Beijing Stock Exchange Supports Innovation-Driven Small and Medium-sized Enterprises

By Audrey Guo

On September 2， 2021， gen- eral secretary Xi Jinping announced in his speech at the China International Fair for Trade in Services — Global Services Trade Summit， that the State will continue to support innovation and development of small- and medium-sized enterprises， deepen the reform of the National Equities Exchange and Quotations （NEEQ） and set up the Beijing Stock Exchange to build a main camp for serving innovative small- and medium-sized enterprises， which is an important landmark of reform and development of China’s capital market.

On November 15， the Beijing Stock Exchange was officially inaugurated. By the end of 2021， there were 82 listed companies at the Beijing Stock Exchange， 1，224 listed companies on the innovation layer of the NEEQ and 5，749 listed companies on the basic layer.

Boost confidence in the development of the NEEQ

Since its opening， the average daily turnover of the Beijing Stock Exchange has increased by 3.04 times compared with that of the selected layer in August 2021， and the overall annual turnover rate is 434.26%， which is in line with the liquidity characteristics of smalland medium-sized market capitalization stocks. In 2021， stocks in the Beijing Stock Exchange rose 98.90% on average， showing the initial wealth effect in the market. The number of investors exceeded 4.75 million， 2.8 times that before the announcement of the establishment of the Beijing Stock Exchange； the innovation layer and the basic layer were effectively driven， with a 19.76% yearon-year increase of the annual turnover and a full rise of all of the 10 indexes.

Xu Ming， Chairman of the Beijing Stock Exchange， said that through continuous reform and innovation， the NEEQ market has introduced a public offering system， optimized the directional offering mechanism， and launched simultaneous listing and self-issued offering for insiders. The selected layer implements continuous bidding， improves the collective bidding frequency of the innovation layer and the basic layer， retains market-making trading， implements differentiated investor suitability management， and further improves the market liquidity， which lays the market and institutional foundation for the development of the Beijing Stock Exchange.

After the opening of the Beijing Stock Exchange， the trading activity increased. All parties generally expressed positive expectations for the follow-up reform and development of the market， and paid high attention to such aspects as the entry of longterm funds into the market， measures to enhance liquidity and the follow-up supply of new shares. According to the questionnaire， 96% of the companies have full confidence in the future development of the NEEQ. Government departments at all levels， intermediary institutions， banks and other entities actively linked up with the Beijing Stock Exchange， saying that they would increase business input and cooperation， participate in market construction， and form a joint force to serve the innovative smalland medium-sized enterprises.

In addition， the social security fund and QFII have entered the market to invest， and professional institutions accelerate the layout. In several documents China has unveiled before， such as policies for supporting green economic development and promoting regional high-quality development， the State has proposed to support the listing of relevant enterprises. Now the relevant policies are also applicable to the Beijing Stock Exchange.

According to relevant regulations， the listed companies in the innovation layer that have been listed on the NEEQ for 12 consecutive months will have the opportunity to apply for listing at the Beijing Stock Exchange after meeting other basic conditions. As of January 5， there were 1，225 companies on the innovation layer of the NEEQ.

Related personnel of Shenwan Hongyuan said that after the establishment of the Beijing Stock Exchange， enterprises have a greater willingness to enter the Chinese capital market through the NEEQ， driving the company’s reserve of projects recommended for listing on the NEEQ. In 2021， the companies have initiated more than 40 NEEQ recommended listing projects， and more than 20 companies will be successfully listed in 2022.

As of January 5， 2022， more than 400 companies have applied for public offering guidance and entered the Beijing Stock Exchange. In addition， a number of high-quality“reserve army” is also preparing for listing in the Beijing Stock Exchange. Among them， the majority of companies come for such places as Jiangsu， Guangdong， Zhejiang， Beijing， Shandong and Shanghai； the top five industries by number of companies are software and information technology services， electrical machinery and equipment manufacturing， pharmaceutical manufacturing， computer， communications and other electronic equipment manufacturing， and specialized equipment manufacturing.

Boost the “specialized and new” small- and mediumsized enterprises

The hot launch of funds on the Beijing Stock Exchange is a shot in the arm under the depressed market mood. A number of industry insiders said that by investing through the publicly offered funds in the Beijing Stock Exchange， it may obtain low threshold and achieve risk diversification.

The first batch of 81 listed companies on the Beijing Stock Exchange made a collective appearance， reflecting the distinctive characteristics of the innovative small- and medium-sized enterprises. Different from the Shanghai and Shenzhen stock exchanges， the Beijing Stock Exchange adheres to the market logic of “progressive step by step”， and the listed companies come from the innovation layer of the NEEQ. More than 80% of the companies are from advanced manufacturing， modern service industry， high-tech service industry and strategic emerging industries， and 17 are specialized and special new “l(fā)ittle giant” enterprises.

Up to now， the Beijing Stock Exchange has served more than 13，000 listed companies， bringing together more than 700 specialized and special “l(fā)ittle giant” enterprises. The enterprises serving the market are both “l(fā)arge and excellent”and “small and beautiful”， laying the enterprise foundation for the development of the Beijing Stock Exchange.

Ni Hongyan， Deputy General manager and board secretary of Mingguang Haomiao Security Technology， one of the first listed companies， said the exchange carries the hopes of the small- and medium-sized private enterprises and showcases the booming domestic economy.

