China to Launch Its Third Stock Exchange in Beijing

BEIJING, September 2 (TMTPOST) — China will have a third stock exchange in its national capital Beijing, in additon to stock exchanges in economic powerhouses Shanghai and Shenzhen. 

The decision was announced on Thursdday by Chinese President Xi Jinping during a video address to the Global Trade in Services Summit of the 2021 China International Fair for Trade in Services. 

Xi stressed that China will contintue to support the innovation and development of small and medium-sized enterprises (SMEs) and deepen the refom of the “new third board”.

The “new third board,” officially known as the National Equities Exchange and Quotations (NEEQ), was launched in Beijing in 2013. It offers SMEs a financing channel with low costs and simple listing procedures.

The new stock exchange in Beijing will list innovation startups and adopt the registration regime, rather than the existing approval system in Shanghai and Shenzhen, China Securities Regulatory Commission (CSRC) said in a statement published on its website after the announcement. 

The exchange will provide an improved financing channel for SMEs, the CSRC added.

Pan Helin, a professor at Zhongnan University of Economics and Law told TMTPost that the listing and delisting on China’s third stock exchange is expected to be expedited, marking the reform of China’s capital markets.

With NEEQ as its Precedent

In a separate statement published on the CSRC’s WeChat account, the securities regulator said the Beijing Stock Exchange (BSE) will be built on the basis of the existing NEEQ “selected-layer.”

Since 2019, the regulator has introduced a series of reform measures to the NEEQ, including a selected-layer mechanism, the CSRC said, adding that the measures have increased market vitality and achieved positive results. 

The operation of the selected-layer has been stable, with various system innovations attracting high-quality SMEs to list for trading, which laid a foundation for further deepening reforms and establishing a stock exchange, the CSRC said. 

The NEEQ is not open to retail investors, which restricts its liquidity and transaction volumes.

China’s Nasdaq? 

The BSE will play a vital role in serving innovative SMEs, the CSRC said in the statement. 

The BSE and two existing major exchanges in Shanghai and Shenzhen will engage in coordination and interconnection with each other, the CSRC said.

Additionally, the BSE will insist on system linkage and coordination with the existing “innovation layer” and “basic layer” of the NEEQ to maintain a balanced market structure, the CSRC added. 

Financial market observers are wondering whether the BSE will become China’s Nasdaq as the regulator positioned it as an exchange for innovative SMEs. However, it is still too early to judge before the detailed plan of the exchange is unveiled. 

By the end of 2020, a total of 8,187 companies were listed on the NEEQ – among which SMEs accounted for 94%, with a combined capitalization of RMB2.65 trillion (US$410 billion), according to data from the NEEQ website. 

In 2020, the capital raised by companies listed on the board increased by 27.91% from 2019 and RMB10.56 billion was raised from initial public offerings. The turnover of stock transactions hit RMB129.46 billion yuan, increasing the average daily turnover by 57.44% year over year, according to the NEEQ. 

The NEEQ was created as a supplement to the Shanghai and Shenzhen stock exchanges.

The Shanghai Stock Exchange (SSE), established in 1990, is one of the top exchanges in the world. According to statistics of the World Federation of Exchanges, as of the end of 2020, the SSE ranked second, third and fourth respectively in capital raised, total market capitalization and total turnover.

The Shenzhen Stock Exchange, also launched in 1990, is becoming a major exchange across the globe. It ranked third and fourth worldwide respectively by capital raised and total turnover, as of the end of 2020, according to the World Federation of Exchanges.