If you didn’t catch it, last Thursday during Xi JinPing’s brief speech to the country, he declared the opening of a new stock exchange in Beijing. The new stock exchange joins Shanghai and Shenzhen as the 3rd stock exchange in China. This time the Chinese government has announced plans to focus on SMEs (small and medium enterprises) with the new exchange. This news comes days before Beijing announced its plans to lower taxes nation-wide for newly established companies (including foreign owned enterprises) by the end of 2022.
Beijing Stock Exchange Opening
On September 3rd, just one day after its announcement, the Beijing Stock Exchange completed registration with an injected registered capital of one billion Chinese Yuan ($155 million). The 100% shareholder of the new Beijing Stock Exchange is the National Equities Exchange and Quotations (NEEQ). The NEEQ is Beijing’s Municipal Administration for Market Regulation.
On Sunday, the Beijing Stock Exchange published the rules for the procedures of listing, trading and membership on the official NEEQ website. The stock exchange rules will not limit price changes on the first day of trading, however trading will be frozen for ten minutes whenever prices rise over 30% or drop 60% or more. Daily trading movements will be restricted to 30% after the first day of trading.
At the end of 2020, the NEEQ counted a total of 8,187 companies listed with 94% being SMEs, a combined market cap of 2.65 trillion yuan ($410 billion) according to the NEEQ website. These companies are set to receive unprecedented investments once trading goes live on the Beijing Stock Exchange.
Crackdowns on Big Tech
This news comes one month after the Chinese government’s massive big tech and education crackdown. In the last few months, large Chinese tech companies starting with Alibaba and later Didi and 10 other ride hailing services were subjected to sanctions in the form of billion dollar fines and delisting from app stores. At the same time tutoring platforms and tutoring businesses were also shut down.
While crackdowns and changes to education in China is a recurring subject, the crackdown on large tech companies has been seen by many as an attempt by the Chinese government to keep control over the data of it’s ever-growing tech firms with the core of the penalties citing “unfair trade practices” and operating against anti-monopoly laws.
It’s an unlikely coincidence that both Ant Financial and Didi both got the CPC backhand as they were doing international IPOs, opening their businesses to the world and potentially becoming liabilities to the Chinese government due to different data laws across nations. In an interview with CNBC, Derrick Scissors from the American Institute stated that while companies like Alibaba are too big to fail in China, they are also too big to succeed.
It’s hard, in the context of this story, to not think about the stark difference between US and Chinese politics. In the US, under relatively strong capitalism, you inevitably have the largest players monopolize or oligopolize markets and stretch their influence to politicians. Whereas in China, government interference seemingly prevents companies from becoming too big to do these things because the government influences the companies and not the other way around.
This is where the Beijing stock exchange enters. A stock exchange the Chinese government say will support SMEs as opposed to large companies. A possible step to lessen the dominance of large players by enabling smaller players access to public capital? There’s still a lot about this new exchange that we don’t know. After all, the news is extremely recent, and very little has been said by the Chinese government about the Beijing stock exchange. However, recent developments do draw some conclusions as to what Beijing might have in mind