New Beijing Stock Exchange could be the financial lifeline China’s small companies are crying out for, analysts say

Name: Former HKEX chief unveils new foreign investment platform to finance Chinese small businesses
Uploaded: 2021-09-03T10:15:15.000Z
Duration: 8 min 22 s
Description: Former HKEX chief unveils new foreign investment platform to finance Chinese small businesses

New exchange would further policy goals of reducing debt levels and creating more mature capital market structure

Start-ups and SMEs have struggled to secure financing from China’s bank-dominated financial system

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Chad BrayandEnoch Yiu

Published: 6:15pm, 3 Sep 2021Updated: 11:05pm, 3 Sep 2021

A new stock exchange planned for Beijing could provide a financial lifeline for innovative small and medium-sized enterprises (SMEs) that have often struggled to access financing, as Chinese President Xi Jinping seeks to further develop the mainland’s capital markets, according to analysts and market observers.

The Beijing Stock Exchange would carve out a group of innovative small companies currently trading on the National Equities Exchange and Quotations (NEEQ) board for listing on the bourse as part of the government’s efforts to reform the NEEQ, which has struggled to attract liquidity since its founding in 2013.

The creation of a new bourse would also further Beijing’s dual policy goals of reducing debt levels in the financial system and creating a more mature capital market structure. Lending is dominated by the country’s state-owned banks, which has made it more difficult for start-ups to borrow money and sent many of the most innovative firms to the US for capital raising.

“Banks are reluctant to lend to these companies, which have no track record or assets. A new capital market for them to raise money would be a solution,” said Jeffrey Chan Lap-tak, a founding partner of Oriental Patron Financial Group, a Hong Kong-based financial firm. “If it works well, it would help SMEs to tap funds from the capital markets to raise funds. In a sense, this is part of the game to achieve China’s goal to have ‘common prosperity’, to have more people to create wealth from the capital market.”

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Former HKEX chief unveils new foreign investment platform to finance Chinese small businesses

On Thursday, Beijing said it would provide 300 billion yuan (US$46.4 billion) in loans for small businesses and self-employed people as a resurgence of the coronavirus weighs on the nation’s economy. Small businesses have been particularly hit hard by the economic effects of Covid-19 and struggled to obtain necessary financing, even as Beijing injected liquidity into the market last year.