Looking to get in early on China’s next Baidu or Sina? China has recently stepped up efforts to promote over-the-counter, bulletin-board-style trading among start-up companies located in the country’s science parks. To find out more about what’s happening and what it might mean for foreign investors, I exchanged with Ron Shuang, managing director at Balloch Group, a private equity firm based in Beijing with about $100 million under management. Shuang holds a master’s degree in healthcare management from Harvard and a MBA from the Unversity of Michigan. Excerpts follow.
Q. How active is OTCBB-like trading in China today?
A. China’s current OTCBB originated from the “stock right exchange agency system” that was established in 2001. At that time, the system was set up to provide liquidity for delisted companies to trade shares and solve historical liquidity problems. The first new OTCBB was established in Zhongguancun last year and a pilot system was created to help unlisted companies in the park to trade shares.
The overall trading volume under the new system is small but increasing at a fast pace. Over 90 companies are participating in the Zhongguancun Hitech Park, the biggest national level high-tech Park in China. The total capitalization is 247 million yuan this year, but the trading volume has increased by 28% from a year earlier capitalization has grown by 70%.
Q. To what extent is OTCBB trading expanding nationally?
A. Currently, only Zhongguancun has trading but 15-20 other high-tech parks have applied for a license and are expected to be approved by the end of this year. This expansion will cover first- or second-tier cities like Shanghai, Wuhan, Shenyang, Tianjin, Xi’an, Chengdu, Shenzhen and Suzhou Due to the surprisingly high valuation given to OTCBB companies in Zhongguancun, there is a big wave of interest among many investment institutions and private investors who have smelled the potentially huge opportunities and are aiming to profit.
Q. What industries are mostly likely to benefit?
A. In principle, only high-tech companies are allowed to trade. The industries that would benefit are actually rather wide including software, biomedicine, new materials, and TMT. The companies in those industries and registered in the authorized parks are mostly likely to benefit from favorable policies and attract more investor attention.
Q. How will this growth affect foreign investors looking to buy shares in Chinese companies?
A. After expansion of the OTCBB trade, foreign investors may be permitted to participate. Companies listed in OTCBB are early stage and tends to have much higher risk but potentially explosive returns. The OTCBB is a big step China is taking to establish a more complete capital market. As long as China’s economy continues to grow at a high pace, high potential investment opportunities among new OTCBB companies will likely attract domestic and foreign investors who want to not only want to ride the new wave but also channel their investments from the over-crowded other domestic stock exchanges to this new but very different and exciting one.
Q. How active is OTCBB-like trading in China today?
A. China’s current OTCBB originated from the “stock right exchange agency system” that was established in 2001. At that time, the system was set up to provide liquidity for delisted companies to trade shares and solve historical liquidity problems. The first new OTCBB was established in Zhongguancun last year and a pilot system was created to help unlisted companies in the park to trade shares.
The overall trading volume under the new system is small but increasing at a fast pace. Over 90 companies are participating in the Zhongguancun Hitech Park, the biggest national level high-tech Park in China. The total capitalization is 247 million yuan this year, but the trading volume has increased by 28% from a year earlier capitalization has grown by 70%.
Q. To what extent is OTCBB trading expanding nationally?
A. Currently, only Zhongguancun has trading but 15-20 other high-tech parks have applied for a license and are expected to be approved by the end of this year. This expansion will cover first- or second-tier cities like Shanghai, Wuhan, Shenyang, Tianjin, Xi’an, Chengdu, Shenzhen and Suzhou Due to the surprisingly high valuation given to OTCBB companies in Zhongguancun, there is a big wave of interest among many investment institutions and private investors who have smelled the potentially huge opportunities and are aiming to profit.
Q. What industries are mostly likely to benefit?
A. In principle, only high-tech companies are allowed to trade. The industries that would benefit are actually rather wide including software, biomedicine, new materials, and TMT. The companies in those industries and registered in the authorized parks are mostly likely to benefit from favorable policies and attract more investor attention.
Q. How will this growth affect foreign investors looking to buy shares in Chinese companies?
A. After expansion of the OTCBB trade, foreign investors may be permitted to participate. Companies listed in OTCBB are early stage and tends to have much higher risk but potentially explosive returns. The OTCBB is a big step China is taking to establish a more complete capital market. As long as China’s economy continues to grow at a high pace, high potential investment opportunities among new OTCBB companies will likely attract domestic and foreign investors who want to not only want to ride the new wave but also channel their investments from the over-crowded other domestic stock exchanges to this new but very different and exciting one.
