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October 18, 2009

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Home » Business » Finance

New board to trade on Friday

CHINA will launch its long-awaited Nasdaq-style board on Friday to help finance start-up firms that have big ideas but face difficulties getting loans from banks, the securities regulator said.

"The opening ceremony of the Growth Enterprise Market will be held on October 23," said Shang Fulin, chairman of China Securities Regulatory Commission, at a forum in Beijing yesterday.

The new board has been in the planning stages for a decade however it was delayed several times because of a variety of concerns, ranging from the after-effects of the "dotcom" collapse to last year's market nosedive.

So far, 28 companies have raised a combined 15.48 billion yuan (US$2.26 billion) for their initial public offerings on the new board and they will start trading on Friday.

They include pharmacy, software, new energy, culture and electronics companies.

Shang said the board could fuel high-tech and innovative development in China and nurture smaller companies by offering a new financing channel.

It would also be a key step to improve the country's multi-level capital market.

Smaller enterprises account for 99 percent of all companies in China and provide about 75 percent of jobs, but banks are reluctant to grant them loans without solid track records.

"A successful GEM can't be built without a good operating mechanism, including threshold and trading rules, and strict supervision measures," Shang said.

He reminded investors of potential risks in the new market because these companies were not big enough to counter risks and were more easily exposed to manipulation.

The price-to-earnings ratio of the first 28 firms exceeded last year's earnings by 55 times, compared with an average 36 times for initial public offerings on the main boards so far this year, triggering concerns that new listings were likely to drop below their issue prices on debut.

To curb speculation, the Shenzhen Stock Exchange has ruled that any share on the new board moving more than 80 percent either up or down on its first day of trading would be suspended until three minutes before the market's close.


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