High hopes riding on alternative exchange
- Source: Global Times
- [02:43 October 23 2009]
- Comments
Mentioning wildly successful start-ups of years past like Microsoft or Intel is enough to spark imaginations in China over the country's Growth Enterprise Board (GEB), the new alternative stock exchange to be unveiled today in Shenzhen.
The idea of a separate stock exchange for emerging but risky companies was first floated in 1998, but was postponed several times due to fluctuations and scandals that frequently troubled the main bourse.
The launching of the new board sped up this year. The China Securities Regulatory Commission (CSRC) has approved 28 companies to be listed on the GEB.
It is hoped that this alternative investment channel will serve as a launching pad for innovative companies, crucial to China's economic transformation. It is also hoped that the board will be a place for rational investment.
The 17-year history of the main bourse doesn't offer many reasons to be optimistic: Cheating, fabrications and insider trading permeate the market. Individual investors, already the victims of inadequate regulation, are keen on making quick money, stoking the speculative mood in the market, which is already growing into a bubble.
Greed is difficult to prevent unless there are sufficient safeguards to expose wrongdoing, followed by severe punishment. Transparency in approvals and trading is the only way to stop the alternative board from becoming another casino for companies and investors.
This will be a daunting challenge to the CSRC, which has swung between overprotection and insufficient regulation in the past.
On the GEB, which will mostly include high-tech companies, regulators will have to be nimble enough to pick up the truly promising enterprises before they show signs of making a profit, while keeping the bad guys out of the market.
Brand new for China, the alternative board also offers some hope, albeit scanty, to real entrepreneurs and investors. It is free, for example, from the mission of keeping State-owned public enterprises afloat, a problem that has seriously crippled the main board.
By encouraging more private enterprises to be listed, the GEB holds the promise of boosting more strong private businesses.
The NASDAQ is an attractive example of incubating entrepreneurs and breeding billionaires, but there are other failed precedents, like Germany's New Market, which was forced to shut down after 5 years of scandals and losses.
The long-term success of the alternative board depends on whether it can attract enough high-quality public companies, and a fair number of reasonable investors.
Copying the main bourse will only mean a dead end for the alternative board, and will land another blow to the country's capital market. In this sense, the GEB has a heavy mission.
