Author: Chantelle Lee
As of present, mainland China has 2 major markets based in the Shanghai financial hub and Shenzhen. The Shanghai Stock Exchange, which was established in 1990, mainly hosts large-cap companies, including state-owned enterprises, energy firms and banks. Meanwhile, the Shenzhen Stock Exchange, which also was established in 1990, has a larger proportion of tech companies as compared to small or medium-sized enterprises.
In recent times, many Chinese companies have been under immense pressure from China and the US. The aforementioned pressure is coming from Chinese authorities who are increasingly wary about Chinese tech firms going public overseas due to data privacy concerns. Meanwhile, US regulators have also stepped up scrutiny on Chinese IPOs and required stricter disclosures about potential risks.
Therefore on September 2nd 2021, President Xi Jinping announced during his speech at the International Fair for Trade in Services to set up a third stock exchange. This comes with prioritization to serve small and medium-sized businesses in order to create a venue for “service-oriented” and “innovative” businesses.
Additionally, the China Securities Regulatory Commission (CSRC) also noted that the registration system for the exchange will be similar to Shanghai’s STAR market, which is seen as China’s equivalent to the Nasdaq platform in the US. The CSRC further emphasized that the Beijing exchange will complement the Shanghai and Shenzhen stock exchanges.
Finally, the country’s top securities regulator also announced that the upcoming Beijing stock exchange will be built on the top of the National Equities Exchange And Quotations (NEEQ) which is an over-the-counter system in Beijing, specifically for trading shares of companies not listed in Shenzhen and Shanghai. Accordingly, selected companies from the NEEQ may qualify to be listed on the exchange. The registration-based IPO system that China piloted in Shanghai 2 years ago will also be applied to companies seeking to list themselves on the new exchange. This would require companies to disclose their operations as China aims to improve the current market transparency and reduce an otherwise lengthy regulatory review for IPOs.