The Beijing Stock Exchange welcomed 81 listings for its formal opening (CNSPHOTO)

As a small and medium enterprise (SME), Tonghui Electronic Co. Ltd. had never attracted so much attention. The SME specializing in electronic measuring instruments received a group of about 30 investigative organizations on November 29, a fortnight after its listing.

But this hi-tech company is not the only one drawing such interest, thanks to the creation of a new stock exchange.

Tonghui is one of the first firms to be listed on the Beijing Stock Exchange (BSE), which began trading on November 15. This is a pivotal moment in the growth of Chinese SMEs. “It is another milestone in the reform and growth of China’s capital market,” said Yi Huiman, Chairman of China Securities Regulatory Commission. “Creating a multi-level capital market, improving financial assistance for SMEs, and achieving growth based on economic innovation and modernization are all critical,” he stated during the opening.

An inclusive design

The BSE, which was announced on September 2 by Chinese President Xi Jinping, has been warmly received by the market since it intends to address the long-standing difficulties in SME financing. The Shanghai and Shenzhen stock markets, which house corporations with bigger market capitalizations, will be supplemented by the new national stock exchange.

The BSE began trading with 81 stocks, 71 of which were moved from the “elite” tier of the National Equities Exchange and Quotations (NEEQ), also known as the New Third Board. NEEQ is an over-the-counter exchange platform that was founded in 2013 with the goal of assisting SMEs in raising capital prior to going public. After eight years of growth, NEEQ undertook a reorganization in 2020, dividing its enterprises into three groups - core, innovation, and elite, each with progressively more stringent listing conditions. The reform created the groundwork for the establishment of the BSE.

The newly listed companies are mainly from advanced manufacturing, high-tech services and strategic emerging industries. Their average annual R&D spending exceeds 25.36 million yuan ($4 million). According to Li Xudong, General Manager of China Securities, the operator of the stock exchange, this is the embodiment of the stock exchange’s role as the main platform for innovative SMEs with promising business models and great growth potential.

Future listed companies will come from the “innovation” tier, with the requirement that they have already spent at least one year on NEEQ. With more than 7,000 companies, of which the number of “small giants” exceeds 700, NEEQ thus serves as a “reserve” for the BSE.

Besides the BSE, China has two other stock exchanges targeted at SMEs: the STAR Market on the Shanghai Stock Exchange, which is dedicated to technology stocks, and the ChiNext market on the Shenzhen Stock Exchange. Compared to these two markets, the BSE provides new opportunities for SMEs, namely lower listing thresholds, varied valuation standards and shorter approval time.

The BSE adopts the registration system, similar to STAR and ChiNext, but with lower requirements. In addition, BSE shares have a wider fluctuation band, set at 30 percent, compared with a cap of only 20 percent on STAR and ChiNext, and 10 percent on the main markets of Shanghai and Shenzhen.

“The net profits of most Chinese SMEs only range from 15 million to 50 million yuan ($2.4 million to $7.9 million), and therefore it is difficult for them to meet the requirements of the STAR and ChiNext markets in the short term,” noted Wang Zuowei of brokerage Zhongtai Securities. BSE-listed companies, if eligible, can migrate directly to ChiNext or STAR.

The Beijing Stock Exchange began trading on November 15, 2021 (CNSPHOTO)

A strong stimulus

In China, more than 90 percent of enterprises are SMEs. They contribute more than 70 percent of technological innovations and create more than 80 percent of new products. They also play a key role in job creation and are an important part of the real economy. However, they often face difficulties in obtaining bank loans, especially during an economic downturn. The launch of the BSE comes just two months after the project was announced, a key decision to provide an additional means of financing for the SMEs.

To address the lack of funding, Beijing Henghe Information and Technology, a company specializing in environmental protection technologies, has been listed on the BSE. “With this new exchange, innovative SMEs will receive much more support from the capital market,” said Li Yujian, President of the company. “We can now make great strides.”

In addition, being listed allows SMEs to improve their management in terms of human resources, tax revenue, social security, etc. This puts some pressure on the enterprises. According to Beijing In-To Digital

Technology, the BSE listing pushes the company to improve and take more responsibility.

SMEs, despite their tiny size, represent China’s future strength, according to Chen Wei of Guotai Junan Securities, a securities firm. The government is now providing them with a whole new platform to expand on, because China’s progress will only be fully realized if these enterprises do well.

Feng Yuejun, President of Transcom Instruments, told Economic Daily, “I believe the BSE will be a true launch pad for creative SMEs.” The BSE listing will assist the company realize its objective of becoming a well-known global brand in wireless communications test devices. It was founded in Shanghai in 2005. “We have watched the continuing reform and enhancement of China’s capital market since our NEEQ listing in 2016, which has enabled our company’s rapid growth. The capital market’s empowerment would undoubtedly provide SMEs with a boost in terms of growth,” he noted.

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