The establishment of the Beijing Stock Exchange complies with the requirements of the current national strategy and economic transformation， and the hot sale of the first batch of funds also reflects the market’s optimism for the future development of the Beijing Stock Exchange， industry insiders said.

According to Wu Yuanyi， the Proposed-to-be Fund Manager of the two-year fixed mix of Guangfa Beijing Stock Exchange， 70%-80% of the enterprises in the Beijing Stock Exchange are positioned in the highend manufacturing industry and the“specialized and special new” fields， which is the “l(fā)ittle giant” of a niche industry. The Beijing Stock Exchange is positioned to provide a better financing environment for more innovative small-and medium-sized enterprises， while reducing financing costs. From the perspective of investors and fund holders， the scope of investment has also been expanded.

Why can the Beijing Stock Exchange attract so many small- and medium-sized enterprises？ Zhang Keliang， analyst from Yintai Securities believes that， first China has a large number of high-quality small- and medium-sized enterprises， which have an extremely urgent desire for equity financing through listing. Second， the national policy is also actively developing inclusive finance to support the listing and financing of these high-quality specialized new enterprises. Third， at the macro level， in order to hedge the downward economic pressure brought by the epidemic， it is necessary to support the development of“specialized and innovative” enterprises with capital means. Zhang said that the rapid expansion of the Beijing Stock Exchange market in 2022 can be expected in terms of both policy and market， with more than 200 new companies expected to be listed on the Beijing Stock Exchange and a total of about 300 enterprises are expected to be listed.

At the same time， Zheng Xi， Proposed-to-be Manager of E-Fund Beijing Stock Exchange selected two-year regular open hybrid fund， pointed out that the listed companies in the Beijing Stock Exchange have relatively new business models， rapid technological iteration， relatively large performance fluctuations and operational risks， which poses certain requirements to investors in terms of investment experience， capital strength and risk tolerance.

According to Zhu Haibin， analysts from Essence securities， in 2022 the mechanism of the Beijing Stock Exchange is worth looking forward. The innovative enterprises which focus more on the niche markets， innovation ability， high market share， the key core technology as well as superior quality and performance， and particularly the specialized and new“l(fā)ittle giant” enterprises will flood into the Beijing Stock Exchange. With low valuations， these enterprises need to be excavated by the market.

Banks and security traders actively settle in the Beijing Stock Exchange

National ministries and commissions， including the Ministry of Industry and Information Technology and the Ministry of Science and Technology， as well as the local governments have issued policies to support the innovative small- and medium-sized enterprises to develop through the Beijing Stock Exchange and the NEEQ. At the same time， banks， brokerages and other institutions actively settle into the Beijing Stock Exchange to jointly build a full-chain financial service system for the small- and medium-sized enterprises.

In order to seize the development opportunities of the Beijing Stock Exchange， the local governments are enthusiastic about promoting the listing of the small- and medium-sized enterprises. Banks and securities brokers also actively settle into the Beijing Stock Exchange， and all parties work together to build a financial service system covering the whole chain of small- and medium-sized enterprises.

“The opening of the Beijing Stock Exchange not only opens up a new channel for a large number of small- and medium-sized enterprises to finance through listing， but also expands the space for public funds to invest in new operations. As the stocks listed on the Beijing Stock Exchange are within the legal investment scope of the public fund， the public fund can invest in the Beijing Stock Exchange stocks in accordance with laws and regulations of the fund contract，” said a member of E-Fund’s investment team.

Fourteen banks actively set up the Beijing Stock Exchange to promote the formation of direct and indirect financing services. The national stock transfer company and Beijing Stock Exchange singed a strategic cooperation agreement with 14 banks， such as the Industrial and Commercial Bank， Agricultural Bank， Bank Of China， Construction Bank， Bank of Communications， Postal Savings Bank， China Merchants Bank， Ping An Bank， Minsheng Bank， Shanghai Pudong Development Bank， Bank of Beijing， Jiangsu Bank， Ningbo Bank and Industrial Bank.

Commercial Banks are not only the backbone of the indirect financing system in our country， but also important supporters of the NEEQ， which provide a total of close to RMB 100 billion credit balance to the listed and public companies. Different banks have distinguishing features， for instance， some introduces exclusive credit products to the NEEQ and the Beijing Stock Exchange， some creates characteristic brands of inclusive finance， and some promotes the depth to strengthen the linkage of investment and lending.

Brokerages are also actively preparing for the “war”. It is learned that the Kaiyuan securities has successfully sponsored the underwriting of five listed companies on the Beijing Stock Exchange， eight enterprises in the review and 24 enterprises in the state of counseling， which concentrate in the innovative， “specialized and new” and strategic emerging industries， such as electronic information， machinery manufacturing， medicine， big data and artificial intelligence.

The underwriting sponsor company of Shenwan Hongyuan has completed six selected layer public offering projects， all of which have been shifted to the listed companies of the Beijing Stock Exchange. Among the Beijing Stock Exchange projects， one project has been approved at the meeting and is awaiting issuance， six projects are under review and more than ten projects wait to be declared after guidance and acceptance. Soochow Securities has screened the projects under continuous supervision， and it is estimated that in 2022 a total of 19 enterprises that have been listed on the NEEQ will initially meet the requirements of the Beijing Stock Exchange. Among them， 11 enterprises have preliminarily set the deadline for declaration as of December 31， 2021， three enterprises as of March 31， 2022 and five enterprises as of June 30， 2022.