Nov 19, 2021 07:22 PM

Opinion: Beijing Stock Exchange Expected to Draw Companies From Home and Abroad

The much-anticipated Beijing Stock Exchange (BSE) that began trading on Monday is expected to play a critical role in serving China’s small and midsize enterprises (SMEs), improving its multilevel capital market and deepening reform of the National Equities Exchange and Quotations (NEEQ), an over-the-counter stock trading platform also known as the New Third Board.

Focusing on SMEs

The BSE was created by integrating the NEEQ’s “select tier” — which is purportedly made up of high-quality companies characterized by good profitability or strong innovation capabilities — and designed to fit in with the Shanghai and Shenzhen stock exchanges.

Its functional role will set it apart from the other two. The mainboards of the Shanghai and Shenzhen stock exchanges primarily serve large and midsize companies; the Shenzhen Stock Exchange’s (SZSE) ChiNext board focuses on growth-type innovation enterprises and startups; and the Shanghai Stock Exchange’s (SSE) STAR Market aims at innovative tech firms. By contrast, the BSE aims to establish a major platform to serve SMEs.

In terms of listing threshold, the BSE sets a minimum requirement of only 200 million yuan ($31.28 million) in market value, lower than that of the ChiNext board and the STAR Market. The BSE has been established to serve “earlier, smaller, and emerging” enterprises, in staggered competition with the other boards.


The BSE’s first 81 listed companies demonstrate its positioning, with a focus on innovation-based growth-type SMEs. Among these companies, manufacturing and information technology firms account for 70% and 16% respectively, in line with the country’s policy orientation. For the 75 enterprises that have disclosed their financial performance, the average net profit ratio in the third quarter was 14.3%, and the average year-on-year increase in net profit was 27.8%, showing promising growth.

Great significance

First, the establishment of the BSE reflects the degree of policymaker’s support for specialized, sophisticated, distinctive and innovative enterprises. In addition to easing financing difficulty and expense for SMEs, the BSE will help guide them to establish a complete corporate governance framework and a standard tax system in the early stage of development.

Second, the BSE requires that newly listed companies be from the NEEQ, which will help the NEEQ attract more high-quality SMEs, increasing the board’s appeal. In 2013, China launched the NEEQ, which has served a total of around 10,000 companies. However, due to its high investment threshold, enterprises have found it hard to obtain financing. As a result, the NEEQ is now facing a shrinking number of enterprises and a market liquidity shortage. The threshold and cost for NEEQ-traded enterprises to transfer to the SSE or the SZSE have both been relatively high, with transfer tantamount to “delisting and then relisting.”


Third, the BSE will open up more exit channels for equity investment. Innovative scientific and technological SMEs may only have a few fixed assets, far outweighed by human capital. Further, they need long periods and a lot of funds for research and development (R&D). The bank-dominated indirect financing system is hard-pressed to meet their financing needs. The BSE increases the listing chances for SMEs and creates new exit channels for early private equity and venture capital firms.

Fourth, the BSE will help change China’s financial development paradigm. Going forward, China’s three national stock exchanges — the BSE, the SSE and the SZSE — will serve companies in different industries, regions and stages of development.

Fifth, looking into the future, the BSE is expected to take in returned China concept stocks. Following pressure from the U.S. on China concept stocks, more and more U.S.-listed Chinese companies will choose to return to China. For unlisted red chip companies and Chinese companies listed in the U.S. over-the-counter market, the current market value thresholds of the STAR Market and the ChiNext board are between 5 billion yuan and 10 billion yuan. When the BSE and the NEEQ have gained a firm foothold and grown into their roles, it is possible that their market value threshold will be appropriately lowered to embrace the backflow of excellent red chip enterprises.

 Read more 
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Opportunities and risks

• Significantly driving the activity of the NEEQ

The average monthly trading volume of the NEEQ was only 11.9 billion yuan in the first eight months of the year, rising to 34.7 billion yuan in the following two months, with contributions from the select tier being the main driver. Companies previously traded in the select tier are now listed on the BSE.

• Little diversion from other exchanges

The first batch of 81 listed companies on the BSE have raised a total of 17.86 billion yuan through share sales, a small figure compared with the Shanghai and Shenzhen bourses’ average daily turnover of about 1 trillion yuan. The short-term diversion effect is expected to be small.

• Extensive opportunities in the future

The BSE is positioned to support specialized, sophisticated, distinctive and innovative companies, hidden champions and SMEs, serving “earlier, smaller and emerging” enterprises. Despite their small initial scale, these enterprises have great room for growth.

• Benefits come with risks

The sustainability of earnings of BSE-listed companies remains to be seen. Investors should have strong risk tolerance and professional screening ability. Blind speculation is inadvisable.

System design

• BSE implements a corporate system

There are two common organizational forms of stock exchanges, i.e., the membership or corporate system. Which of the two is chosen depends on whether the stock exchange is profit-motivated. Both the SSE and the SZSE implement the membership system, which is formed by membership units, such as securities companies. Essentially, they are self-managed organizations launched by members. In contrast, the BSE adopts the corporate system, which can efficiently encourage listed companies and provide them with more services, and the BSE itself can even be listed on the market.

Globally, major stock exchanges compete with each other over high-quality IPO candidates. Therefore, quite a few renowned exchanges have transformed to implement the corporate system, for example, the London Stock Exchange and the Hong Kong Stock Exchange.

• Flexible listing standards

According to the listing rules of the BSE, the minimum requirement of a candidate’s market value is 200 million yuan, considerably lower than that of the STAR Market and the ChiNext board, set at 1 billion yuan.

The listing standard of the BSE is in line with that of the now-defunct select tier. A listing standard should be chosen from the following four standards with the overall criterion of “market value + finance”: “market value + net profit + weighted return on equity,” “market value + revenue + revenue growth + cashflow,” “market value + revenue + R&D proportion,” and “market value + R&D investment.”

These four standards are all very inclusive. The first two standards focus on high-quality enterprises that have good profitability and outstanding financial performance. To accurately support SMEs, the BSE has a lower requirement on market value. The other two standards value R&D data, with the clear purpose of maintaining SMEs’ independent innovation capability.

The BSE implements a registration-based IPO system, with review by the BSE and registration through the China Securities Regulatory Commission. The system focuses on whether a company’s information disclosure is in place. As for review duration, the BSE has a review period of two months, which is one month shorter than that of the ChiNext board and the STAR Market. In theory, it only takes six to eight months from application to listing on the BSE.

• Daily price fluctuation limit of 30%

The BSE uses the trading system of the select tier. Unlike the STAR Market and the ChiNext board who do not have a price fluctuation limit for the first five days and a limit of 20% for following days, the BSE has no limit on the price fluctuation of new shares on the first day but a limit of 30% from the next day on. The price fluctuation range is wider than that of the STAR Market and ChiNext, with the purpose of making transactions more flexible.

This article was written by a research team led by senior economist Ren Zeping. It has been edited for length and clarity.

Contact editor Heather Mowbray (

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