China's little secret: a thriving, free market in shares

Yueda Digital Holding

30/07/2015 10:49

By Elzio Barreto 
    HONG KONG, July 30 (Reuters) - Far away from the glare of 
China's stock market chaos, stampede of sell orders and freeze 
on new listings, the spirit of free markets is alive and kicking 
right in the nation's capital. 
    A small stock exchange set up in Beijing three years ago to 
attract small and medium-sized companies, the so-called New 
Third Board (NTB), is flourishing, even as Chinese authorities 
struggle to bend the nation's main stock markets to their will. 
    China this month shut the door for new initial public offers 
on its two main exchanges to stop more money draining out of 
these markets, but the freeze did not apply to the NTB, which is 
not a formal exchange and is aimed at professional investors. 
    An over-the-counter market, the NTB has been a hive of new 
listings since the freeze in Shanghai and Shenzhen took hold, 
with a whopping 362 companies since July 3. 
    Developer Evergrande Real Estate  3333.HK  has alone 
unveiled plans over the past four weeks to list a football club, 
a mineral water business and a unit that owns music rights, 
radio and TV stations and magazines. 
    The confidence of issuers in the NTB has been underlined by 
light government intervention. 
    "The New Third Board is a completely market-driven board. It 
lets the market decide," said Suzie Wu, managing partner at 
Beijing-based Tianxing Capital, a venture capital firm that has 
been one of the most active players in the New Third Board. 
    Tianxing has invested in about 360 companies and 223 of them 
are already listed in the NTB, Wu added. 
    "Without the board some of our portfolio companies may have 
never had the opportunity to access the market and might not be 
able to sustain their business," Tianxing's Wu said. 
    "For further growth they have to have access to the market." 
    China launched the NTB in 2012, but it has taken off since 
the government made a concerted effort last year to make it an 
option for small and medium-sized tech companies to list at home 
instead of the United States. So far in 2015, 577 companies have 
raised a combined 30.3 billion yuan ($4.88 billion) through the 
end of June, according to data from the National Equities 
Exchange and Quotations (NEEQ), which runs the NTB. 
    That's more than double the 13.2 billion yuan raised in all 
of 2014 from 329 firms. The queue of companies looking to list 
on the NTB - 827 firms planning to raise 58.4 billion yuan - 
underscores the boom in demand for speedier listings targeted at 
professional investors. 
    The rapid pace of activity in 2015 has pushed the number of 
listed companies in the NTB to 2,922, more than the 2,800 listed 
in Shenzhen and Shanghai combined. 
    "Everybody talks about it in a very positive way, because 
they think the Third Board probably will correct the 
deficiencies in the other boards," said Victor Wang, co-founder 
of ZhenFund, which is focused on seed financing for startups and 
has invested in more than 250 companies. 
    The NTB is still not for the faint of heart. Like the main 
exchanges, it has been a wild ride, with the NEEQ market-making 
index  .CSI899002  surging 150 percent in the first three months 
of this year before plunging as much as 50 percent. 
    And like the big exchanges, it has not been above suspicions 
of market manipulation in stocks, one of which, Anhui Hauheng 
Biotechnology Co Ltd, soared to a giddy and worryingly exact 
99,999.99 yuan per share before hurtling back to earth. 
    But the NTB has been left to its own devices and was a study 
of calm this week as turmoil again struck Shanghai and Shenzhen. 
    The appeal of a quick listing in the NTB could also lure 
some Chinese firms back from U.S. exchanges. 
    "The Chinese stock market is now much different from the 
year when we decided to list in the U.S. The biggest difference 
now is the New Third Board," said Raymond Huang, senior director 
of Investor Relations at AirMedia Group Inc  AMCN.O , which is 
considering to list in China. 
    "All these will make it more possible for the listing of 
growth enterprises, especially Internet companies, that have not 
generated profit yet."      
($1 = 6.2093 Chinese yuan renminbi) 
 
 (Additional reporting by Wiki Su and Emma Yang; Editing by 
Denny Thomas and Mark Bendeich) 
 ((elzio.barreto@thomsonreuters.com;)(852)(2843-1608; Reuters 
Messaging: elzio.barreto.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA MARKETS/NTB