After nearly a decade in gestation, the Chinese second board, or the Growth Enterprises Board, has got regulatory approval.

Although the securities regulator has yet to disclose a timetable for its launch, it issued a road map last week laying down, for the first time, the rules and procedures that will help in the unveiling of the NASDAQ-style board.

The idea of a NASDAQ-like market on the mainland was first mooted in the mid-1990s. After a few false starts, it was put on the back burner and nearly forgotten until 2007, when the stock markets boomed. The buoyancy led to increased demand, by many private sector entrepreneurs, for an appropriate channel to raise funds directly from the investment public.

Indeed, quite a few private sector enterprises, especially those in the technology sector, had successfully obtained listings on the NASDAQ or the growth enterprise market in Hong Kong.

Despite fervent discussions over setting up such a market on the mainland, the regulator was widely perceived as taking a decidedly slow approach to its formation, until now.

GEB came back into the reckoning in August 2007 when the country's State Council approved a plan to develop a multi-level capital market system.

In March 2008, Shang Fulin, chairman of the China Securities Regulatory Commission, said the regulator would "try to roll out the GEB in the first half" of that year. A few days later, on March 22, the CSRC released draft regulations for the GEB and began to solicit public feedback. But the early days of the US mortgage crisis forced the regulator to take a cautious approach.

This year, as China's proactive monetary and fiscal policies started to yield results, things looked different for the establishment of a second board. Since the beginning of the year, the country's benchmark Shanghai Composite Index has rallied by over 30 percent despite occasional hiccups, catapulting the Chinese stock market to second place after Peru among the best performing stock markets in the world.

To be sure, the country's capital market is more mature than what it was 10 years ago, and investors and VC firms are keen to invest in the country now than before. Coupled with the recovery of the stock market, the GEB launch roadmap comes at a time when meeting the funding needs of many cash-strapped private sector enterprises has become an integral part of the government's stimulus efforts.

According to China Association of Small and Medium Enterprises, SMEs account for 99.8 percent of the country's companies, and contribute about 60 percent to the GDP and offer 75 percent of all manufacturing jobs. However, only 2 percent of the capital raised by SMEs comes from direct financing. Most of it is from banking loans and other lenders.

(China Daily April 10, 2009)