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China's capital market regulator is encouraging financial support for small businesses by accelerating the launch of a unique national over-the-counter market and a pilot program for issuing privately raised company bonds.
Specific regulatory measures are being discussed by the China Securities Regulatory Commission, aiming to help small and medium-sized companies raise money outside the stock market or bank lending, which can boost industrial economic development.
An official from the CSRC said on Thursday that a draft may be released soon to solicit opinions.
The main participants in the OTC market will be institutional investors, and they should follow the non-listed public company supervision rules, the CSRC official said.
"The development of the unique national OTC market will not give unfavorable influence to exchange trading, because the purpose is focusing on transactions other than raising money," he added.
Since 2006, China has had a trial platform at Zhongguancun in Beijing for share transfers of non-listed companies. The total money raised directly on this platform was only 1.71 billion yuan ($271 million) in the past six years, according to the regulator.
In the past 15 months, the transaction value of the Zhongguancun OTC market was 732 million yuan, with an average turnover rate of 3.4 percent, compared with 230 percent with exchange trading, said the CSRC.
"Efforts are needed to explore the regulations of OTC markets, raising the proportion of direct financing and optimizing the financial structure," Vice-Premier Wang Qishan, said last week in Beijing.
Wang suggested the top regulator learn from the Zhongguancun model and adhere to market-based rules to allow small and medium-sized non-listed companies, including self-regulatory organizations and broker-dealers, "to play a leading role in share transfers".
The CSRC also said on Thursday that the Shanghai Stock Exchange and Shenzhen Stock Exchange are jointly making policies for small-scale companies to issue privately raised bonds.
The return rate ceiling of this high-risk bond may be set at three times the benchmark debt interest rate.
"The pilot programs for this company bond will not be quickly expanded nationwide, but we will choose some provinces, where small businesses gather to set up, such as Zhejiang province," the CSRC official said.
This is expected to enrich China's bond market and provide more channels for companies to raise money, although the potential risk of the investment is higher than ordinary company bonds, analysts said.
