Companies that are trading on the main China OTC equity market are turning to the long-awaited tech board that is set to operate just like the NASDAQ. Shanghai’s Science & Technology Innovation board that is set to launch in the next few months.
It has attracted four major companies that include Jiangxi JDL Environmental Protection Co., and Jiangsu Beiren Robot System Co. These companies have defected from Beijing’s New Third Board and applied for a listing on the new tech board. In the coming months, we are expecting to see more companies shifting to the new tech board.
Capital Market Reform
This current trend of companies defecting is undermining the potential of the new tech board in Shanghai, which is considered by some economists as the most significant reform to hit the capital markets in China.
Now, as asset managers are launching new tech board funds, retail investors are rushing to open up trading accounts. But one of the first warnings by economists is that the new capital market being introduced is going to follow the boom-bust cycle that the OTC board experienced earlier on with the existing New Third Board.
After the successful launch of the New Third board in 2013, the market became a ghost town because companies that were expected to list never listed; the New Third Board never took off as anticipated.
It is now estimated that 428 of the 10,407 companies that are listed in the New Third Board can shift to the new tech board. One of the disadvantages of the new tech board is that it is not open to the public, and this makes it a low liquidity market.
On the other hand, one advantage of the new tech board is that it has easy registration listing procedures that help startups that have yet to make a profit in other markets to appear on the listing.
The new reform that is taking place in Shanghai is also adding pressure to the startup board in Shenzhen called ChiNext. This startup board wants to adopt the new registration system to make it easier for startup companies to list in the market.
But the problem is that there is lots of competition between different markets that are adopting the new registration procedures. It is now tough for companies to stick to their original listing because other markets are offering easy to register procedures.
But all in all, there are mixed feelings about what is taking place in Shanghai’s new tech board. As we mentioned earlier, when the New Third Board was in its inception phase, it attracted lots of excitement, but it never lived up to the hype. The same trend is what most people fear will happen to the new tech board.