China will open a new stock exchange in Beijing, giving the country’s capital and political center more clout in the business and financial worlds.
At an international trade fair on Thursday, President Xi Jinping announced the Beijing-based exchange, saying he wanted to create a venue for “service-oriented” and “innovative” businesses. He didn’t specify when the exchange would take place.
On the mainland, China already has two stock exchanges, but they are in Shanghai and Shenzhen, far from Beijing. The Shanghai Stock Exchange, which opened in 1990, is primarily home to large-cap companies such as state-owned enterprises, banks, and energy companies.
The Shenzhen Stock Exchange has a higher percentage of tech and small and medium-sized businesses.
The Hong Kong Stock Exchange exists as well, but it is governed by its own legal and regulatory framework and is not subject to Beijing’s capital controls.
The move comes as China’s government intensifies its regulatory crackdown on large private companies. For nearly a year, Beijing has been working to limit its power and influence.
It’s being announced at a time when Chinese companies are trying to raise money in the United States and are running into regulatory roadblocks.
Chinese authorities are exerting pressure because they are concerned that tech companies going public outside of China could give foreign governments access to sensitive user data. Meanwhile, US regulators have increased their scrutiny of Chinese IPOs and mandated more detailed risk disclosures.
It’s also the second time Xi has made a public announcement about the stock market. He launched a tech-focused board for startups on the Shanghai Stock Exchange in 2018, as the US-China trade war raged. The Star Market was established to channel investment into China’s high-tech companies and help the country gain a technological advantage over the West. More than 300 tech companies have listed on the board since then, with a total market capitalization of more than 4.7 trillion yuan ($728 billion).
In 2013, the government launched an over-the-counter system in Beijing for trading shares of companies that are not listed in Shanghai or Shenzhen.
In China, it’s known as the “New Third Board” and is called the National Equities Exchange and Quotations (NEEQ). In recent years, however, the NEEQ has fallen behind Shanghai and Shenzhen markets in terms of size and liquidity. Xi promised to reform the NEEQ system on Thursday.
The country’s top securities regulator, the China Securities Regulatory Commission (CSRC), later explained that the new Beijing stock exchange will be built on top of the NEEQ. Selected NEEQ companies may be eligible to list on the Beijing exchange, according to the regulator.
Companies seeking to list on the new exchange will be subject to the registration-based IPO system that China piloted in Shanghai two years ago, according to the statement. Companies must now disclose even more information about their operations under this system. Its goal is to increase market transparency and shorten the time it takes for IPOs to go through regulatory review.