Market Dynamics | 2023 Special Topic on the Beijing Stock Exchange —— Two Years on the Market, a Main Arena for Innovative SMEs

From the pilot registration-based system on the Sci-tech Innovation Board and Growth Enterprise Market, to the official listing of the Beijing Stock Exchange in November 2021, which became one of the three major stock exchanges in China alongside the Shanghai Stock Exchange and the Shenzhen Stock Exchange, to the current full implementation of the registration-based reform, China's A-share market has gradually established a multi-level capital market system composed of four major sectors: the main board, the Sci-tech Innovation Board, the Growth Enterprise Market, and the Beijing Stock Exchange. The differentiated positioning among these sectors is becoming increasingly clear.The Beijing Stock Exchange adheres to its market positioning of serving innovative small and medium-sized enterprises, focusing on cultivating and developing 'specialized, refined, distinctive, and innovative' SMEs.

According to Frost & Sullivan statistics, as of August 31, 2023, the total number of listed companies on the A-share market reached 5,266, among which the number of companies listed on the Beijing Stock Exchange accounted for 4%.

According to Frost & Sullivan statistics, from January to August 2023, a total of 598 new companies were accepted on the A-share market, including 87 from the Beijing Stock Exchange, accounting for 15%, 336 from the main board, 66 from the Sci-Tech Innovation Board, and 109 from the ChiNext.Affected by the validity period of financial reports, May and June are periods when new A-share companies are newly accepted. During this period, 12 and 59 new companies were accepted by the Beijing Stock Exchange, accounting for 24% and 23% of the new A-share companies accepted in that month, respectively.

As of August 31, 2023, among the 87 newly accepted enterprises on the Beijing Stock Exchange in 2023, June had the highest number of newly accepted enterprises, with 59 new applications, accounting for 68%.In addition, except for February 2023, the Beijing Stock Exchange has been accepting new companies every month, which is more active than other sectors of the A-share market.

High-quality small and medium-sized enterprises consist of three levels: innovative small and medium-sized enterprises, specialized, refined, characteristic, and new-type small and medium-sized enterprises, and specialized, refined, characteristic, and new-type 'little giant' enterprises. These correspond to the basic strength, backbone strength, and core strength of high-quality small and medium-sized enterprises respectively. As a 'higher-order' market entity than innovative small and medium-sized enterprises, specialized, refined, characteristic, and new-type enterprises are one of the main targets served by the Beijing Stock Exchange.

The North Stock Exchange features prominently the attribute of specialization, expertise, uniqueness, and innovation. In 2023, there were 25 'specialized, refined, unique, and innovative' listed companies on the North Stock Exchange, accounting for 46% of all listed companies on the exchange, exceeding the proportion of specialized, refined, unique, and innovative listed companies on the ChiNext and main board. Therefore, in the future, the North Stock Exchange will gradually become the main venue for specialized, refined, unique, and innovative small and medium-sized enterprises to list.

The Beijing Stock Exchange has set up multiple sets of listing conditions that are more diversified, inclusive, and precise in response to the development needs of innovative small and medium-sized enterprises (SMEs). Based on the successful experience of the pilot registration-based system reform on the Sci-tech Innovation Board and Growth Enterprise Market (GEM), the BSE has highlighted its differentiated arrangements that cater to different characteristics and needs of innovative SMEs. Apart from the GEM's first set of listing standards which do not require 'market value', other listing standards across the three major sectors all have requirements for market value. Moreover, the higher the market value, the more lenient the requirements for other financial indicators such as net profit and operating income, reflecting the registration-based system's emphasis on placing more focus on 'market value', that is, truly giving the choice to the market. Compared to the other three major sectors,Regardless of whether a company is profitable or not, the market value requirement for the Beijing Stock Exchange is the most lenient, especially attractive to smaller non-profit enterprises, highlighting the exchange's service orientation towards 'innovative small and medium-sized enterprises'.

According to Frost & Sullivan statistics, from January to August 2023, 50 companies have successfully listed on the Beijing Stock Exchange through Standard 1 of access criteria, accounting for 93% of the total number of listed companies on the exchange during that period.

