ChiNext Shenzhen a Hit with China’s SMEs

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SHENZHEN, Jul. 23 – The ChiNext stock market hosted by the Shenzhen Stock Exchange, has proven so successful after its launch last year that it has now launched a benchmark index for its Nasdaq-style trading.

The board was created to support small companies with high growth prospects. The ChiNext Index will “comprehensively and objectively reflect the overall price direction of ChiNext board stocks,” said the Shenzhen Stock Exchange.

ChiNext was launched last October to give small- and medium-sized companies access to financing and encourage private equity firms and venture capitalists to back start-ups.

Regulators wanted the new growth enterprise market will help fuel young companies and other firms with high-growth potential in the world’s third-largest economy.

As of June, there were 86 firms listed on the board with a total market value of MRB383.5 billion (US$56.1 billion). The index is eventually to be composed of 100 stocks, selected based on their weight of market value of floatable shares and trading volume.

The news comes as Deloitte have announced they expect listings in China to quadruple in 2009 compared to 2008 figures. To date 192 Mainland Chinese companies have listed in either Shanghai or Shenzhen, raising a total of RMB300 billion (US$44.3 billion).

Now that China’s main state-owned banks have completed their listings, smaller regional banks are expected to follow. These include the Bank of Shanghai, Bank of Wenzhou and Bank of Chongqing. The Shanghai Stock Exchange is also set to launch its international board later this year, which is expected to attract foreign investors, and H share listed businesses in Hong Kong.

Shanghai’s international board will then permit foreign businesses to raise RMB in order to fund their expansion plans in China, a route that currently can only be done by establishing enterprises with foreign direct investment in the form of registered capital from overseas. The evolution means that the three China boards will concentrate on raising capital as follows:

  • Hong Kong: Raising international capital to fund growth of companies externally from mainland China
  • Shanghai: Raising domestic capital to fund growth of companies within China
  • Shenzhen: As per Shanghai, however with focus on mainland SME market

2 thoughts on “ChiNext Shenzhen a Hit with China’s SMEs

    Willis Murray says:

    What is the definition of a small and medium size company?

    Editor says:

    Under the current definition, medium-sized enterprises are firms that employ 300 to 2,000 people, earn RMB30-300 million annually in sales, and own RMB40-400 million in assets. Small firms are defined as having fewer than 300 employees, earning less than RMB30 million annually in sales, and owning less than RMB40 million in assets. However, China’s Ministry of Industry and Information Technology is in the process of redefining SMEs. The government is considering narrowing the scope of medium-sized companies and expanding that of small-sized companies. It has also proposed the creation of another category – micro-sized companies

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