A New Chinese High-tech Stock Market Is Unveiled as China Opens Financial Services to Taiwan
China is moving on two fronts to funnel new investment funds to the small- and medium-sized companies (SMEs) it hopes can drive innovation and economic growth. One new initiative is the launch of the Growth Enterprise Market (GEM) – a Nasdaq-style stock exchange, where the guidelines will take effect May 1. The exchange itself it to open in the fall.The second is a new agreement that will open more financial services in China to Taiwan, part of a larger trade and economic-cooperation package.
Like New York’s Nasdaq, the GEM exchange will focus on small, finance-starved technology and other start-ups with strong growth potential. The move has been widely applauded by venture capitalists in China, but some investor representatives worry that too many of the companies listed will be high risk. They also voice skepticism over the GEM's prospects given the poor track record for similar efforts in other countries. Yet, one thing seems clear as the market gets ready for take-off — the pool of candidates for listing on China’s GEM will likely be large, according to a report in the current issue of China Knowledge@Wharton.
And just this week, negotiators from China and Taiwan completed a wide-ranging set of agreements that include measures for increasing financial cooperation, according to The Financial Times.
The agreements aim in part to funnel more financing to SMEs that often find the lending window at China’s government-owned banks shut tight. The move is particularly significant given that Taiwan already is one of the largest foreign direct investors in China. Expect it to take a couple of years before Taiwanese banks and other financial services companies have a significant impact on Chinese SMEs.