The capital’s market

Started trading this week

‘Shenzhen speed’ is often used to describe how the southern Chinese city gets things done at a rapid rate. Rival cities don’t think Shenzhen is doing anything particularly special. The country’s capital Beijing is taking pride in how it delivers on new projects at pace too – in this latest instance in the launch of mainland China’s third major stock exchange at an accelerated rate.

In early September Chinese President Xi Jinping gave the green light for the setting up of the Beijing Stock Exchange (BSE). Based on the lead-time for the launch of the STAR Market (Shanghai’s tech bourse), the China Securities Journal was predicting a debut for Beijing’s new board in April next year. But with a speed that has surprised most, trading on the BSE got underway this week – just 75 days after its go-ahead announcement.

The opening bell was struck on Monday for the trading debuts of 81 firms, including 10 new listings and 71 companies that have migrated from the NEEQ, an over-the-counter bourse set up in the Chinese capital in early 2013.

Chinese investors have a special taste for new shares and the phenomenon repeated itself on BSE’s opening day, where the 10 new stocks all triggered temporary trading halts during the first session, averaging gains of nearly 200% (the BSE doesn’t limit changes in price for newly-listed companies on the first trading day, but trading is suspended for 10 minutes when stock prices fluctuate more than 30%).

Tongxin Transmission, an automotive steering shaft manufacturer, topped the new group by closing nearly 500% higher than its IPO price, while turnover at the new bourse reached Rmb9.6 billion ($1.5 billion). The 81 firms were worth a total of Rmb289 billion as of Thursday.

About 100 shares are expected to trade on the BSE by the end of 2021, China Securities Journal reports, with many of the best of the country’s small and medium enterprises (SMEs) hoping to reach the public market.

The BSE’s launch marked another landmark in the country’s capital market reforms, Yi Huiman, chairman of the China Securities Regulatory Commission, said during the opening ceremony, hailing the new bourse as a major push to improve fundraising opportunities for SMEs and as a bid to support the economy’s tech-driven upgrade.

“Rebalancing” is another of the buzzwords in the BSE’s public relations manual. Apart from providing new fundraising channels for SMEs – which often complain of being denied access to more conventional bank loans – the new bourse has been tasked with widening the availability of the country’s investment capital, which tends to cluster around Shanghai and Shenzhen (see WiC555).

Some even the new bourse as part of the attempts to erode the influence of China’s tech giants and private equity houses, which have been taking flak for controlling too much of the funding of many of the country’s most promising new businesses (and reaping the profits from a spectacular herd of domestic unicorns in recent years).

According to Jiemian, a news portal, the performance of Beijing’s predecessor NEEQ board was lacklustre for years, partly because so much capital was being diverted to opportunities in the burgeoning internet ‘platform’ sector. With platform firms now getting the cold shoulder from regulators, the creation of the BSE is part of efforts to “rebalance” capital flows to smaller firms in the real economy, especially companies seen as the backbone of sectors like manufacturing.

Investors in Beijing’s new bourse have been looking at the history of the STAR Market for how things might turn out. Shanghai’s first batch of STAR listings has largely lived up to the hype. A total of 25 firms went public during STAR’s first trading day. As of Thursday, 23 of them are still trading well above their IPO prices.

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