A plan for a new stock exchange in Beijing has raised eyebrows in Asian financial markets, coming as it did last Thursday without any notice.
Fresh from cracking down on a host of tech companies and sectors – from ride-sharing to after-school education, to banning effeminate men on TV and people under 18 from playing too much computer games, President Xi Jinping revealed plans for the new exchange out of the blue.
In fact, coming at a time when Xi’s directed crackdown on a whole range of businesses and social activities makes news of the new stock exchange rather odd, but understandable once you consider the recent trend in Chinese markets and official interference.
It’s quite clear that the new innovative companies the new exchange is going to target are the in areas of the economy being targeted by Xi and his government right now.
And it will be all about raising capital and financing new businesses with Chinese money and not seeing Chinese companies list on Hong Kong or especially the US markets to raise capital (which is in turn kept out of China).
In short, the new exchange will be a circuitous route for Xi and his government to gain greater control over Chinese business and finance.
Chinese companies which have US listings, or have just raised funds there, have been targeted by Xi and his regulators – ride share group Didi is a prime example, as are tech giants Tencent and Alibaba
In fact there’s a suspicion that the new exchange will deliberately favour “good’ companies (in Xi’s view) that promise to meet the government’s evolving rules on data, on business culture and on the way they treat staff – all areas of attack in recent months by Xi and his regulators.
It comes at a time when debt concerns remain high – especially with major property groups like Evergrande, and investment companies that previous governments set up to handle bad debt from previous booms and busts two and three decades ago.
Xi unveiled plans for the new exchange in a video address at the opening of a conference late on Thursday. He said the new exchange will aim at small and medium-sized companies and enterprises and is part of a reform of Beijing’s New Third Board which started in 2013.
Neither Xi nor the China Securities Regulatory Commission (CSRC) said if the Beijing stock exchange would be open to overseas-listed firms. If that is the case, it would see increased competition in listings for the Hong Kong Exchanges and Clearing Ltd (HKEx).
HKEx shares dropped more than 2% on Friday and shares in Shenzhen’s ChiNext fell over 1% as investors both underperforming the broader market.
Reuters reported that the shares of brokerages, including Northeast Securities Co, Dongxing Securities Co and Shenwan Hongyuan Group Co jumped on Friday, as investors bet they will benefit from more initial public offerings (IPOs).
“This is a step forward in capital market reforms, as it enhances the multi-layered capital market system and direct financing,” Morgan Stanley said in a note.
Morgan Stanley said the start of a registration-based IPO (float) mechanism on the Beijing exchange paves the way for the rollout of the listing system on China’s main boards. Currently, only Shenzhen’s ChiNext, and Shanghai’s tech-focused STAR Market use the US-style IPO system.
The securities regulator said on Friday that CSRC said the new exchange will be based on the current “select tier” of Beijing’s New Third Board, meaning all the 66 companies listed in that tier will be transferred to the Beijing exchange.
All of which makes the selection of the underperforming small Beijing market odd – the city has a political, not business culture as do the homes of the two major existing exchanges – Shanghai and Shenzhen (which is close to Hong Kong).
China’s securities regulator said the planned exchange will be based on the city’s existing New Third Board, and will complement the existing Shanghai and Shenzhen markets.
Reuters said the New Third Board currently houses a total of 7,299 SMEs, mostly in the “base tier” and “innovation tier”.
That’s down from more than 10,000 companies listed in 2013-16 period. But numbers slumped in the wake of China’s spectacular 2015 market boom and bust.
On top of that, Reuters quoted an economist as saying it was a big question mark whether the new exchange would thrive, as “the city of Beijing doesn’t have the right culture for an exchange.”
News of the new exchange in Beijing came the same day as media reports suggested that Beijing’s City government is angling to grab control of the Didi ride-sharing business which remains in the Xi administration’s bad books because it defied the government and went ahead and raised $US1.4 billion in a US listing earlier this year.
