Beijing Stock Exchange: three of four debuts soar in financial market created to extend financial lifeline to small companies

The Beijing Stock Exchange began trading on Monday , with three-quarters of 81 carefully selected stocks soaring in their debuts, underpinning the Chinese president's pledge to support small and medium enterprises that he has dubbed the "little giants" of the world's second-largest economy.

Sixty of the stocks advanced by between 0.2 per cent and almost 500 per cent when trading commenced, before giving back some of the gains. Shares of Henan Tongxi Transmission, a maker of transmission shafts and other vehicle parts in the Henan provincial city of Xuchang, jumped 485 per cent in their debut. Tonghuijiashi (Beijing) Information Technology was the worst performer, falling 11 per cent.

All but 10 of Monday's debutantes were actually transferred from an over-the-counter market in the Chinese capital known as the National Equities Exchange & Quotations, or NEEQ, which had been slumping since its 2012 establishment from the lack of liquidity and transactions.

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Still, the spruced up Beijing exchange - which began trading merely two months since President Xi Jinping ordered its establishment - underscores the Chinese government's financial lifeline to help the private sector and innovative companies raise capital.

The creation marks another milestone in the expansion of China's US$12.4 trillion equity market, already the world's largest after the American market. It adds to the bourses in Shanghai and Shenzhen, which were established in 1990 as a test of China's economic reforms.

The boom in Beijing came at the expanse of the Shanghai and Shenzhen exchanges, weighing on two benchmarks that track small-cap stocks, with both declining by at least 0.5 per cent on concern about a glut of these small companies.

China taps academic Xu Ming, known as a market reformer, as the first chairman of the Beijing stock exchange Photo: Weibo alt=China taps academic Xu Ming, known as a market reformer, as the first chairman of the Beijing stock exchange Photo: Weibo

"Smaller companies aren't a scarcity any more, so their valuations are expected to be reset," said Wei Wei, an analyst at Ping An Securities. "Investing in the companies on the Beijing exchange need to be a selective basis to pick up those with big growth potential and competitive edges."

The Beijing bourse had a precursor in a short-lived market place established in 1918 for trading government bonds, which went into decline with the relocation of the Kuomingtang-controlled government to Nanjing nine years later, completely shutting with the outbreak of the Second World War.

The new bourse has a significant role in pushing for innovation and economic transformation among smaller companies, said the China Securities Regulatory Commission's Chairman Yi Huiman at the ceremony marking the start of trading.

The logo of China's Beijing Stock Exchange is seen by a stock chart in this illustration picture taken November 12, 2021. Photo: Reuters alt=The logo of China's Beijing Stock Exchange is seen by a stock chart in this illustration picture taken November 12, 2021. Photo: Reuters

The exchange will suit mainly smaller companies engaged in advanced manufacturing and services industries, complementing Shanghai's Nasdaq-style Star Market and the Shenzhen bourse's ChiNext board of start-ups. Funding support for China's large swathe of small enterprises is viewed as critical for its economy, which has been grappling with a slowdown over the past two quarters amid accelerating inflation and power outages.

The Beijing exchange is supposed to be easier for companies to raise capital than Shanghai's Nasdaq-style Star board and the tech-heavy ChiNext in Shenzhen, and the government has freed the stocks from their shackles, allowing price swings of up to 30 per cent in either direction. The minimum capitalisation to list in Beijing is 200 million yuan (US$31.3 million), and

About four million investors - those who have at least 500,000 yuan in assets in stock accounts - are eligible to trade shares on the Beijing exchange as of now, according to the bourse. Qualified foreign institutional investors (QFIIs) and approved overseas traders holding the offshore yuan can also buy and sell stocks on the Beijing exchange, it said. About 85 per cent of these listings are private enterprises, while the rest are partly state-owned entities.

The Beijing bourse has adopted a faster listing approvals process and will tolerate a wider daily trading band. It will also take two months to handle listing applications, compared with three months for Shanghai's Star Market. Its 30 per cent daily cap on stock movement is more flexible than the 20 per cent allowed on the Star Market and 10 per cent for main board companies in Shanghai and Shenzhen.

"Setting up the new exchange can help improve confidence in the development of [smaller companies] and innovation ," said Chris Liu, a portfolio manager at Invesco. "It also helps reduce the economy's reliance on bank borrowing and high leverage ratio."

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

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