China gets its own ‘Nasdaq’

SHANGHAI – The highly anticipated opening of China’s new Nasdaq-style stock exchange on Friday is already being seen as a watershed moment for the country’s capital markets, providing new opportunities for Chinese investors and an alternative source of financing for upstart companies.

Investors went on a wild buying spree during the first day of trading Friday on the Growth Enterprise Market, or GEM, sending the shares of some companies soaring as much as 210 per cent.’This is potentially a major game changer in China’s high-tech industry,’ said Yu Zhou, a professor at Vassar College in Poughkeepsie, New York. ‘For about 10 years, the biggest problem for China’s innovative companies was finance. You know it is very hard for them to get loans from state-owned banks,’ Yu told The New York Times on Sunday.The buying was so feverish that regulators, trying to calm the market, temporarily suspended trading in the shares of all 28 newly listed companies at different points on Friday, and analysts warned about the risks posed by excessive speculation and inflated stock prices.Stocks on the GEM opened sharply lower on Monday, with many shares down 10 per cent.Still, the first batch of companies listed on the GEM – including film producers, software makers and pharmaceutical companies – raised about US$2 billion in their initial public offerings, far more than the companies had hoped. By the end of trading Friday, the combined market value of the newly listed companies was more than US$20 billion, creating fortunes for the founders and investors in those companies. China is already the world’s biggest market for initial public offerings, and its resurgent economy is flush with capital and investors with a big appetite for risk.But trading experts have long complained that this country’s market system is seriously flawed, partly because of a misallocation of capital.State-run banks lend primarily to state-owned companies, which tend to be inefficient. Listings on the Shanghai and Shenzhen stock exchanges are dominated by government enterprises. Young private Chinese companies generally list their shares overseas, in Hong Kong or on the Nasdaq or New York Stock Exchange, because there are few opportunities for stock listings inside the country.But the government hopes to change that with the creation of the GEM, which is based in the southern boomtown of Shenzhen. The government is seeking to create a more efficient capital market system, one that would steer investment capital to small and midsize private enterprises – companies that can help reshape the economy through technology and innovation, rather than low-price exports.Although the GEM, which is also known here as ChiNext, is tiny when compared with the Shanghai and Hong Kong stock exchanges, regulators hope it will eventually compete with Nasdaq and entice more Chinese companies to list with GEM. – The New York Times