Table of Contents
Last Thursday, Chinese President Xi JinPing made a brief speech to the country and declared the opening of a new stock exchange in Beijing. In the future, the stock exchange in Beijing will join Shanghai and Shenzhen as the 3rd stock exchange in China. On the speech, president Xi stated that Chinese government will 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, the Beijing Stock Exchange completed its registration with an injected registered capital of one billion Chinese Yuan ($155 million) before the official announcement. 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. Although the new stock exchange will not limit price changes on the first day of trading, trading will be frozen for ten minutes whenever the price of stocks rises over 30% or drops 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 massive big tech and education crackdown in China. For the last few months, a variety of Chinese tech companies that including Alibaba, Didi and 10 other ride hailing services were subjected to sanctions in the form of billion-dollar fines and removed 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 unlikely to be a coincidence, especially when Ant Financial and Didi both got the CPC backhand as the two companies were planning international IPOs and opening their businesses to the world. From another perspective, the bold move of the two companies might cause 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 explains the establishment of the Beijing stock exchange. According to the Chinese government, the new stock exchange will increase the support for SMEs rather than large companies. Possibly, this a step can 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