Since the launch of the market, the proportion of classified access criteria for listed companies on the Beijing Stock Exchange has been basically consistent with that from January to August 2023. A total of 205 enterprises have successfully listed on the Beijing Stock Exchange through Access Criterion 1, accounting for 95% of the total number of listed companies on the exchange during the same period.

On November 15, 2021, the Beijing Stock Exchange was officially unveiled and opened for trading, with the first batch of 81 companies listing smoothly on that day. In the two years since its opening, the BSE has continuously improved its systems and enhanced its service capabilities, supporting a cluster development of small and medium-sized enterprises (SMEs) with strong innovation capabilities, rapid growth rates, and substantial technological achievements. It has also accelerated the exploration of an inclusive financial path for capital markets serving SMEs.

With the assistance of the Beijing Stock Exchange, a group of small and medium-sized enterprises have leveraged their industrial chain and supply chain capabilities to strengthen and extend the industry chain. They have continued with high-intensity research and development, accelerating the pace of domestic automation while ensuring self-reliance.

The Beijing Stock Exchange respects the development laws and growth stages of innovative small and medium-sized enterprises, continuously enhancing the inclusiveness and precision of its systems. Since its launch, the IPO financing amount and the number of technology innovation enterprises attracted have been increasing, making it currently the preferred listing destination for small and medium-sized enterprises.

According to Frost & Sullivan statistics, from the perspective of industry classification and proportion of listed IPO companies on the Beijing Stock Exchange, from January to August 2023, there were a total of 54 IPO-listed companies, mainly distributed across five major industries: mechanical equipment, basic chemicals, automobiles, power equipment, and pharmaceutical biotechnology.

Among them, 10 enterprises related to mechanical equipment went public, accounting for 19%. The basic chemical industry accounted for 17%, the automotive industry accounted for 11%, the power equipment industry accounted for 8%, and the pharmaceutical biotechnology industry accounted for 6%.

Source: Frost & Sullivan, public information

According to Frost & Sullivan statistics,  In terms of operating income, listed companies on the Beijing Stock Exchange have a certain gap compared to those on other sectors.In 2022, the average operating revenue of listed companies on the Beijing Stock Exchange was 740 million yuan, that on the ChiNext was 2.73 billion yuan, on the STAR Market was 2.38 billion yuan, and on the main board it was 20.99 billion yuan.

From 2020 to 2022, the operating income of the Beijing Stock Exchange had a compound annual growth rate of 20.6% over three years, which is lower than that of the Sci-tech Innovation Board but higher than that of the ChiNext and Main Board.The listed companies on the Beijing Stock Exchange are positioned towards small and medium-sized enterprises with good growth potential. These enterprises have maintained a stable growth rate over the past three years, approaching the average annual compound growth rate of operating income for A-share listed companies, which aligns with the characteristics of small and medium-sized enterprises, which have lower revenues but stronger growth capabilities.

According to Frost & Sullivan analysis, the regions where IPO companies listed on the Beijing Stock Exchange are mainly concentrated in Jiangsu Province, Zhejiang Province, Guangdong Province, Shandong Province and Beijing.

Situation in 2023: The main concentrated regions for IPO-listed companies are Jiangsu Province, Zhejiang Province, Shandong Province, Beijing, and other regions. The top three regions in terms of number of listed companies on the Beijing Stock Exchange are Jiangsu Province with 11 companies, Zhejiang Province with 7 companies, and Shandong Province with 5 companies, accounting for more than 40% in total.

Since the market opened, among the companies listed on the Beijing Stock Exchange, the top ten companies by market value and initial public offering fundraising have been concentrated in sectors such as power equipment, mechanical equipment, and basic chemicals. According to Frost & Sullivan statistics, as of August 31, 2023, the total market value of the Beijing Stock Exchange reached approximately 255.2 billion yuan, with the power equipment industry having the highest total market value, reaching 55.1 billion yuan.

Source: Frost & Sullivan, public information

Among the inquiry questions related to industries on the Beijing Stock Exchange, since most issuers are innovative small and medium-sized enterprises with relatively small scales, they pay more attention toThe sustainability of the issuer's business growth, national policies, and future development trends of the industryThe Sci-tech Innovation Board, on the other hand, pays more attention to the development prospects and space of niche markets.

Among the inquiry questions related to competition landscape,The Beijing Stock Exchange focuses on the sorting out of competitive landscape and the situation of competitors.The Sci-tech Innovation Board, on the other hand, pays more attention to the issuer's leading market position and market share.

