China Unveils its Growth Enterprise Board

China planned to launch the long-awaited growth enterprise board, a Nasdaq-like secondary board, on May 1 of this year, the country's securities watchdog announced on Tuesday.

On March 31, the China Security Regulatory Commission (CSRC) published on its website provisional regulations for listings on the board, which would take effect on May 1. The move would improve fund-raising for domestic start-ups at a time when many Chinese businesses are being pressed in the economic climate.

Stirred by the news, venture capital concept stocks staged a rally of around 2% by the early afternoon that day, despite a slight decline among large cap stocks in the Shanghai and Shenzhen stock market.

According to the new regulations, only shareholding companies who had been in business for three years could qualify to be listed on the new board. They also prescribed that applicants must still meet three capital thresholds, which were:

First, an applicant should be profitable for the past two years, and have made at least 10 millon yuan in net profits, or have seen net profits for the past year reach no less then 5 million yuan on the basis of at least 50 million yuan in operation revenues, with annual revenue growth of at least 30% for the past two years;

Second, the applicant should have net assets of at least 20 million yuan;

Third, the applicant should issue shares worth at least 30 million yuan.

Considering the risky nature of investments in the board, the CSRC would require issuers to disclose risks to investors. In addition, the CSRC established penalties for issuers who exaggerated their profit projections.

The proposal to establish a growth enterprise board was first put forth by policymakers more than a decade ago.