The bourse was first announced by the Chinese Communist Party leader in September, and is intended to help small and medium-sized enterprises raise capital.
The first batch of 81 firms started trading on Monday, including 10 initial public offerings from companies in tech and manufacturing. Shares in those IPOs surged at the open and hit circuit breakers, before closing with an average price increase of 200%.
Autos components maker Tongxin Transmission was the standout performer with an eye-popping gain of 494%. The other 71 companies listed in Beijing were previously trading on an over-the-counter system for companies not listed on China’s premier stock markets in Shanghai and Shenzhen.
Helping new and small businesses
When Xi first announced the idea of a Beijing-based exchange in a speech in September, he said that he wanted to create a “primary” funding platform” for “service-oriented” and “innovative” small businesses.
Small and medium-sized enterprises traditionally face difficulties in obtaining funds from China’s state-owned banking system because of their lack of collateral and other constraints.
But if China is to realize Xi’s ambition of surpassing the West in advanced technologies, these companies will need to grow and innovate.
The Beijing Stock Exchange will “complement” the Shanghai and Shenzhen stock exchanges and focus on serving innovative smaller firms, the Chinese Securities Regulatory Commission said in September. As of now, the companies listed on the BSE have an average market value of around 3.9 billion yuan ($610 million).
Increasing the influence of Beijing
Mainland China’s major stock exchanges are located far from the country’s political center in the north. The Shanghai Stock Exchange, which was established in the eastern city in 1990, hosts mostly large-cap companies, including state-owned enterprises, banks and energy firms. The Shenzhen Stock Exchange, in southern China, has a bigger proportion of tech companies.
“The establishment of BSE is conducive to balanced regional development and will increase the influence of northern China [on the] capital market,” said Luo Zhiheng, chief macro analyst for Guangzhou-based Yuekai Securities, in a recent research report.
In addition, the Beijing Stock Exchange can “better serve the capital city’s core positioning of becoming the nation’s centers of politics, culture, international exchange, and technology and innovation, ” a goal set by Xi in 2014, Luo said.
The launch of the Beijing-based exchange also comes as the door is closing for Chinese tech IPOs overseas, due to stricter scrutiny on these firms in both China and the United States.
On Sunday, the Cyberspace Administration of China proposed tougher rules for tech firms planning overseas listings. Companies that seek to list in Hong Kong must submit to cybersecurity inspections if they hold data that concern national security, the regulator said.
“China’s leadership has grown more wary of its firms listing in the United States … in particular for firms that control significant amounts of data,” said analysts from New York-based Eurasia Group in a recent research report.
“Indeed, the newly announced Beijing Stock Exchange is intended to help smaller Chinese companies raise capital outside the United States,” they said.