East China's Zhejiang province, which boasts a massive number of privately-owned, small- and medium-sized enterprises, is expected to be a major beneficiary of the newly-established Beijing Stock Exchange in the near future.
The BSE, the third bourse in China following the decades-old Shanghai Stock Exchange and Shenzhen Stock Exchange, has been tasked with serving the financing needs of specialized and innovative SMEs, which are especially prevalent in Zhejiang.
Zhejiang is currently home to 470 national-level "little giants", the most out of all provincial-level regions in China. "Little giants" is a title awarded by the Ministry of Industry and Information Technology to SMEs that have outstanding innovation abilities, cutting-edge core technologies, and a considerable market share for niche products.
Of the 81 BSE-listed companies that started trading on Nov 15, 71 were directly transferred from NEEQ Select, the highest tier of the eight-year-old National Equities Exchange and Quotations system, an over-the-counter market in Beijing that is also known as the New Third Board.
Zhejiang is home to merely three BSE-listed companies. This is largely attributable to local SMEs' lack of motivation to list on the New Third Board, according to Wang Wenming, accounting professor at Zhejiang University.
Instead of resorting to this inefficient system that features low liquidity of stock shares, these companies tend to seek funding in a private lending market that is thriving in the province, explained Wang.
However, the establishment of the BSE has started to change the situation. "In recent months, we find that SMEs have shown obviously stronger enthusiasm toward listing on the New Third Board, a springboard for the BSE," said an official at the Zhejiang Equity Trade Center.
As of the end of August, Zhejiang had 163 NTB-listed companies that attained the required financial standards for NEEQ Select.
At present, eight Zhejiang-based companies' listing applications are being reviewed in the BSE, and another 16 Zhejiang-based companies have entered the pre-listing tutoring phase.
Wang believes the BSE will serve as an efficient capital market that meets the needs of Zhejiang-based SMEs for direct financing, as well as offer a convenient and lucrative exit channel for venture capital that sponsors SMEs' initial growth. This would in turn boost entrepreneurship and innovation.