Shenzhen Stock Exchange Prepares New Board For
SMEs
The Shenzhen Stock Exchange, in a plan to breathe new
life into the stock exchange, has asked for, and received
approval for a new board for small and medium-sized enterprises
seeking to raise capital. Approval is expected to be announced
in the next few weeks by the Chinese central government.
Final approval and announcement would need to come from
the powerful China
Securities Regulatory Commission. The plan is the
first significant move from the Shenzhen stock exchange,
which has been largely dormant in the past few years.
The plan was developed by Cheng Siwei, a delegate to the
Chinese Peoples' Congress, and was revealed in "Chinese
Securities Paper", the leading daily for stock market
investors in China. Cheng said that the plan had been
in development for the past five years, and now the timing
was right. The goal, he said, is to introduce a new board
without lowering listing requirements for new companies.
Previously, according to Cheng, the timing for an SME
board was not right. The main impediment in 1999 was too
much retail speculation. When the Internet bubble popped
in 2000-2001, he wrote a letter to then-premier Zhu Rongji,
recommending the creation of a new board for science and
research-based companies, but not a board for new highly
speculative companies. "Retail investors should not
be take the risk in companies VCs don't want to invest
in," he said.
Hong Kong started a GEM (Growth Enterprise Market) board
for new hi-tech companies in 2000 which was modeled on
the US Nasdaq market. Most companies which have listed
have less than good performance.
It is rumored that a significant amount of preparatory
work has gone into the new SME board in Shenzhen, and
now they are just waiting for the final announcement to
come from Beijing before starting.
While demand for commodities and consumer products in
China has been very hot recently, the Shanghai and Shenzhen
stock exchanges have been largely stagnant until recently.
Performance of the Shanghai B-share exchange (where stocks
are denominated in US dollars) has performed so poorly,
that the government has promised to fold it into the yuan-denominated
A-share exchange. Many Chinese companies seeking to raise
capital have preferred to seek listings in New York and/or
Hong Kong. In December, it seemed like the preferred strategy
was for the Chinese government to re-organize state-owned
enterprises, and bring them to an IPO
listing. Up until January, they performed well, but
since then, most of the newly-listed companies' share
prices are now less than their IPO price, and many have
become victims of different allegations regarding corporate
governance.
It's too early to say if this is the beginning of a trend
where Chinese companies seek listings more in China than
overseas, but this is something to watch.
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