Beijing launches a new stock exchange in full Sino-American financial decoupling

Posted on Nov 16, 2021 8:48 AMUpdated Nov 16, 2021, 2:28 PM

China on Monday inaugurated a new stock exchange in Beijing aimed at small and medium-sized enterprises. This new national stock exchange, the Beijing Stock Exchange (BSE), the creation of which was announced by Chinese President Xi Jinping in person on September 2, complements the Shanghai and Shenzhen stock exchanges, which are home to companies with larger market capitalizations.

“The launch of the Beijing Stock Exchange is a key step in reforming the Chinese capital market,” said Yi Huiman, chairman of the China Securities Regulatory Commission (CSRC). “This is important because it will strengthen the capital market on many levels, improve the financing system for SMEs, stimulate innovation and modernize the Chinese economy,” he continued at the inauguration ceremony.

The role of the Beijing Stock Exchange is currently extremely limited. This new market welcomed 81 companies for its official launch, 71 of which were already listed on an over-the-counter platform. On the first day of listing, trading volumes amounted to 9.57 billion yuan (1.3 billion euros), or just 1% of the combined daily amount traded in Shanghai and Shenzhen.

The allure of Hong Kong

These newly listed companies are primarily from the software, healthcare and high-end manufacturing industries. The Beijing Stock Exchange has adopted a registration system similar to that of the STAR Market in Shanghai, commonly referred to as the “Chinese Nasdaq”. The idea is to avoid the approval system in force on the Shanghai and Shenzhen stock exchanges, which generally results in a slowdown in IPO procedures.

Chinese companies have long courted international investors on Wall Street to finance their development. In 2014, e-commerce giant Alibaba carried out the largest IPO of all time there, raising $ 25 billion. But as the Sino-American trade war intensified, the Communist power urged its national champions to list themselves on financial centers in China. In recent years, Hong Kong has become an attractive place for Chinese technology companies, to the point for some (including Alibaba) to establish a second listing. The return of the major Chinese groups to Shanghai or Shenzhen, on the other hand, is long overdue.

Financial decoupling

SMEs, for their part, still find it difficult to raise funds from banks, especially in the current context of the Chinese economic slowdown. The creation of the Beijing Stock Exchange thus aims to strengthen the capacity to finance SMEs by redirecting Chinese household savings towards the productive system. In the context of Sino-US “financial decoupling”, the new stock exchange will also expand the financing channels of Chinese companies, which face growing obstacles to raising capital in the United States.

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