A Chinese OTC Market
March 24, 2008
The China Securities Regulatory Commission (CSRC) is planning to develop a national over-the-counter stock exchange, according to the Beijing Times. The OTC market would be established after the launch of a proposed growth enterprise market (GEM) in Shenzhen for Chinese start-ups, said CSRC vice chairman Fan Fuchun at the Chinese parliament's annual session earlier this month.
"With the establishment of the OTC [exchange] and the GEM, companies will get more finance-raising options," Fan said. "It will also help both investors and companies get an accurate assessment when making funding decisions, correspondingly reducing the risk." Although he did not disclose a timeframe for the OTC market, Fan said that GEM will be introduced soon after the annual session, which ended last week. CSRC officials declined to elaborate.
"There is a long way to go before the final establishment of the OTC exchange, as no related regulations or legal rules have been released yet," said Yan Xie, analyst with Shanghai-based Hai Tong Securities. If GEM does not operate smoothly, he noted, "the OTC launch will probably be postponed until the regulator can solve the problems."
Though the two markets may overlap, according to Xie, "GEM will focus on fast-growing, small, tech-related companies, while the OTC market will focus on small, general companies." There are currently about 1,400 Chinese companies listed on the Shanghai and Shenzhen stock exchanges, he said, adding that the number of unlisted large and midsized enterprises could be much higher than that.
Tianjin in northern China has applied to host the OTC exchange, proposing that the market be built in the Tianjin Binhai New Area. "To build the OTC market in Tianjin is in line with the government's policy to develop the Bo River economic zone," Li Zhantong, a Tianjin delegate, told the state-owned Securities Daily. "It will enhance the city's financial power." Added Xie, "Although Tianjin has a disadvantage in the lack of brokerages and large to medium-sized enterprises, it may still benefit from favorable policies from the government."