Source: Frost & Sullivan, public information

According to Frost & Sullivan statistics, from January to August 2023, a total of 114 corporate inquiries on the Beijing Stock Exchange involved industry-related issues.Among them, 86 enterprises' inquiry questions involved market size, 61 involved market development trends, 66 involved relevant policies, and 24 involved the industrial chain.

According to Frost & Sullivan statistics, from January to August 2023, there were a total of 548 industry-related issues in the Beijing Stock Exchange. Among them, there were 212 issues related to the existing market scale and future development space, 109 issues related to development trends, 159 issues related to policies, 31 issues related to the industrial chain, and 37 issues related to other market segmentation and main industry characteristics.

According to Frost & Sullivan statistics, from January to August 2023, a total of 117 companies on the Beijing Stock Exchange raised competition-related questions in their inquiries.Among them, 103 companies' inquiry questions related to the competitive landscape, 66 companies' inquiries involved market competitor information, 83 companies' inquiries focused on the issuer's competitive strengths and weaknesses, 33 companies' inquiries addressed market entry barriers, and 82 companies' inquiries covered innovation and sector positioning.

According to Frost & Sullivan statistics, from January to August 2023, there were a total of 813 competition-related issues in the Beijing Stock Exchange. Among them, there were 282 issues related to the issuer's market share, market position, and market concentration, 163 issues related to competitors' product layout, technical level, application fields, project acquisition, etc., 223 issues related to the issuer's main competitive strengths and weaknesses, 48 issues related to market entry barriers, and 97 issues related to innovation and sector positioning.

The regulatory authorities inquired about the issuer's innovative attributes and the positioning of its Northbound Stock Exchange sector, focusing on the issuer's R&D investment, innovation capabilities, and the transformation of market benefits. They particularly sought to understand whether the issuer can become a leading enterprise in its niche sector by leveraging its innovative advantages and whether it complies with the sector positioning of the Northbound Stock Exchange.

Regulatory inquiries closely examine whether the issuer complies with national industrial policy support, and whether it falls within industries and fields advocated by the state.In recent years, Sino-US trade frictions have intensified, and international disputes have become prominent. The central government has attached great importance to the construction of network security and self-reliance. While introducing various network security regulations, the Chinese government has continuously adjusted and optimized the top-level architecture of network security. At the same time, the China Computer Network and Information Security Administration Center, which was previously under the Ministry of Industry and Information Technology, has been adjusted to be managed by the Office of the Central Cyberspace Administration. These measures fully reflect China's new level of emphasis on network security and self-reliance, which has reached a new height.

In recent years, the Chinese government, enterprises, research institutions, and other parties have placed great emphasis on the strategic layout of 5G. In June 2017, the Ministry of Industry and Information Technology (MIIT) successively issued and announced 5G spectrum plans, focusing on product research and development, verification, and industrial collaboration before the commercialization of 5G. 5G is a key technology and infrastructure in the new economic era, providing important support for the transformation and upgrading of various industries. The cloudification and virtualization technologies of 5G can meet the massive data demands of mobile networks, bringing rich services to users while also posing challenges to existing data privacy and security protection technologies. The demand for cloud host security will increase, and the continuous growth in identity authentication and access management will also drive further development of network security service providers.

Regulatory authorities conduct a comprehensive review of the market size where the issuer operates, from dimensions such as market space scale, rationality in parameter selection, and business sustainability. They pay attention to the actual size, growth potential, and risks faced by the issuer's segmented markets, in order to assess the sustainability of the issuer's business.

Supervisory inquiries closely focus on the downstream market, mainly because the scale of the rare earth market is primarily driven by downstream application markets.In the past few years, global new energy vehicle sales have increased significantly. China's new energy vehicle market saw sales exceeding 6.8 million units in 2022, with a compound growth rate of over 50% from 2018 to 2022. Driven by policies that strongly support the popularization of new energy vehicles and other factors, China's new energy vehicle sales are expected to reach more than 17 million units by 2027, with a compound growth rate of about 20% from 2023 to 2027.

