Xi's Beijing bourse seen as scant threat to Hong Kong exchange

President Xi Jinping plan to establish a new exchange in Beijing will add a new threat to the business of Hong Kong’s bourse, but the impact should be limited, according to consultants and lawyers.

Xi on Thursday outlined plans for a Beijing Exchange to allow “innovative small- and medium-sized” companies to raise capital. The China Securities Regulatory Commission later said the venue would be comprised of selected companies currently trading on the existing National Equities Exchange and Quotations Co. platform, which was launched back in 2013. 

Hong Kong Exchanges & Clearing Ltd. is already vying with major trading centers in Shanghai and Shenzhen to attract Chinese firms. China has been opening its financial markets and also making it easier for companies to list shares, moving to a more market-driven registration system rather than an approval regime. The STAR Board launched in Shanghai in 2019 also has lured some big companies sell shares, such as SMIC and CanSino Biologics Inc.

But the impact on the initial public offering pipeline in Hong Kong should be limited, said Benson Wong, regional lead partner for entrepreneurial & private business at PricewaterhouseCoopers. “HKEX’s listing profit requirement dictated it serves a completely different segment of companies, which are mostly large-caps tapping overseas capital,” Wong said.

Companies must make profit of HK$80 million ($10 million) or more in the recent three financial years to qualify for a listing on HKEX Main Board starting next year. NEEQ, on the other hand, has less stringent listing threshold than Shanghai and Shenzhen, but has struggled with liquidity. 

HKEX’s shares fell 3% to HK$483.40 as of 11:19 a.m. local time. The bourse wasn’t immediately available to comment.  

Fang Jian, a Shanghai- and Hong Kong-based partner at law firm Fangda Partners, said it’s still in Beijing’s interest to not undercut Hong Kong as a gateway for global investors.  

“Yes, on some core issues China’s attitude is more aggressive and firm than before, but its door to global capital is still open,” Fang said, noting that threats by the U.S. to delist Chinese companies is still beneficial to HKEX. 

The new Beijing plan could boost business for brokers such as Citic Securities, China International Capital Corp. and Guatai Junan, Bloomberg Intelligence’s Senior Industry Analyst Sharnie Wong wrote in a note. But the timing is uncertain and the initial scale “may be small,” she said.