Back in the 1920s and 30s, during Shanghai's pre-revolutionary heyday, investors who lost their shirts on the nascent Shanghai Stock and Commodity Exchange would sometimes throw themselves off a building or into the Huangpu river. Unfortunately for the Chinese government, those good old days are no longer. Today, unlucky - and frequently irresponsible - punters on the Shanghai and Shenzhen stock exchanges are rather more attached to this mortal coil. Should their investments go down instead of up, they are likely to hold a sit-in protest outside city hall to demand redress. This awkward fact of political life in China explains a lot about the conservative draft regulations for Shenzhen's second board, which the Shenzhen Stock Exchange published last week. The Shenzhen Stock Exchange is engaged in a delicate balancing act. It must engineer a board that less established high-technology start-ups and other small- and medium-sized enterprises can turn to for badly needed investment capital. As with the relationship between the Nasdaq and the Dow Jones Industrial Average, or between Hong Kong's Growth Enterprise Market (GEM) and the Hang Seng Index, it is inevitable that the second board will be more volatile and riskier than its main board counterparts in Shanghai and Shenzhen. The government, however, hates risk. Indeed, on occasion the government appears to view even the Shanghai and Shenzhen stock exchanges as necessary evils. They are, from the government's point of view, necessary because they relieve the state banking system of a huge burden. Every yuan raised by the state-owned enterprises that dominate the Shanghai and Shenzhen bourses is one less yuan that state banks might otherwise have to pony up - and perhaps never see again. Even better is the one advantage equity investors have over banks and foreign joint venture partners: they never have to be repaid. The mainland's most successfully listed company, China Mobile, which has raised billions of US dollars since floating shares in Hong Kong in October 1997, has never once paid a dividend. Investors do not seem to care because China Mobile's stock is apparently immune to the laws of gravity - it is trading at more than 150 times earnings. On the other hand, the government sees stock markets as an evil because they are almost impossible to control, and when things go wrong jilted investors can threaten China's much cherished 'social stability'. In weighing the need of emerging firms to tap equity investment against the government's wish to reduce risk, the Shenzhen Stock Exchange decided to err on the side of caution. In the proposed second board regulations, listing candidates will have to show net profits of at least five million yuan (about HK$4.68 million) over the two years prior to their listing. Sixty per cent of this must be realised in the second year. In addition, listing candidates will need to have assets worth at least eight million yuan and a debt-to-equity ratio of less than 70 per cent. Company founders will also be subject to lengthy lock-up periods, such as three years for those with more than a 50 per cent stake. While less stringent than the requirements for main-board candidates on the Shanghai and Shenzhen stock exchanges, these proposed hurdles are higher than those set for Nasdaq or GEM hopefuls, for whom proven profitability is not necessary. Critics of the GEM's lax requirements were rebuffed with the plausible argument that if its entry bar were set too high, promising hi-tech companies would list elsewhere. In this respect, Shenzhen's second board has a big advantage over the GEM: it has a captive market. This is because promising hi-tech mainland firms have nowhere else to go. They cannot safely defect to overseas markets without the explicit blessing of the China Securities Regulatory Commission. So while the Shenzhen Stock Exchange's proposed strict listing standards may not be convenient for get-rich-quick escape artists, they should benefit investors and the long-term development of China's hi-tech sector.