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A tale of three cities : Why does China need a new stock exchange in Beijing?

London first got a stock exchange in 1698 but Beijing had to wait until 1918 for a bourse of its own. The Peking Securities Exchange was the first Chinese-owned stock market, with the slightly older Shanghai exchange set up a few years earlier (in 1891) by foreign investors.

It made its debut during a chaotic era of battling warlords and competing currencies. The bourse dealt primarily in different kinds of government debt or fiat currencies issued by the series of military regimes (known colloquially as the “Beiyang government”) that had taken control of the Chinese capital.

The exchange halted operations following the outbreak of the second Sino-Japanese War in 1937. Trading resumed for a year when the Communist Party of China (CPC) took control of the country in 1949, before profit-making companies were eliminated, putting an end to the bourse completely.

This month, however, Chinese investors have been buzzing about a new stock exchange in the capital. It looks likely to enjoy better fortunes than its predecessor, helped by backing from the heart of the Chinese government. In fact, the talk is that the new bourse is going to be a gamechanger for China’s financial markets in general.

What’s the plan and who is backing it?

There wasn’t much forewarning of last week’s announcement. Policy blueprints such as the 14th Five-Year Plan hadn’t mentioned the idea of a new bourse to complement the existing Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE). So it was a surprise when Chinese leader Xi Jinping personally made the announcement on September 2, during an address to a trade fair in Beijing.

Xi said that his administration would be reforming the over-the-counter bourse currently based in the Chinese capital, (the New Third Board: for more on this exchange, known by the acronym the NEEQ). The changes would herald the launch of the new Beijing Stock Exchange (BSE) as the primary platform for “innovation-oriented SMEs [small and medium-sized enterprises]”, he added.

While Xi did not offer further details, the China Securities Regulatory Commission (CSRC) then published a statement saying it would be consulting industry participants in an effort to formulate regulations for the BSE.

Early signs are pointing to strong support from the central authorities. In a speech at the annual meeting of the World Federation of Exchanges, the CSRC’s chairman Yi Huiman said that regulators were committed to a comprehensive market infrastructure that serves SMEs better. Liu He, the vice premier, has also voiced his support for the BSE. Widely considered as the key economic advisor to Xi, Liu heads the State Council’s leading group on SME development. Despite the recent crackdowns on sectors spanning the leading internet platforms, the edtech providers and the entertainment industry, Liu told another conference last week that the government would continue to offer strong support to the private sector including SMEs.

There is no timetable for when the first batch of firms will be ready for their trading debuts. But events seem to be moving quickly. On September 5, the NEEQ published a set of listing rules for the new bourse, designed for public consultation and feedback. Xinhua reported this week that the BSE had been registered as a limited company too.


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