Chinese hi-tech start-ups have long viewed the NASDAQ as their first choice for raising capital. The US stock exchange has spawned many of the world's IT giants including Microsoft, Google and Apple, as well as Chinese firms such as Baidu Inc and Sina.com.

But they may soon have another option - listing in their homeland.

The China Securities Regulatory Commission in March released interim measures on establishment of the Growth Enterprise Board (GEB), a NASDAQ-like stock exchange. Recent reports said it could be launched as soon as October.

A new board for growing enterprises excites many domestic startup IT companies running short of funding after foreign venture capital firms went quiet in the ongoing financial crisis.

"Many Chinese hi-tech startups are now busy restructuring their company organizations and collating registration information to get in line with government requirements to be listed on the GEB," said Edward Yu, president of domestic IT research firm Analysy's International.

He said as US stock markets struggle in the financial crisis, many Chinese technology companies, as well as their venture capital investors, are striving to find alternatives.

Innovation

According to experts, most innovation comes from new and growing companies. Government figures also show that small and medium-sized enterprises (SMEs) provide 75 percent of jobs in urban areas and contribute 80 percent of new jobs in the country every year.

Yet even though SMEs contribute enormously to the economy, they face difficulties gaining financial backing from banks or traditional stock markets because of their relatively modest assets and revenues.

"China's hi-tech enterprises have been waiting for the GEB for a long time," said Qi Xuedong, general manager of domestic consulting firm CCW Research.

"Launch of the GEB will significantly stimulate investment in early startup IT companies and boost innovation," he said.

According to regulations, GEB candidate enterprises should have a combined net profit of not less than 10 million yuan (US$1.46 million) in the previous two years, as well as consecutive years of profit over those two years.

Another permitted model requires a net profit of no less than 5 million yuan in the most recent year and revenues of at least 50 million yuan along with 30 percent growth in revenue in each of the previous two years.

Both sets of guidelines present much lower thresholds than the Shanghai main board and SME Market in Shenzhen.

Industry analyst Fang Xingdong said establishment of the GEB may help create additional successful IT companies in China. He cited hi-tech startups Baidu, Sina and NetEase that listed on foreign exchanges in their early days because there was no NASDAQ-like market in China.

But Yu from Analysys said it would still take a long time before the GEB works as well as the NASDAQ. He said the Chinese regulators still lack an understanding of the Internet industry, which could stifle great companies in their early stages.

"If Google was established in China, it wouldn't have survived, as the government does not understand its business model and would not allow it to be listed on the stock market," he said.

It was reported that in order to assure the success of GEB, the first batch of enterprises approved by the government for listing have already been approved for listing on the SME Market.

Many Chinese startups have existing investments from foreign venture capital firms, which receive US dollars rather than renminbi.

"Chinese start up companies do need fuel, but it will still take time before the GEB can prove itself to be an effective way to raise capital," Yu said.

(China Daily July 6, 2009)