The Beijing Stock Exchange Has Opened, Here's What You Should Know
Following a late-summer announcement and a few months of hammering out the details, the Beijing Stock Exchange opened its doors today. Here's the lowdown on China's third stock exchange.
When was it proposed?
The BSE was proposed in September of this year when China announced plans to open a third stock exchange that would specifically serve small and medium-sized businesses (SMEs).
What is it for?
As mentioned above, the exchange is meant to serve innovative SMEs, which have historically been plagued by financial setbacks and difficulties raising capital. Banks are reluctant to approve loans for small businesses given their high risk and lack of collateral. As such, smaller firms without sufficient funds often turn to international investors for funding. Now, however, with the establishment of the BSE, domestic financing options will be available for smaller enterprises.
What sets it apart?
China has two other exchanges – the ChiNext in Shenzhen and the Star Market in Shanghai. Compared to the other two, which focus on state-owned and non-profit institutions respectively, companies to be listed on the BSE are smaller-sized, innovation-driven enterprises that operate under a corporate model.
The average market capitalization of the BSE is also far less, with only RMB 3.7 billion, about a sixth of those on the Shanghai and Shenzhen exchanges combined.
Trading will also be more flexible on the BSE. During the first day of trading, there will be no limit on price changes, however, if stock prices rise more than 40 percent or fall in excess of 60 percent, it will trigger the circuit breakers. Moving forward, there will be a limit of up to 30 percent for rises and falls daily, versus 20 percent on ChiNext and Star Market.
It's worth noting that there has been uneven economic development between Northern and Southern China, with the North known as the country's political hub and the South its financial center. Incidentally, the ChiNext and Star Market are both located in the South. With the founding of the BSE, industry insiders hope that some capital will flow to the North, and effectively close the gap between the two regions.
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Images: Dianping
