This last Friday (October 30th), (see, David Barboza, “A New Chinese Stock Exchange Opens with a Surge”, New York Times, (November 1, 2009) Nasdaq-like exchange, opened in Shanghai. The exchange called Growth Enterprise Market (GEM) or ChiNext opened to fevered trading. The buying was so turbulent that regulators tried to calm the market by temporarily suspending trading at various points in the company shares on the exchange. There are at these early stages only 28 listed companies.
It would appear that this new market is a significant step for the Chinese corporate sector. Many of the companies listed or looking to list are small innovative companies that have found it extremely difficult to secure financing especially from the banks that normally lend principally to the big SOEs. And even on China’s principal exchanges in Shanghai and Shenzhen the listings are dominated by SOEs. Though many of these companies are publicly listed, in fact they remain majority owned by the Government. Again a quick reflection on Yasheng Huang’s analysis (commented on in a recent Rising BRICSAM blog) raises the troubling spectre of interventionist pervasive government policy and ownership in the Chinese corporate sector.
As a result of the corporate holdings and the big state bank lending practices, young private Chinese companies generally list shares ‘overseas’ in Hong Kong – definitely not overseas but also on the Nasdaq or even the NYSE. There have been few opportunities to list in China. But that may now be changing. This GEM may well provide the means to create a more efficient capital market system. China is already the largest market for initial public offerings but allocation is principally to SOEs. It may also give a boost to venture capital and private equity.
It would appear that many start-ups are eager to list here and provide the funds for growth and exit strategies for initial innovators and financiers. Barring excessive froth and speculation, the emergence of this new stock exchange is a good sign for innovation and financing in China.