Shenzhen SME Board Wins Final Approval
The proposed Shenzhen SME stock exchange for small businesses
has won final approval from the Chinese government. Backers
hope that the board will breathe new life into the Shenzhen
stock exchange, and lift the market for new listings,
which have been stagnant for the last four years.
Final approval came from the China Stock Regulatory Commission
(CSRC), which is the State Council body responsible for
stock regulation. Although the technical part of the setup
has been ready for a while, the new board had run into
numerous
delays before winning final approval.
The new board ran into its first delay when the Internet
bubble burst, and many of the new boards established for
the new companies suffered major losses. Then, opposition
came from the Shanghai, Shenzhen and Hong Kong stock exchanges,
which thought that they would lose listing and transaction
fees from the Shenzhen SME board. The most recent opposition
came from the Hong Kong stock exchange, which has been
staging a recovery following the lows of 2003 during the
SARS crisis.
In order to appease some of the opposition, the new board
will work on four principles:
- Listing requirements will not be lowered for new companies;
small and medium sized companies will be listed as a
sub-category of the Shenzhen exchange;
- While some preference will be given to high-growth
and technology companies, companies from different sectors
will be encouraged to list so as to expand the scope
of the board;
- By riding on the coattails of the Shenzhen board,
the SME board will avoid the problem of being too small
in scope and under-represented in some sectors;
- On the backend, the board will function separately
from the Shenzhen stock exchange. As it grows, it will
gradually introduce new regulations and requirements
which are directed at the needs of its own market.
The new board will function independently when it comes
to operations, supervision, exchange codes and will also
have its own index.
The goal of the board, which has been in the planning
stage since early 2000, is to provide a place where smaller
companies can raise capital in China. A main criticism
of the Shanghai and Shenzhen stock exchanges is that they
essentially serve only larger established state-owned
enterprises in China, many of which are not profitable.
At the same time, new privately-owned companies which
are financially healthy have a hard time securing loans
from China's state-owned banks, and go to Hong Kong and
New York to secure funding.
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