Regulatory inquiries place emphasis on downstream segmented scenarios because the rare earth permanent magnet material industry has a wide range of downstream application fields.Rare earth permanent magnet materials are mainly divided into samarium-cobalt magnets, neodymium-iron-boron magnets, and rare earth iron-nitrogen magnets. Due to the different property characteristics of these materials, they are suitable for different downstream scenarios. For example, samarium-cobalt magnets are used in national defense and military, aerospace, communications, etc., due to their high magnetic performance and high-temperature resistance. Neodymium-iron-boron magnets are more commonly used in consumer electronics, automotive, etc., due to their high cost-effectiveness.

Regulatory authorities assess the main competitors of an issuer based on the competitive landscape of the industry where the issuer operates, and also pay attention to the industry ranking of the issuer's sector, its market share, and competitive advantages. The focus is on whether the issuer's competitive advantages can sustain its industry position within the sector.

The regulatory inquiry focused on the market competition situation in the numerical control machine tool industry, mainly due to the intense competition in this sector and its high degree of external dependence.The high-end products in China's CNC machine tool industry are in a market stage with a high degree of external dependence. The first tier consists of foreign-funded or joint-venture enterprises with strong technology and significant brand influence. The second tier includes Chinese enterprises with certain scale and technical strength. The third tier mainly targets the fragmented mid- to low-end product market, with smaller market shares, weaker technical strength, and less competitive capabilities.

Local representative participants in China's CNC machine tool industry include Guosheng Zhike.Kode CNCZhejiang Haideman, Haitian Precision Machinery, etc. In terms of international manufacturers, from the perspective of participants represented by the United States, Germany, and Japan, these manufacturers have mastered the key technologies of numerical control systems in CNC machines. They possess significant advantages in aspects such as the completeness of CNC machine product supporting facilities and system functions. Against the backdrop of China's manufacturing industry demand recovery, increased product added value, and growth in the numerical control rate, China is expected to gradually reduce its dependence on foreign sources.

Regulatory authorities pay attention to the development trends of the industries in which issuers operate, assess the degree of alignment between the issuer's current business and industry development directions, focus on determining whether the issuer's existing business and new businesses under expansion are highly compatible with industry development trends, and also monitor the market foundation for the sustainable development of the issuer's business.

Regulatory inquiries focus on the issuer's current business and future strategic development direction. Business planning needs to align with the overall future development trend of the industry.

Taking the photovoltaic thermal field system as an example, carbon-carbon composites have been widely applied in the field of photovoltaic thermal field systems. The proportion of carbon-carbon composites in monocrystalline silicon thermal fields has exceeded that of graphite. Pay attention to the issuer's existing and planned businesses, as well as their alignment with the future development trends of the industry.

The development of the photovoltaic thermal field industry is driven by the advancement of preparation materials. Special graphite such as isostatic graphite was the main material for manufacturing thermal field system components in crystalline silicon before 2005, mainly imported, with long supply cycles and high prices. The photovoltaic industry faces issues such as high costs and bottlenecks in improving the efficiency of traditional photovoltaic cell technology, which urgently requires cost reduction and efficiency enhancement. This has promoted the exploration of new materials and processes in the photovoltaic thermal field industry and driven the development of silicon wafers towards larger sizes. Over more than a decade of development, carbon-based composite materials have gradually formed technical, performance, and cost advantages in some areas of photovoltaic thermal fields, gradually achieving the substitution of graphite materials and leading to the localization development of photovoltaic thermal fields.

Regulatory authorities pay attention to the industry in which the issuer operates, its position and importance within the industrial chain, and whether it is at a critical link in the chain, forming close synergies with upstream and downstream industries. This is done to assess the issuer's competitive advantage and business sustainability.

Regulatory inquiries focus on the development of the upstream, midstream, and downstream industries in the printed circuit board (PCB) supply chain. This is mainly due to the numerous process steps and long chain of the PCB industry.The industry concentration of the printed circuit board industry chain increases from top to bottom. The upstream is raw materials, and the midstream isCopper clad laminateFor printed circuit board manufacturers, downstream application demands can be divided into sub-sectors such as communication equipment, industrial control and medical devices, aerospace, automotive electronics, computers, etc. The concentration of the PCB industry in the midstream of the industry chain is relatively lower than that of the copper-clad laminate industry.

*The data statistics related to the Beijing Stock Exchange in this article are up to August 31, 2023.