Developing Multi-Tiered Capital Markets

The emergence of China's new development strategies, particularly the recently introduced "National Nine Policies," has paved the way for a transformative wave in the landscape of small and medium enterprises (SMEs). These policies aim to foster "specialized, refined, distinctive, and innovative" businesses that are integral to the economy's structural rejuvenationThe Beijing Stock Exchange (BSE) is anticipated to play a pivotal role in the cultivation and support of these SMEs, creating a fertile ground for the growth of new productive capacities.

Drawing a parallel with Germany's "hidden champions," which are known for their prowess in niche markets and innovation, China’s efforts in nurturing "specialized, refined, distinctive, and innovative" enterprises reflect a comprehensive approach to economic developmentOver the years, Germany has become a breeding ground for businesses celebrated for their advanced technology, market share, and strong research capabilities

This success hasn't emerged by chance; it is underpinned by a systematic structure that includes government support, industry associations, and a well-structured financial market.

From the 1990s on, Germany saw a surge in its hidden champions, thanks in part to a series of government initiatives that encouraged innovation among SMEsThe enactment of supportive policies, the establishment of a multi-tiered capital market, and the provision of incentives for R&D have synergistically contributed to the environment that facilitates the birth and growth of these advanced enterprisesGovernment incentives included direct financial support as well as regulatory frameworks that enhanced intellectual property protection, enabling businesses to transition from ideation to implementation effectively.

In comparison, China's journey towards establishing a similar nurturing ecosystem for its SMEs began in earnest in 2011, with official agency calls for enhancements in niche sectors

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The concept of the "little giant" was introduced, signifying firms that demonstrate advanced capabilities in specific technological fieldsOver the years, myriad policies have been crafted to solidify this frameworkAs of 2024, the number of national-level "little giants" reached an impressive 15,962, dramatically exceeding earlier targets.

Among the available avenues for listing, a considerable number of "specialized, refined, distinctive, and innovative" enterprises have yet to go public, with a significant portion currently aspiring to list on the Beijing Stock ExchangeHerein lies an opportunity for these firms; as the BSE focuses explicitly on serving innovative SMEs, it is set to become the main avenue for these companies seeking to capitalize on new productive forces.

The BSE’s infrastructure is seamlessly integrated with the New Third Board, offering a crucial pathway for companies looking to transition through various stages of their lifecycle

Many of the "little giant" firms are enticed by the promise of fruitful capital financing available via public listing, especially as they capitalize on the opportunities presented by the multi-tiered market systemA significant factor in this ecosystem is the proliferation of supportive policies that sway enterprises to proactivity in engaging with capital markets.

Interestingly, the recent uptick in listings on the New Third Board can be attributed to the assured stability of these "little giant" firms, many of which have reported remarkable profitabilityThe expectation is that this positive trend will translate well into the BSE platformCurrently, median sales figures for companies in this sector hover around 100 to 200 million yuan, with profits between 10 to 20 million yuan, making them ideal candidates for public offeringsThis aligns neatly with the systematic shift towards enhancing domestic production capabilities while providing the necessary funding avenues for growth.

Moreover, the anticipated new wave of mergers and acquisitions (M&A) aligns strategically with the ongoing adjustments in market policies, favoring sectors that focus on SME development

As China witnesses a swell of M&A activity, particularly within industries deemed vital to economic growth, the BSE is poised to reap advantages from such developmentsInstitutions facilitating these mergers will significantly enhance the investment potential of “specialized, refined, distinctive, and innovative” enterprises across all developmental stages.

Thus, the main thrust of the upcoming measures remains focused on establishing a conducive environment for small and medium enterprises that meet specific national agendasMuch like the German model, the Chinese approach seeks not just to develop megacorps but to fortify its SMEs, enabling firm-level innovations that boost productivity on larger scales.

The BSE, with its firm grounding in supporting innovative SMEs, is expected to navigate the future of China's economy adeptlyBy fostering a breeding ground for these enterprises, which are expected to be at the forefront of introducing cutting-edge technologies and solutions to today’s challenges, it positions the nation towards achieving sustainable economic growth underpinned by dynamism and resilience