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Rules set stage for China's 'Nasdaq'

CHINA'S securities watchdog yesterday issued guidelines that pave the way for the launch of a new financing platform for innovative startup companies.

Based in Shenzhen, the Growth Enterprise Market is being patterned on New York's Nasdaq, with an emphasis on smaller, cash-strapped technology companies that show solid growth potential.

It will seek to attract those companies with lower listing thresholds than the main boards in Shanghai and Shenzhen.

Fears that the GEM might set the stage for destructive competition against the Chinese mainland's primary stock markets are overblown, analysts told Shanghai Daily yesterday.

"The introduction of the new board won't drain much capital from the main boards, but it may dampen interest in some of those markets' smaller chips that have high valuations," said Xu Yan, an analyst at Shenyin & Wanguo Securities Co.

Investors seemed to agree. The Shanghai Composite Index, which tracks yuan-denominated A shares and hard-currency B shares, inched up 0.64 percent to 2,373.21 points yesterday after the announcement of the GEM guidelines by China Securities Regulatory Commission.

Companies seeking a listing on the GEM must have been in business for more than three years and hold net assets of at least 20 million yuan (US$2.9 million), the commission said on its Website.

GEM listing candidates also need to show profits for two consecutive years, with combined earnings of at least 10 million yuan, or have revenue of at least 50 million yuan and a profit of at least 5 million yuan for the latest fiscal year.

And share capital must exceed 30 million yuan after listing. (See table on B3 for a comparison with main-board requirements.)

A securities commission spokesperson said that the GEM in an important measure to help China build multi-level capital markets and promote the development of innovative companies with high growth potential.

Financial institutions have become more cautious to provide loans to startups since the world financial downturn begin; so the GEM will offer a new financing channel for smaller companies trying to survive tough times, TX Investment Consulting Co said in a report.

The board is a key measure in promoting China's economic growth as smaller firms account for 99 percent of all companies in the country and provide 75 percent of all jobs, the report said.

The guidelines also highlighted the supervision functions of the new board such as ordering companies to publish their prospectuses on Websites appointed by the commission, inform investors about risks and receive punishment for faulty profit forecasts.

The regulator will begin accepting applications from candidates after issuing related rules and setting up a review committee, the spokesperson said, without revealing the launch date of the new board. Despite the lack of a specified startup date, the regulator said the guidelines will go into effect on May 1.

China began planning for the GEM more than 10 years ago, but the process was halted after the global dot-com bubble burst in 2000.


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