China takes on Nasdaq to nurture tech

Scott Tong May 19, 2009

China takes on Nasdaq to nurture tech

Scott Tong May 19, 2009


Bill Radke: China has some high-flying tech companies, and almost all of them are publicly traded on exchanges outside China. For example, China’s equivalent of Google, Baidu, is listed on the Nasdaq. Well Beijing’s had enough of that. The government’s just announced plans to create its own version of the Nasdaq, or so they hope. From Shanghai, here’s Marketplace’s Scott Tong.

Scott Tong: China’s financial system hasn’t been much of a friend to private start-ups. The historically government-run economy has channeled most of the loans to lumbering state-owned companies.

These firms also got Beijing’s permission to raise money on the stock market. In fact, Arthur Kroeber at consultancy Dragonomics calls China’s stock market an ATM for state firms.

Arthur Kroeber: State companies use capital less efficiently than private companies. They generate less economic growth and less jobs.

But now, Beijing is chasing an innovation economy, and has finally decided to give private growth companies a market of their own. It’s called the Growth Enterprise Board. The GEB hopes to nurture Chinese tech stars the same way Nasdaq helped Google, eBay and Intel.

It’s very ambitious, though. After all, the country that brought us paper and gunpowder and the compass has gone dry lately in the invention department.

Securities lawyer Scott Guan:

Scott Guan: In order for knowledge to be commercialized, it’s very important to have an effective growth enterprise board.

But Guan says many countries try to clone Nasdaq and fail. Companies and investors stay away, because prices fluctuate wildly, and that’s a risk in China.

Guan: Chinese people, we like speculation. That’s why the market tends to be volatile.

So Beijing’s built stabilizers in the new exchange, to deter fly-by-nighters. Companies that go public need to show a three-year track record of profits; on the Nasdaq, it’s just one. And in China, key investors won’t be able to cash out for two years.

Still, Ping Zhou at GE Asset Management hears Chinese venture capitalists cheering:

Ping Zhou: They will be very excited because you just have one more channel to exit their investment.

The new board hosts its first IPO this fall, and it may take years to be a serious global competitor. Either way, it’s a welcome addition to China’s capital market toolkit, which right now is pretty empty.

In Shanghai, I’m Scott Tong for Marketplace.

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