Nurturing tech SMEs with timely funding

Zhao Haohua, chairman of Changzhou Tonghui Electronics, said the company has been able to focus on its prime business and make independently developed and controllable technologies, thanks to the funding received from its BSE float.

"The presence of technology companies will be thus more widely found in the A-share market," said Zhao.

Pesticide intermediate and formulation provider Nutrichem Co Ltd was one of the first companies to start trading on the BSE on Nov 15 last year. Wang Rong, chairman of Nutrichem, said a new financing channel has been provided by the BSE to SMEs focusing on technology advancement. Nutrichem has managed to strengthen its links with companies throughout the industrial chain and expand its scale of operations, he said.

Chen Li, chief economist of Chuancai Securities, said the BSE-listed companies have managed to make their products, services or their features novel, more professional, precise and even unique. Such characteristics have now come to be the fundamental requirements and positioning of the BSE, which is helping the BSE-listed companies to realize higher gross profit margins than their unlisted peers.

A significant number of the BSE-listed companies were hitherto listed on the National Equities Exchange and Quotations or the new third board. As long as the companies concerned meet certain financial requirements and also had been listed for one year on the innovation tier of the new third board, which is the NEEQ's highest level, they can directly transfer for trading on the BSE.

The two trading venues are thus better connected, which elevates both their liquidity and trading activity, said Chen.

Sun Jinju, vice-president of Kaiyuan Securities, labeled the new third board as an "incubator" for the BSE. A number of reforms were carried out at the new third board in 2021, including introduction of the convertible bond mechanism and lowering of the threshold at the innovation tier.

SMEs' financing demand at the preliminary stage, he said, can be better satisfied. The new third board can thus nurture more quality SMEs, which can later go public on the BSE.

The innovation tier of the new third board has seen 1,723 companies list. Up to 557 of them have entered this highest tier of the new third board this year, and nearly 70 percent of them are now financially eligible to be listed on the BSE.

SMEs can better understand and enter the capital market using the BSE route. They can further regulate their management mechanism and stimulate more driving force for development, said Fan Xiaoxin, deputy director of the China Association of Small and Medium Enterprises.

During the Annual Conference of Financial Street Forum 2022 held in Beijing from Nov 21 to 23, Shang Qingjun, an official of the public company department of the China Securities Regulatory Commission, said that more efforts should be made to expand the size of the BSE and further improve the overall quality of the exchange.

"While the BSE's current market liquidity and evaluation are generally in line with SMEs' characteristics, they are still distant from the market's high expectations. In this sense, more industry leaders with core competitiveness should be listed on the BSE as soon as possible. A larger market scale is the foundation of higher liquidity and product innovation," he said.

Innovation will mark the BSE's operations. Margin trading should be advanced and more trading mechanisms explored. More long-term capital and different types of investors should be introduced, Shang said.

Reform at the new third board should be deepened to better connect to the BSE. The CSRC will better support the technology innovation companies that are younger and smaller so that more of them can be prepared for listing on the BSE. The new third board should better link the public and private markets to facilitate the early financing of smaller startups, he said.

"The new third board and the BSE are still young in the overall capital market. They will thus ask for more tolerance and support. But the CSRC will stick to the basic market rules as well as laws and regulations to create an ideal financing venue for innovation-oriented SMEs. In this sense, the Chinese capital market can become more inclusive," Shang said.

Agreed Wang Yuqing, an analyst from Shenwan Hongyuan Securities. He suggested that more financing products be rolled out on the BSE in the future, including carbon neutrality-themed bonds, innovation-themed bonds and renewable bonds.