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China to create new stock exchange in Beijing for smaller companies

Written by Nikkei Asia Published on     3 mins read

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Market to be mainland’s third after Shanghai and Shenzhen, but no time frame set for opening.

President Xi Jinping on Thursday said China would create a new stock exchange in Beijing to help fund smaller companies’ pursuit of new technologies.

“We will continue to support the innovation and development of small and medium-sized enterprises and deepen reforms of the new third board by creating the Beijing Stock Exchange,” Xi told the 2021 China International Fair for Trade in Services in Beijing by video.

Xi did not give further details or a time frame for the proposed exchange, which was announced at a time of growing political pressure on China’s biggest tech companies and a push for “common prosperity.” Helping smaller business raise capital seems to chime with the latter stated goal of spreading wealth and reining in free-market excesses.

If established, the Beijing bourse would be mainland China’s third after the Shanghai and Shenzhen stock exchanges. China is also home to semi-autonomous Hong Kong, an international financial hub.

The new third board that Xi referred to is an over-the-counter market for small and medium-sized enterprises that formally opened for trading in 2013. While meant to offer bare-bones listing requirements for smaller companies, the market has been held back by low investor participation and liquidity.

Xi also vowed to expand cooperation in the sector with countries under the Belt and Road infrastructure initiative.

China is willing to share development opportunities of the services trade with all countries to jointly promote global economic recovery and growth,” he told China’s leading international trade fair.

China’s stock markets have climbed global rankings both in the number of listed companies and market capitalization since both exchanges were set up in 1990, mirroring the rapid development of the Chinese economy.

The Shanghai bourse was the world’s third largest, with a market capitalization of USD 7.62 trillion, as of the end of June, trailing only the New York Stock Exchange and Nasdaq, according to Statista.com. Shenzhen, with USD 5.76 trillion, ranked seventh behind No. 4 Hong Kong at USD 6.81 trillion.

In recent years, Chinese regulators introduced Nasdaq-style listing requirements in both the Shanghai Star Market and Shenzhen ChiNext to ease fundraising by technology-driven startups. The domestic markets also have attracted listings from some of the country’s biggest companies, following tighter scrutiny by US regulators. The names include Semiconductor Manufacturing International Corp. and China Telecom.

Though China’s services sector remains a fraction of the total trade of physical goods, it has grown in recent years, fueled by tourism and technology-intensive services.

Before the COVID-19 pandemic, total trade in services rose 23% to RMB 5.41 trillion (USD 838 billion at current rates) in 2019 compared with RMB 4.39 trillion in 2016. But travel-related trade plunged by nearly half in 2020, dragging down the total by 16% to RMB 4.56 trillion. The figure was 14% of total trade of physical goods, the second-largest globally after the US.

The decline in travel-related trade was offset by growth in tech-intensive services, which accounted for 45% of the total. The services include telecommunications, information technology, and intellectual property royalties, backed by Chinese companies such as Alibaba Group Holding and Huawei Technologies.

As a show of support for the sector, Xi said Beijing will build demonstration zones to promote innovative development in digital trade and implement a negative list for cross-border services trade nationwide. A negative list for services trade debuted at Hainan Free Trade Port last month, easing market access for financial services and other cross-border trade.

This article first appeared on Nikkei Asia. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei.

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