U.S. experts say Beijing’s creation of a new exchange for Chinese small and medium-sized enterprises (SMS) is unlikely to increase the capital that companies had planned to list on New York’s Nasdaq.

This financing stage, known as an initial public offering (IPO), allows a company to raise capital from public investors. Chinese IPOs paused due to increased scrutiny by Beijing of publicly traded entities in the United States and strict new reporting requirements for Chinese companies wishing to sell shares in the United States

“The impact of the new market is likely to be limited, at least compared to the impact of regulatory challenges to listing in the United States imposed by Beijing and Washington,” Jennifer Schulp, director of financial regulatory studies at the Center for Monetary and Financial from the Cato Institute. Alternatives, VOA said in an email.

“While these regulatory challenges may help the market take off by forcing companies to look to it for raising capital, it seems unlikely that the market will be a first choice for companies that would otherwise have looked to the US markets for. an IPO. “

Authorities registered the Beijing Securities Exchange Limited Co. (BSE) on September 3, a day after Chinese President Xi Jinping announced plans to raise capital and support SMS innovation and development at the International Fair. Chinese trade in services.

The China Securities Regulatory Commission (CSRC), which oversees the securities and futures industry and reports directly to the State Council, China’s main administrative body, responded by saying that its leaders were “excited” by the prospect.

“Small and medium-sized businesses can do great things,” the CSRC added.

The new exchange would be similar to Nasdaq in the United States, which lists tech and biotech giants such as Microsoft, Oracle, Google, Amazon and Intel.

State-supported media World time said the new stock exchange, which joins two existing boards of directors in Shanghai and Shenzhen, “will play an important role in pushing the country towards high-quality innovation-driven growth,” noting that the decision comes then that the The United States continues to push for financial decoupling.

But George Calhoun, director of the Quantitative Finance Program at Stevens Institute of Technology in New Jersey, is dubious.

“There is an interest in creating a Nasdaq-like place for high-tech startups, but what prevents it is not the lack of another exchange, it is the regulatory burden (of China), and it has become heavier lately, ”he told VOA by telephone. . Nasdaq is the acronym for National Association of Securities Dealers Automated Quotations.

A third try

China’s two major stock exchanges – the Shanghai Stock Exchange and the Shenzhen Stock Exchange – serve blue-chip companies, which are seen as stable, secure and profitable. Both exchanges also include tech tips that serve younger and riskier tech and science companies.

“There is an interest in creating a place for small entrepreneurial tech companies to go public without the same kind of expectations that you have if you are going to list on one of the major exchanges,” Calhoun said. “This is where China compares to the Nasdaq and the New York Stock Exchange.”

The New York Stock Exchange (NYSE), founded in 1792, is where established companies are listed, contributing to its reputation for being safer for investors than the Nasdaq, founded in 1971. At that time, startups such as Microsoft, Intel and Apple did not qualify for listing on the New York Stock Exchange. Nasdaq listed, and so became known, by comparing with the NYSE, as a friendly exchange for innovative science and technology companies in the United States

“I think China looked at this and said, we should do something similar, and they tried it twice, (the) ChiNext board in Shenzhen and Star Market in Shanghai,” Calhoun said. Both of these councils list billion-dollar tech startups and unicorns, but both have failed due to China’s slow political process to raise capital, he said.

The new Beijing Stock Exchange (ESB) will be largely based on the current National Equities Exchange and Cotations (NEEQ), or the Third Board, founded in 2012. Created for SMEs, it has failed to generate the necessary liquidity to the majority of small businesses. listed.

It will adopt the faster IPO registration system rather than an older registration method that required CSRC approval. Regulators will allow BSE shares to rise or fall by 30% per day, a range wider than the 20% limit set for the Shanghai Star Board and ChiNext in Shenzhen, technology quotes on these exchanges. There will be no trading limit on IPO shares on the first day of BSE trading.

Jay Ritter, professor of finance at the University of Florida, told VOA Mandarin in an email that ESB’s main competitor will be the Growth Enterprise Market (GEM) launched by the Hong Kong Stock Exchange Limited in 1999. The third existing board of directors in Beijing will lose, he added.

“There are a few small Chinese companies that raise $ 10 million to $ 20 million and are listed in the United States every year, in addition to larger companies. These small businesses could be listed on the Beijing New Stock Exchange in the future, ”he said.

Chinese tech companies deadlocked

The BSE opens as Washington and Beijing increasingly monitor Chinese tech companies listed in the United States.

In the United States, there is growing pressure to force Chinese companies to remove themselves from the list if their auditors are not audited. Gary Gensler, chairman of the SEC, wrote in a September 13 statement. the Wall Street newspaper op-ep that unless Chinese companies allow an audit of their auditors by the Public Company Accounting Oversight Board, as required by the Sarbanes-Oxley Act of 2002, some 270 China-related companies could be banned by early 2021 to continue listing in the United States.

Wu Ming-Tse, an associate researcher at the Chung-Hua Institution for Economic Research in Taiwan, told VOA Mandarin in a telephone interview that Chinese Xi hopes the new stock exchange will bring these companies back to Beijing.

“The purpose of this new exchange is to slow the pace of Chinese start-ups going public in the United States,” Wu said.

The crackdown on China’s tech industry began in December 2020 and has continued since. Several prominent companies, including Jack Ma’s e-commerce giant Alibaba, its financial services affiliate, the Ant Group, and ride-hailing company Didi, have been investigated, fined, or both.

Calhoun of the Stevens Institute of Technology said China’s current crackdown has forced its tech companies to end up in a corner.

“China says create our own Nasdaq and let these companies participate in this exchange, but what they don’t realize is that you really need to have a more liberal regime to allow companies to go public with regulation. lighter, with less paperwork, less headwind to float their actions, ”he said. “It’s not about having another exchange.

Norman Yin, a finance professor at Taipei National Chengchi University, told VOA in a telephone interview that the location of the new exchange in Beijing could be seen as reflecting Xi’s desire to expand the Nasdaq-like Chinese presence. under the supervision of political authorities.

“If you take a look at financial centers around the world, location is usually not a key factor,” Yin said. “I would say that China’s decision to establish a third stock exchange in Beijing is to allow President Xi Jinping to closely supervise the capital market on his own.”

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