Beijing Stock Exchange Is a Losing Venture: Financial Expert

Promising market failed to thrive: current trading volume only 5 percent of first day's performance

A man walks past the Beijing Stock Exchange on its first day of trading in Beijing on Nov. 15, 2021. (Wang Zhao/AFP via Getty Images)

The Beijing Stock Exchange (BSE) may become another “rotten tail” venture under the Xi Jinping administration, a senior financial expert says. The Chinese catchphrase refers to a failed or unfinished task, usually as a result of ill-conceived planning or poor execution.

Trading volume on the BSE continued to decline in 2023, with daily turnover of just 295 million yuan (about $40 million) and the trading volume of certain stocks’ falling as low as 2,200 yuan (about $300) on Jan. 17.

Between Jan. 16 and Jan. 20, daily turnover on the BSE ranged from 295 million yuan to 551 million yuan (about $90 million). Even the highest daily volume, $90 million, was a plunge of about 94 percent compared to a trading volume of 9.576 billion yuan (about $1.41 billion) on the BSE’s first day of trading.

Among stocks traded on the exchange, Guangdong Guangzi International Engineering Investment Consultants Co. Ltd (836892.BJ), a state-owned enterprise and one of the first 81 companies listed on the BSE, had only three tradings on Jan. 12, with a turnover of 2,200 yuan ($324) and a turnover rate of 0.001 percent. The actual controller of the company is the Guangdong State-owned Assets Supervision and Administration Commission.

China’s Stock Market System

In China’s stock market system, the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) were founded in 1990 and generally serve large enterprises. The two older exchanges are traded by active competitive bidding supervised by the China Securities Regulatory Commission.

The National Equities Exchange and Quotations (NEEQ) was set up in 2012 to serve micro companies, small to medium enterprises, and startups—companies that were unable to qualify for listing on the Shanghai and Shenzhen stock exchanges. 

The NEEQ was ultimately less than successful, with lenient listing requirements that attracted poor-quality enterprises.

The BSE was also envisioned as a way to encourage small and medium companies, reforming the NEEQ.

A Promising Start

The BSE was intended for companies that were earlier in development, smaller, and with a focus on innovation and manufacturing. Announced by Chinese leader Xi Jinping in September of 2021, media dubbed the new exchange “Xi’s new financial baby.”

The BSE started its first day of trading on Nov. 15, 2021. Among the first batch of 81 companies listed on the new stock exchange, 10 were new stocks and the remaining 71 were transferred from the “select tier” of the NEEQ.

The exchange’s first day set a record at 9.576 billion yuan (about $1.41 billion) in trading. Because there was no limit on the percentage of increase or decrease on the first day of trading, some stock prices soared as much as fivefold.

Trading Plummets

However, the next day, Nov. 16, trading volume plummeted to 4.496 billion yuan (about $630 million), almost half the first day’s performance. Four days later, on Nov. 19, the daily trading volume fell further, to 2.085 billion yuan (about $290 million), roughly 22 percent of day one’s volume.

Moreover, both the total market capitalization and price-earnings ratio of the BSE have shown an overall downward trend since its inception.

According to the BSE’s 2022 Stock Market Statistical Bulletin, the total market value of the exchange in December 2021 was 272.275 billion yuan (around $38 billion), and the price-earnings ratio was 46.66. By December 2022, its total market value and price-earnings ratio had fallen to 211.029 billion yuan (about $29.5 billion) and 1.887 billion, respectively.

In an August article in the Securities Times, a Chinese state newspaper, financial expert Zhang Aoping said that he believed the slump was a temporary phenomenon and the market would become more active as the BSE gradually expanded its capacity.

However, almost six months later, the performance of the BSE has not only failed to improve but has continued to decline.

The Product of Rash Decisions

Zhang Jinglun, a senior economic commentator, told The Epoch Times on Jan. 26 that he feels the BSE was a product of rash decision-making by Chinese leaders.

“There are several major reasons for the failure of the Beijing Stock Exchange,” he said. “First, China’s current economic environment is very bad; the real estate market is close to collapse. Even the Shanghai and Shenzhen exchanges have been affected by these factors, not to mention the new Beijing Stock Exchange.”

Secondly, Zhang feels the establishment of the new board was an unwise move by top Chinese Communist Party (CCP) leaders who hoped to take advantage of small and medium-sized enterprises and investors.

“Beijing is the political center of China. The rich and powerful will not casually put their money in it, as they know the Chinese authorities’ real intentions. Most of the BSE stockholders who will eventually be exploited by the authorities are middle- and lower-level retail investors,” he said.

Further, he pointed out, the BSE was established to serve small and medium-sized enterprises, and included the transfer of many NEEQ stocks. However, these stocks already had poor performance on the NEEQ. It was not reasonable to expect their performance to improve simply because they were now traded on another stock exchange, Zhang said.

Moreover, in terms of economic activity, Shanghai and Shenzhen are more vibrant than Beijing. Shanghai is a financial capital, home to China’s largest companies. Shenzhen, a major tech center known as “China’s Silicon Valley,” is more open and attracts Hong Kong capital and foreign investment. In China’s capital city of Beijing, on the other hand, it is harder to escape the gaze of the CCP.

“The elite and the wealthy who want to make money in the stock market would certainly avoid Beijing. Because even if they profit from the stock market, it won’t be easy to cash out the money. So they prefer to go to the Shanghai Stock Exchange and the Shenzhen Stock Exchange,” Zhang said.