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News Analysis: Stock market reflects China's economic restructuring

Xinhua, May 22, 2015 Adjust font size:

The sharp rise of the ChiNext Index, which tracks performance of listed high-tech and innovative companies and startups, reflects the government's economic restructuring drive and encouragement for entrepreneurship and more sophisticated businesses.

The index has surged nearly 140 percent since Jan. 5, the first trading day of 2015.

The gains by growth companies listed on the second-board market have outshone those by bigger traditional firms listed on the main-board market. The benchmark Shanghai Composite Index has gained around 35 percent since the start of the year.

"An improving economic structure and accelerating industrial restructuring mean emerging sectors which represent China's new growth drivers will develop robustly in the medium and long term," according to a research note from Pacific Securities on Friday.

The phenomenon has made stocks of startup firms, represented by those listed on the Nasdaq-style ChiNext Board, the stars of this bullish run in the Chinese stock market, the note said.

Starting from a tiny pool of 28 enterprises in 2010, the board is now home to 458 companies in emerging industries such as electronics, information technology, new energy, new materials, environmental protection, high-end manufacturing and bio-medicine.

More than 50 companies listed on the board, such as online video streaming service provider Leshi Internet Information Technology Corp. and Chengdu Yunda Technology Co., Ltd., jumped by the daily limit of 10 percent during Friday's trading.

At one point on May 13, Leshi's market value even topped that of main board-listed China Vanke, the nation's largest residential property developer. Leshi's market value stood at 148.77 billion yuan as of Friday.

The total market value of the ChiNext board has grown more than thirty-fold in five years to hit nearly 6 trillion yuan (980 billion U.S dollars) as of Thursday.

The board's boom has come amid China's efforts to encourage innovation and entrepreneurship as traditional growth drivers such as exports and consumption are lackluster.

Premier Li Keqiang has headed this campaign, as shown by his visit to Beijing's Zhongguancun, dubbed China's Silicon Valley, earlier this month, when he talked with young crowds about the government's determination to foster innovative businesses.

The repeated emphasis on innovation came as China's year-on-year growth in the first quarter slowed to 7 percent, the lowest quarterly growth rate since 2009. But as the government continues to cut red tape and spearhead comprehensive reforms, young entrepreneurs are behind a wave of startups that have become an economic bright spot.

According to official data, the number of newly registered firms in China in the first quarter rose by nearly 40 percent year on year.

Authorities recognize the role of the stock market in restructuring the economy. Xiao Gang, president of the China Securities Regulatory Commission (CSRC), said this week that the CSRC will strive to build a multi-tiered capital market so it can play a bigger role in serving the real economy and boosting innovation and entrepreneurship. Endi