On Thursday, 2nd September 2021, Chinese President Xi Jinping announced plans to set up a new stock Exchange in Beijing to serve innovation-oriented small and medium-sized businesses to channel investment into promising young technology companies in China. This statement was issued during a speech at the International Fair for Trade in Services, held in Beijing.
Why was there a need for a new stock market
The new move comes following the pressure from Chinese companies at home (Beijing) and in the US (Washington). Mainland China already has a couple of prominent markets, such as the Shanghai Star market, while the other being in the southern part of the city of Shenzhen.
There were no elaborate details about the plan by the President, but it is one of the ways to raise the money lost in the US market, said the sources. This move was happily accepted by China Securities Regulatory Commission (CSRC) and they hoped this would help small and medium-sized enterprises to work efficiently. It also said that the exchange registration system would be similar to Shanghai’s STAR market. CSRC could prohibit and put measures in place for private equity industry funds if they diverged from supporting innovation and start-ups.
How things will change from hereon
Ever since the Star market was founded in 2019, it was considered China’s answer to the technology-heavy Nasdaq platforms in the US. As observed, China has promoted many changes for the betterment in recent years that have had a major impact on large parts of the country’s private sector – from tech giants and going to the extent of mentoring firms. They even have now a foothold on music streaming platforms and TV companies. These steps are put in place for a reason and people in authority to check on intensely firms with share listings in the US.
In such events, one of the Chinese electric car maker BYD’s had to suspend the plan to sell shares in the computer chip manufacturing unit, which hit Beijing’s business. The government of China signaled this crackdown might continue as a five-year plan, but it may impose tighter regulation on the economy.
After this news, the wall street regulator has also asked the Chinese companies to provide extra information to sell shares in the US.
How China will benefit from this move
The new share market will make the market serve the real economy and precisely its long-term development objectives, said Rory Green, head of China research at TS Lombard. The President has made it very clear by acknowledging ‘shared prosperity, and aim whose central point is proper wealth redistribution. It is part of broadside against the powerful business elite. According to analysts, the New Stock market would leverage China’s capital market systems and deepen supply-side structural reforms. The analysts opined this would also lead to more significant support for smaller businesses in China.
Along with these new moves to improve countries’ economies, there is a fear that all three markets may have competition and confrontation, the experts warned. The brokerages in the Chinese markets have been encouraged by the issuance of a statement. However, it was put away by Shenzhen start-up board ChiNext which happens to have shares of Hong Kong’s bourse amid rising competition fear. The experts in China also said that the capital investment might divert from the other two markets if the Beijing market prospers.
