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Nasdaq-like GEM may open in Q1

CHINA is expected to launch its Nasdaq-like growth enterprise market as early as the first quarter in a bid to help smaller companies raise capital and restore investor confidence, sources said yesterday.

The preparatory work for setting up the GEM in Shenzhen, Guangdong Province, has been completed, and the market's board will be unveiled soon, providing there is no major volatility in the main markets, sources close to the regulator told Shanghai Daily.

"Among all the proposed reforms (to the financial system), the GEM is likely to be realized first as it is in line with government polices to help small firms," said a Shanghai-based securities executive. "Its launch won't put a large liquidity pressure on the main boards, and it features low risk."

The China Securities Regulatory Commission, the stock market watchdog, may work out a rough timetable for the GEM's launch during its annual two-day work conference in Beijing, which ends today, the sources said.

An official in the CSRC's investor-relations department said yesterday he had no information to disclose about the GEM. Calls to the Shenzhen Stock Exchange went unanswered.

Chinese authorities have been trying to launch the GEM for three years, hoping to help capital-strapped small firms raise funds.

But the launch was delayed due to large market fluctuations and differences among officials on profit and revenue thresholds for listings on the board.

Under the most recent rules proposals, GEM listing candidates must log profits for two consecutive years and have a combined earnings of at least 10 million yuan (US$1.5 million)

If a company fails to meet the combined profit requirement, it must post revenue of at least 50 million yuan and a net profit of at least 5 million yuan for the latest fiscal year to qualify for the listing.

In comparison, firms that list on the main boards in Shanghai and Shenzhen must post a profit for three years in a row, during which collective earnings must be 30 million yuan.

"The current (GEM) thresholds are appropriate as they can help small companies with real growth potential, thus protecting investors' interest," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "The GEM's size won't be big initially as the regulator may wish to gauge market response before acting further."

Industry insiders said that other market reforms, including stock index futures and a short-selling mechanism, will hinge on the success of the GEM.

"The regulator doesn't want to rush any reforms that may lead to market worries against the backdrop of the global financial crisis," said a Beijing-based source.


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