China to create new stock exchange in Beijing

Chinese business & finance updates

China will create a new stock exchange in Beijing as part of an attempt to deepen the development of small and medium-sized businesses and its capital markets.

Xi Jinping, China’s president, told an international trade fair on Thursday that the new exchange in the capital would be the primary platform for serving “innovation-orientated SMEs”.

The announcement marks China’s latest efforts in a long-running campaign to develop its onshore capital markets. Focus has been sharpened over recent months following rising regulatory scrutiny of offshore listings in both the US and China, which has cast doubt over the long-term future of Chinese companies listing on Wall Street.

“This is a clear-cut example of Beijing seeking to make markets serve the real economy and specifically its long-term development objectives,” said Rory Green, head of China research at TS Lombard.

The launch also comes as Xi’s government has rolled out a series of regulatory and policy reforms in recent weeks. A crackdown that initially targeted fintech lending and antitrust abuses has expanded to embroil companies across Chinese business sectors, from education and gaming to ride-hailing and food deliveries.

Xi has also signalled a sharp pivot towards “common prosperity”, a goal that encompasses wealth redistribution and is part of broadside against the powerful business elite. Analysts say this will also lead to greater support for smaller businesses in China.

For investors, Green added, the new exchange “underscores a positive side to China’s intervention”.

“While areas that do not comply with ‘common prosperity’ goals will be penalised, sectors that help secure long-term objectives have a significant policy tailwind,” he said.

The China Securities Regulatory Commission, the country’s top markets regulator, said the new exchange in Beijing would help both improve China’s capital market systems, as well as deepen supply-side structural reforms.

Earlier this week the CSRC said it would clamp down on private equity industry funds if they diverged from supporting innovation and start-ups.

China has had patchy success building up its new stock markets in recent years.

Shanghai’s Star Market was touted as the country’s answer to New York’s tech-focused Nasdaq when it launched in July of 2019. But after an initial flurry of listings it has had an uneven performance this year, drawing complaints about a cumbersome vetting process and hesitation among some investors over the quality of listings.

The bourse has been hit by a record number of suspended initial public offerings in the wake of Beijing’s decision to shelve the listing of Ant Group shares in Shanghai and Hong Kong amid concerns over the company’s lending business — raising fears of tighter regulatory scrutiny.

The Star 50 index tracking the largest companies on the tech-focused market is up just 0.5 per cent in 2021, despite the ostensible policy support of Star-listed groups from Beijing

Despite this, “listing in the [mainland Chinese] market with a ticker means a bunch of privileges, such as potential government economic incentives, loan facilities, and [retail investor] interest”, said Bruce Pang, head of research at China Renaissance, an investment bank.

He noted that the Star Market in Shanghai had still received huge government backing and policy support since its launch.

“China’s top leader just mentioned building an exchange ‘with Chinese characteristics that suits reality’,” Pang said. “I expect more details and tailor-made policy support to be announced.”

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