to their first-half financial disclosure. Nearly half of the NEEQ Select firms recorded an increase of over 30% in income.
The New Third Board is composed of three tiers – basic, innovation and selection. The selection tier was introduced to the New Third Board in October 2019 as part of efforts to refashion the over-the-counter market where thin trading volume and poor market liquidity appeared to have damped the appeal of the market. The firms having traded on the innovation tier for a year can be upgraded to the selection tier. As of September 2, a total of 7,304 firms with a market capitalization of CNY2 trillion were listed on the New Third Board, with 5,988 traded on the basic tier and 1,250 on the innovation tier. By comparison, more than 4,000 firms were traded on the A-share market with a total market value of CNY86.2 trillion as of the first half of the year.
Zhou Guihua, Director of the Public Company Department of the CSRC, said the Beijing Stock Exchange (BSE) will be tailor-made for serving innovative SMEs at an earlier development stage than those listed in Shanghai and Shenzhen. Different rules and arrangements will be made to ensure that the three stock exchanges complement each other with different focuses. Listed companies on the BSE which have matured will be allowed to transfer their listing to Shenzhen and Shanghai for further development, Zhou said. The BSE will use the registration-based public offering system, and its listing requirements will remain the same as those of the NEEQ Select.
All of the companies now traded on the NEEQ Select will go public on the new exchange. Additional companies to be listed will come from qualified firms traded on NEEQ Innovation, the NEEQ’s second-highest tier, the CSRC said. On September 5, the NEEQ posted three documents on its official website detailing the BSE's listing, trading and management regulations. For example, companies that seek listings on the Beijing Securities Exchange have to meet one of four conditions in their financial performance, including an anticipated market value of at least CNY1.5 billion and research investment of at least CNY50 million in the past two years.
This overview is based on reports by the China Daily, Global Times and Shanghai Daily.
