China already has two stock exchanges on the mainland, but they are located in Shanghai and Shenzhen, far from Beijing. The Shanghai Stock Exchange, which was established in 1990, mainly hosts large-cap companies, including state-owned enterprises, banks, and energy companies. The Shenzhen Stock Exchange has a greater proportion of technology companies and small and medium-sized enterprises.
There is also the Hong Kong Stock Exchange, but it is subject to its own legal and regulatory systems and is not subject to Beijing’s capital controls.
The move comes as the Chinese government’s regulatory crackdown on large private companies intensifies. Beijing has been working for almost a year to harness its power and influence.
The government also set up an over-the-counter system in Beijing in 2013 for trading in shares of unlisted companies in Shanghai or Shenzhen. It is called National Equities Exchange And Quotations (NEEQ) and is widely known as the “New Third Board” in China. However, the NEEQ has lagged behind the Shanghai and Shenzhen markets in recent years, shrinking in size and liquidity. Xi pledged Thursday to reform the NEEQ system.
The China Securities Regulatory Commission (CSRC), the country’s main securities regulator, later explained that Beijing’s new stock exchange would be built on top of the NEEQ. Selected NEEQ companies can qualify to be listed on the Beijing Stock Exchange, added the regulator.
The CSRC also said that the Beijing stock exchange will complement the Shanghai and Shenzhen stock exchanges and focus on serving “innovative” small and medium enterprises.
The registration-based IPO system that China piloted in Shanghai two years ago will also be applied to companies seeking to list on the new exchange, he added. This system forces companies to make even more disclosures about their operations. It aims to improve market transparency and reduce an otherwise lengthy regulatory review for IPOs.