Rapid progress for Beijing bourse
Stock exchange to narrow gap between Chinese, US capital markets
Published: Sep 05, 2021 08:13 PM
Concept photo of stocks in Beijing Illustration: VCG

Concept photo of stocks in Beijing Illustration: VCG

China is moving swiftly to launch a stock exchange in Beijing to serve small and medium-sized enterprises (SMEs), as Beijing Securities Exchange Limited Co was registered and details of IPO rules and membership management regulations were released just days after the plan was announced.

Analysts praised the stock exchange's design as helpful in preventing market speculation, and said the move could help narrow the gap between the Chinese and US capital markets by providing a fundraising alternative for domestic start-ups. 

According to information posted on company information search platform, Beijing Securities Exchange Limited Co was registered on Friday, a day after a plan was announced to launch the Chinese mainland's third securities exchange, apart from the Shanghai and Shenzhen stock exchanges. 

The business scope of the company, with registered capital of 1 billion yuan ($155 million), includes providing locations and facilities for collective securities trading, organizing and supervising securities trading, as well as securities market management services, information posted on the website showed. 

The company's legal representative is Xu Ming, who is also chairman of the National Equities Exchange and Quotations Co (NEEQ). Xu said on Friday that the Beijing Securities Exchange won't have a membership system but will be a corporation. He also noted that the company's governance mechanism will be "continuously optimized". 

On Sunday, the NEEQ posted three documents on its official website detailing the Beijing securities board'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 1.5 billion yuan and research investment of at least 50 million yuan in the past two years. 

The NEEQ documents also specified the conditions under which companies will be forced to delist from the Beijing Securities Exchange. The circumstances that might trigger a forced delisting include having fewer than 200 shareholders for 60 consecutive trading days, having less than 50 million yuan in revenue and a loss in the latest fiscal year, and a failure to disclose financial reports as required. 

Companies that are forced to delist can apply to get listed again if they manage to meet the listing requirements later, the documents noted. 

The NEEQ also specified the Beijing bourse's trading regulations such as trading times and limits. According to one of the documents, the Beijing bourse won't set trading limits on the first day of trading, but trading will be subject to a 30 percent fluctuation limit afterward. It also noted that the Beijing Securities Exchange could adjust the trading limit.

Experts said that the design of the Beijing Stock Exchange could avoid the risks of institutions using the capital market for speculation, particularly with its delisting mechanism. 

"A healthy capital market should have mechanisms for entry and exit. China's capital market generally faces the problem of delisting. A clear exit mechanism will ensure that trading of enterprises at the Beijing exchange is in line with the relevant standards," Wang Peng, an assistant professor at the Gaoling School of Artificial Intelligence at the Renmin University of China, told the Global Times on Sunday.

According to Wang, some enterprises may meet the standards when they are listed, but then they fail to do so afterward. "Then they should withdraw," he said. 

Experts also said that the new bourse in Beijing could provide another listing channel for domestic companies, while helping narrow the gap between Chinese and US capital markets. 

"The Beijing Stock Exchange means a new listing channel for companies, and an effective exit channel for venture investment institutions, " an independent investor and market observer surnamed Cheng told the Global Times on Sunday.

According to Cheng, after the establishment of the exchange, it is expected that supporting trading methods will be also improved, which will help SMEs to finance more effectively. 

Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co, told the Global Times that developing capital markets is a necessary process to enhance China's national strength and increase companies' competitiveness. 

"Setting up the Beijing Securities Exchange will further reduce the gap between the markets of China and the US," he said. 

China's GDP has reached about 70 percent of the US', but the market valuations of A-share listed companies are less than 30 percent of the US listed companies' valuations, according to data.