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China’s plans for a new stock market in Beijing could relieve a lack of funding for small and medium-sized businesses, but analysts say another bourse could cannibalise listings destined for Shanghai and Shenzhen.
An announcement on Thursday that the new exchange would become a significant platform for “innovation-orientated SMEs” caught global financial circles by surprise, coming after high-profile support from President Xi Jinping for Shanghai’s technology-focused Star Market.
The move comes as China’s economic recovery has come under pressure, raising questions about how Beijing can keep smaller employers afloat at a time when few banks are comfortable loaning to companies at greater risk of default. Star, launched with Xi’s endorsement in 2019, faces a listings logjam as regulators have increased scrutiny of applicants amid a sweeping crackdown on the tech sector.
“There have been tonnes of concerns about access to funding for SMEs this year,” said Thomas Gatley, an analyst at Gavekal Dragonomics. This week, the People’s Bank of China announced it would provide Rmb300bn ($46.4bn) to banks to loan to SMEs after one of the country’s most important gauges of factory activity fell into contraction in August for the first time since April 2020.
But the new exchange, flagged by Xi in the middle of a broad speech that provided little detail on its launch, will have to overcome the government’s poor record of launching markets in Beijing. The most recent, the New Third Board launched in 2012, was intended to provide an over-the-counter exchange for shares in companies that did not meet the requirements for a listing in Shanghai or Shenzhen.
Policymakers have repeatedly attempted to reinvent the NTB, including a botched launch last year of a specialised market for SMEs. But delistings have brought companies traded on the NTB down to about 7,300 from a peak of more than 11,600 in 2017. At Rmb2.4tn, monthly turnover is also a fraction of that in Shanghai.
“The idea of [the Beijing exchange] seems to be for firms too good and too big for the New Third Board but not big enough for ChiNext or Star,” said Gatley. ChiNext is the Shenzhen stock exchange’s high-tech board. But he added that the Beijing market “will primarily cannibalise Star and ChiNext listings” as companies sought to curry political favour by listing on the latest bourse to receive Xi’s blessing.
Economists were also sceptical over how the Beijing bourse could distinguish itself from Star or ChiNext, both of which target smaller, tech-focused companies and enjoy greater distance from regulators in China’s capital.
“Regulations at [the new] exchange could also be more strict because it’s in Beijing,” said Iris Pang, chief economist for Greater China at ING. “So I’m not sure how they’ll position themselves, because China already has two exchanges for SMEs.”
Analysts said there was little doubt the exchange would launch but that it was hard to judge what role it would play without more information from officials.
Fraser Howie, an independent analyst and expert on Chinese finance, said the bourse was unlikely to have a big impact.
“I see zero need for a new exchange,” Howie said, adding that China’s existing exchanges could easily handle more companies if listings criteria were loosened to allow more companies to go public. “This is a solution to a problem China does not have.”