China GEM Board officially opens

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It's been 10 years in the making, but China has finally launched its own Nasdaq style Growth Enterprise Market Board. Friday saw an inaugural ceremony in the southern city of Shenzhen for the ChiNext. This second board aims to reform capital markets and fund growth in the private sector.

The GEM board is hailed as an important component of China's multi-tier capital market system, which will widen investment channels, stimulate enthusiasm for entrepreneurship and boost private investment. It's also expected to play a critical role in adjusting to the economic structure and shifting growth model.

The GEM board will cater largely to funding requirements of technology and innovation-oriented start-up firms, which typically find it tough to get bank loans.

The first batch of 28 GEM board listing companies debuts on October 30th on the Shenzhen Stock Exchange.

Shang Fulin, chairman of China Securities Regulatory Commission,said, "I hope listing GEM board companies comply with the market's rules. I also want to remind investors of higher risks in the GEM board than in the main board. I hope they can make rational investments."

Compared to the Small and Medium-sized Enterprise Board, the threshold for listing on the GEM board are lower.

Applicants for GEM board listing are required to have at least 30 million yuan worth of stock capital. Much lower than the minimum 50 million yuan on the SME board. The GEM board also requires applicants be profitable for the last two fiscal years with net profits of at least 10 million yuan. On the SME board, it must be a three-year profitable requirement with profits of at least 30 million yuan.

But the GEM board is adopting stricter rules on supervision and information disclosure.

Yao Gang, vice chairman of China Securities Regulatory Commission,said, "The GEM Board is designed for growth enterprises but not for fledgling businesses. Growth firms are relatively more mature and have gone through market tests."

Despite the launch of the GEM Board, the securities regulator says China's capital market still needs further improvements.

Shang Fulin said, "Now we have the main board, the SME board, and the GEM board. But we still need a sound Over-The-Counter trading market. That's what we will strive for."

Analysts also caution that not all growth enterprise markets in the world are successful. Although Friday saw the new GEM board taking a solid first step, the journey ahead may still be challenging.