Expansion of the new third board will ease financing woes
- By Lan Xinzhen
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E-mail Beijing Review, January 3, 2014
In 2001, the Securities Association of China, in coordination with some securities companies, set up the Agency Share Transfer System, also called the third board, to solve the problem of stock transfer after the STAQ and NET were abolished.
Only a few stocks were traded on the third board market and most of them were of low quality, so it was difficult for them to apply for trading on the main board in Shanghai and Shenzhen. The third board market remained sluggish for years.
To change the situation and offer financing opportunities for more growing hi-tech companies through stock listing, the China Securities Regulatory Commission (CSRC) in 2006 set up a new share transfer system at Beijing's Zhongguancun Science Park, which is called the new third board.
Compared with the old third board, the new third board is noticeably different in its trading rules and has made breakthroughs in many aspects.
On August 3, 2012, the CSRC decided to expand the pilot program, adding three science parks in Shanghai, Tianjin and Wuhan to the list.
According to the figures from the NEEQ, at present there are 351 companies traded on the new third board market, less than 2 percent of the total number of enterprises in the four science parks.
The State Council statement expands the new third board to the whole country. Considering that most of the listed companies on the third board market are micro-, small and medium-sized enterprises, the State Council stipulates that institutional investors will be the major investors on the new third board, because they have better capacity for taking risks and are in a better position to meet eligibility standards. Since the issuance and the transfer of stocks usually involve a small amount of capital, risks in this market are much lower than on the main board. According to the State Council statement, companies with no more than 200 shareholders are exempted from approval by the CSRC when applying for third board listings. Moreover, these companies do not need to be approved by the CSRC even if the number of their shareholders exceeds 200 after stock transfer.
A financing platform
A report by Great Wall Securities Co. Ltd. says although the new third board has existed for more than seven years, its development is still slow. Compared with other boards, the new third board is smaller in size. Moreover, 88 percent of China's SMEs are not listed on the new third board and most of these enterprises lack financing channels, therefore China's new third board has great potential for development.
"SMEs, especially the innovation-based, startup and growing micro- and small enterprises, will directly benefit from the expansion of the new third board," said Wang Yong, an analyst with CITIC Securities Co. Ltd.
Wang noted that by selling shares on the new third board market, SMEs can effectively solve their financing problems.
Financing difficulties have long constrained the development of China's SMEs. To get the money for development, some SMEs even have to turn to loan sharks.
According to figures from the Ministry of Industry and Information Technology, China now has more than 13 million SMEs, accounting for 98 percent of the country's total number of enterprises. Most of the SMEs are facing financing difficulties. The Chinese Government has tried various means to solve the problem, including requiring commercial banks to grant more loans to SMEs.
Wang thinks the government should, after concluding the pilot program, extend the new third board system to the whole country so that SMEs will have other financial channels than bank loans and private lending.
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