Beijing Stock Exchange Launches Focusing on ‘Little Giants’

(Bloomberg) — Chinese leaders have been battling for years to boost small business financing. They’re counting on Beijing’s first-ever trade show to get the job done.

The Beijing Stock Exchange, launched Monday, is intended as a platform for small and medium-sized companies that have long struggled to raise capital because they are not large enough to list elsewhere. About 70 companies migrated from an existing Chinese board and another 10 made their debut on the first day. The 10 newly listed all jumped.

The exchange, which contains only a fraction of the number of listed companies in Shanghai or Shenzhen, aims to broaden financing channels for companies in hopes of furthering China’s technological ambitions and reducing dependence on the West. The move also marks a decades-long effort to make the country’s financial markets – prone to booms and busts – more versatile.

The new exchange “could be an important breeding ground for these small giants,” said Chris Liu, senior portfolio manager for Chinese equities at Invesco Hong Kong Ltd.

All 10 companies that debuted Monday saw their stock prices more than double, after raising 1.5 billion yuan ($235 million) in the run-up to share sales. The auto parts maker Henan Tongxin Transmission Co. rose 511% in early morning trading and quartz crystal component maker AnHui Jing Sai Technology Co. jumped by 255%.

The other 71 companies were transferred from a tier of the National Equities Exchange And Quotations Co., an over-the-counter marketplace for these smaller companies. The performance of these stocks has been mixed, with Huizhou Huiderui Lithium Battery Technology Co. Won 17%, while visual solutions provider Tonghuijiashi (Beijing) Information Technology Co. 11% fell.

Technically, the exchange offers easier access to quotes than Shanghai’s Nasdaq-style Star board and Shenzhen’s tech-heavy ChiNext — just 200 million yuan for a minimum market cap — and is expected to have better liquidity than the NEEQ. Wild price swings are allowed – up to 30% per day – compared to 20% at the other two locations.

“Many companies with great innovative potential may one day appear on the Star board, but don’t quite make it given their early stage – this is to give them a chance,” said Fu Lichun, co-founder of Beijing Ytai capital co.

Certainly, given the mini sizes of the companies and their startup nature, the Beijing stock exchange is unlikely to make a big splash. Since its launch in 2019, more than 300 stocks have been listed on the Shanghai Star board.

“We expect initial trading on the Beijing stock exchange to have only a limited impact on A-share performance and liquidity,” analysts at China International Capital Corporation, including Li Qiusuo, wrote in a recent note. The daily volume is estimated at between 15 billion yuan and 30 billion yuan, less than 2.7% of total revenue for mainland markets, they said.

China is promoting equity financing as it seeks to reduce banks’ exposure to credit risk. Meanwhile, it is keen to breed “specialized, new” companies to break supply chain bottlenecks, according to a statement from a meeting of top leaders in July.

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