New Beijing Stock Exchange could be the financial lifeline Chinese small businesses are calling for, analysts say

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A new stock exchange slated for Beijing could provide a financial lifeline for innovative small and medium-sized enterprises (SMEs) that have often struggled to access finance, as Chinese President Xi Jinping seeks to further develop the country’s capital markets. continent, according to analysts and the market. observers.

The Beijing Stock Exchange would create a group of innovative small companies that are currently trading on the National Equities Exchange and Quotations Board (NEEQ) to be listed on the stock exchange as part of the government’s efforts to reform the NEEQ, which is struggling to attract liquidity since its creation in 2013.

The creation of a new stock exchange would also promote Beijing’s dual purpose of reducing debt levels in the financial system and creating a more mature capital market structure. Lending is dominated by state-owned banks across the country, which has made it harder for start-ups to borrow money and sent many of the most innovative companies to the United States to raise capital.

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“Banks are reluctant to lend to these companies, which have no track record or assets. A new capital market for them to raise money would be a solution,” said Jeffrey Chan Lap-tak, founding partner of Oriental Patron Financial Group, a Hong Kong-based finance company. “If it works well, it would help SMEs to tap into the capital markets to raise funds. In a sense, it’s part of the game to achieve China’s goal of having “common prosperity”, of having more people to build wealth from the capital market. “

Beijing on Thursday announced that it will provide 300 billion yuan ($ 46.4 billion) in loans to small businesses and the self-employed as a resurgence of the coronavirus weighs on the country’s economy. Small businesses have been particularly hard hit by the economic effects of Covid-19 and have struggled to secure the necessary financing, even as Beijing injected liquidity into the market last year.

The Beijing Stock Exchange will become the latest in a series of new marketplaces introduced over the past two years to further expand the country’s capital markets, alongside the mainland’s two main stock exchanges in Shanghai and Shenzhen.

The Shanghai Science and Technology Innovation Council, also known as Star Market, debuted in July 2020 as China’s response to the Nasdaq. It now has more than 300 companies and is expected to host the world’s largest initial public offering in 2021 when Swiss agrochemical giant Syngenta Group debuts later this year.

The Guangzhou Futures Exchange (GFEX) started operations in April, with a goal of developing products to help create a pricing mechanism for emissions offsets as China seeks to become carbon neutral by 2060. Hong Kong Exchanges and Clearing (HKEX), the operator of the city’s stock exchange, struck a deal in August to explore products focused on China’s emissions targets that would potentially be marketed onshore and offshore.

In the Macau Special Administrative Region, a new Nasdaq-style exchange is being considered to provide another destination for start-ups in the Grand Bay region to raise capital and meet the fundraising needs of the Portuguese-speaking regions, including Macao. The scholarship would also help develop the territory’s economy beyond tourism and gambling.

At the same time, deputy managing director of the Shenzhen Stock Exchange, Li Mingzhong, said this week that the exchange would seek to reform its listing rules to allow nonprofits to raise capital under a scheme. further expansion of the country’s capital market, according to the China Securities Journal, a newspaper published by the state-owned Xinhua News Agency.

It’s already above the Hong Kong Stock Exchange, which has provided a home for Chinese companies seeking to raise foreign capital and regularly competes as the world’s top destination for IPOs. He has dominated the world rankings for seven of the past 12 years.

More than 1,300 mainland companies are listed on the city’s stock exchange, representing around 80 percent of the market capitalization of the Hong Kong Stock Exchange.

Chinese President Xi Jinping on Thursday unveiled plans for a new stock exchange in Beijing during a speech at the China International Trade in Services Fair. Photo: Xinhua alt = Chinese President Xi Jinping unveiled plans for a new stock exchange in Beijing during a speech at the China International Services Trade Fair on Thursday. Photo: Xinhua

HKEX implemented additional reforms in April 2018 to attract pre-approval biotech companies and Chinese tech giants who have registered overseas to conduct a secondary listing in Hong Kong. Examples include Alibaba Group Holding, JD.com, and NetEase. Alibaba is the owner of To post.

The push to improve Chinese capital markets also comes as Beijing announced sweeping changes to add additional oversight on companies that hold the data of a million people or more and wish to pursue overseas listings.

The proposed Beijing Stock Exchange would transform the leading market for NEEQ, also known as the New Third Board.

It would transfer 66 companies from the “selected” level of the new third board – a designation launched last year with more stringent listing requirements – to the new Beijing Stock Exchange. These companies had a combined market capitalization of around 186 billion yuan, the majority in manufacturing.

The select tier accounted for more than half of the 17 billion yuan in sales in July among the 7,304 shares traded across the NEEQ. For comparison, the Shanghai and Shenzhen stock exchanges account for over 1,000 billion yuan in combined transactions every day.

According to investment bank Jefferies Group, this could expand to include other “high-quality” companies in the New Third Board’s so-called level of innovation.

“The new Beijing Exchange will be part of the reform of the New Third Board (NTB), mainly serving innovation-oriented SMEs, and will be based on the selected level of NTB,” said analysts at Jefferies Shujin Chen and Alfred He in a research note. “Like the launch of NTB, this is positive for the brokerage industry in China and slightly negative for HKEX, given the increased competition.”

“The opening of a new stock exchange in Beijing, located in a place where these technological and innovative companies thrive and operate, will give them an additional channel and choice to access the capital market,” he said.

The establishment of the Beijing Stock Exchange is in line with China’s direction and investments in digitization and technological advancement in recent years, said Ivy Wong, Asia-Pacific president of Baker McKenzie’s capital markets division.

“This will certainly add to the diversity of the different listing and trading platforms and collaborations in the region, as we have seen how the exchanges have worked closely together over the past few years,” Wong said, citing the two programs as examples. connection of shares that allow cross-border trade between Hong Kong and the mainland.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice on China and Asia for over a century. For more SCMP stories, please explore the SCMP app or visit the SCMP Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.



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