CHINEXT, CHINA'S HOMEGROWN version of the Nasdaq, is working to implement a capital market for innovative SMEs that allows only the most efficient and value-centric listed firms to survive, while not shying away from letting laggards fall by the wayside.
The Shenzhen-based board is fast approaching its one-year anniversary and has grown from a modest assortment of 28 listed capital-hungry firms to a 131-enterprise strong capital raising market today.
A high-ranking official charged with overseeing the one-year old trading platform -- also sometimes referred to as the Shenzhen GEM Board -- says that “survival of the fittest” is the ideal environment for the long-term sustainability and profitability of ChiNext.
Qi Bin, the US-educated Deputy Director General of Fund Department of China Securities Regulatory Commission (CSRC), said in a Chinese language piece in SinaFinance that ChiNext has "successfully adapted to the requirements of the current stage of social development" and he predicted the board would be even more successful in the coming years.
“China does not lack for capital raising platforms at present, I believe ChiNext will continue to provide opportunities for innovative and profitable firms, and also serve as a winnowing mechanism for unprofitable listed laggards. This is ‘survival of the fittest’ at work and this is how ChiNext should work, for the betterment of the board, the shareholders as well as the overall health of Chinese enterprises,” he said.
The board has settled down considerably from a year ago, when the handful of listed firms at the time often boasted P/E ratios in the triple digits.
In fact, there are clear signs of late the high-flying early days of ChiNext are a thing of the past.
It was recently announced that 37 applicants were rejected so far this year for a ChiNext listing.
The would-be ChiNext IPOs were rejected due to problems with the companies themselves as well as their underwriters, local media reported.
The factors that influence the IPO review include discontinuous profitability, related party transactions, incomplete information disclosure, improper use of proceeds, and problems in equity holdings.
The 37 ChiNext applicants were underwritten by 22 brokerages, including Dongwu Securities, Haitong Securities (SHA: 600837), Guosen Securities and Dongxing Securities.
Mr. Qi of the CSRC expressed his confidence in China’s economic growth, the entrepreneurial spirit of its people and the can-do spirit of the businesspersons with their ability to establish new and innovative small firms that can replace delisted ChiNext counters with the efficiency of a smooth running assembly line.
“There will always be willing and ready replacements to keep the number of ChiNext listcos at the optimum level,” he said.
“There will continue to be a steady stream of new enterprises in China.”
China has taken profound and effective steps to initiate capital market reforms, and ChiNext, along with the established A-share markets, were all subject to the ongoing campaign.
Mr. Qi recommended that ongoing market reforms focus on five key areas:
1) Developing ChiNext
2) Deepening Over the Counter (OTC) trading platforms
3) Promoting bond market trading
4) Boosting capital market internationalization
5) Furthering equity fund reforms
As for OTC development, Mr. Qi said the essential objective was to establish national uniform standards.
“The various supervisory functions of the OTC market must be clearly delineated without excessive functional or jurisdictional overlap so as to maximize efficiency and uniform fairness in the market,” he said.
He touched upon a very important matter that has been making headlines in business publications for much of the past decade – the yuan exchange rate, and its nagging lack of convertibility in global markets.
“The internationalization of capital markets does not depend on the Renminbi’s ‘internationalization’. If the capital market is not competitive, then yuan internationalization would be greatly restricted. If domestic capital markets are not more efficient and transparent, then officially de-pegging the yuan and allowing full convertibility will greatly affect the overall stability of the economy.”
The development of the corporate bond market would also improve structural imbalances in the economy and the capital market.
"At present, our company bonds and other fixed-income products lag behind overall demand and general market development. The current corporate bond infrastructure is not only insufficient on a risk appetite and management basis, but fully opening it would be detrimental to the goal of a balanced capital market and harmonious economic development.”
However, he said that new alternative capital raising platforms for SMEs like the ChiNext as well as a developing corporate bond issuance system were crucial to China in its current stage of economic development.
"The current state of China's economy is one of continued growth of industry involving a large number of mergers and, similar to the bond market, there is a growing demand for efficient and functioning stock markets to help fund M&A and capacity expansion strategies. This makes ChiNext a key new component of the system.”
See also:
BLUEFOCUS: China PR Firm Share Price Up Over 56% Since End-Feb Debut!
CHINEXT: Funds Rushing Into New Board At Frenzied Pace
CHINEXT: Fund Managers Trumpet August Entry Point
