Heard on the Street: A new small-business-focused stock exchange in Beijing may be intended to soothe the worries of entrepreneurs. It isn’t clear it will do much to help, however.
This isn’t the country’s first attempt to create a trading venue to help technology companies better access domestic funding. The Shenzhen Stock Exchange created the tech-focused ChiNext board for startups in 2009. Two years ago, the Shanghai Stock Exchange aimed to do the same with the launch of the STAR board, or the Science and Technology Innovation Board.
The new Beijing exchange may not be as ambitious as these two attempts. It will likely be an upgraded version of an existing exchange in the city called National Equities Exchange and Quotation market, or the New Third Board. The NEEQ, formed in 2013, suffers from low trading volume since it is open only to professional investors.
But the premise that an insufficient number of exchanges is the problem holding back domestic fundraising by Chinese tech startups seems questionable. Making it easier for companies to go public broadly speaking, while also enforcing more transparency so investors feel secure is more important.shifted to a registration-based system
, from the previous system where regulators spent a long time vetting each initial public offering. But Chinese exchanges still have a long way to go to earn investors’ trust. Dozens of IPOs at ChiNext and STAR, which also uses a registration-based system, were halted last month, as regulators investigate law firms and investment banks involved.
Boosting fundraising for startups may also involve some fundamental shifts in the economy. Most household wealth in China is stashed away in housing, the value of which is perceived to enjoy implicit backing from the state. Thehas also made it much harder to channel capital into smaller private companies.
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