Why Xi Jinping wants a new Beijing stock exchange

A new Beijing stock exchange is expected to be operational within months. The fact China’s President made the announcement underscores its significance and provides more insight into the economic vision of China’s Government.

The new bourse was announced during a short opening address by President Xi Jinping at the Global Trade in Services Summit. The Summit is part of the 2021 China International Fair for Trade in Services.

“We will create more possibilities for cooperation, by scaling up support for the growth of the services sector in Belt and Road partner countries and by sharing China’s technological achievements with the rest of the world,” said the President.

“We will continue to support the innovation-driven development of small- and medium-sized enterprises (SMEs), by deepening the reform of the New Third Board (National Equities Exchange and Quotations) and setting up a Beijing Stock Exchange as the primary platform serving innovation-oriented SMEs.”

What is the New Third Board?

There is in fact already an existing stock market in Beijing – the National Equities Exchange and Quotations (NEEQ). It is colloquially known in China as the “New Third Board”, as referenced by Xi Jinping in his speech.

The NEEQ is an over-the-counter trading platform for small and medium-sized companies that was launched in 2013. As of September 2, there were 7299 companies listed on the NEEQ.

However, the NEEQ is not well known inside of China, let alone outside the country, and has been plagued with liquidity problems since being established in 2013.

While Xi Jinping provided very few details on the new exchange during his speech, within hours the China Securities Regulatory Commission (CSRC) confirmed on its WeChat account that the new Beijing Stock Exchange would be built on the National Equities Exchange and Quotations (NEEQ) platform.

So, while Xi’s new Beijing Stock Exchange has been widely reported as a completely new development it is more likely to be a major restructured and reformed version of the NEEQ, with the aim of making the third Chinese bourse more liquid and accessible.

The new Beijing stock exchange will favour listings from small and medium companies from the services sector.

China needs capital

The announcement is being viewed by many as another move by the Chinese Government to ensure wealth and capital is not constrained to mega-cap companies – the sort of technology and industrial giants listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange.

Related: What are the major stock indexes in Asia?

“The message was very clear, China still requires capital, in particular they’re trying to resolve this age-old issue of how to direct capital to the small and medium enterprises in China that still need the capital to grow and thrive and innovate,” Zhikai Chen, Head of Asian Equities at BNP Paribas Asset Management, told Bloomberg.

Bringing innovation to Beijing and keeping it in China

Andy Mayer, CEO of Albion Green, a leading Hong Kong-based financial eduction firm, said the announcement demonstrates China is not walking away from capitalism.

“There will continue to be private money being put to work in private enterprises in China, even if the rules have changed recently,” he said.

“Shanghai and Shenzhen are known for stock markets and for the innovation-orientation business sector. Beijing is known for politics and officialdom. The fact that Beijing has been declared the location for this new exchange is very significant.

“The tech sector and smaller companies of the future will be closer to the politicians, compared to the previous high fliers from Shenzhen, Hangzhou and Shanghai.”

Mr Mayer also suggested Chinese tech firms who’ve historically favoured New York and Hong Kong listings will be more vigorously encouraged to list domestically.

Domestic listings for Chinese domiciled businesses has been viewed as a key Government agenda item and one of the driving forces behind the recent Chinese regulatory crackdown on big business and their billionaire owners.