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What is the GEB?

By Zhang Jiawei (chinadaily.com.cn)
Updated: 2009-06-09 10:21

After its launch this month in Shenzhen, the Growth Enterprise Board (GEB, also known as ChiNext board) will strive to function as does America's National Association of Securities Dealers Automated Quotations, known as NASDAQ.

Featuring a low threshold for listing, flexible regulation and supportive policies, the GEB is designed to finance small and medium-sized enterprises which have great growth potential but are not qualified for listing on the main board.

It will provide qualified start-ups with an entrance into the stock market to raise money, and help create a multi-leveled capital market capable of boosting the development of companies of different sizes and different needs.

Related readings:  Main boards may feel little impact from GEB debut  GEB set to become hotbed for billionaires  Jiang Toon animated by possible listing on GEB  GEB float rates see mark-up

Companies seeking a listing on the GEB are expected to be mainly from the hi-tech field. They tend to be very young and of ordinary performance before going public, but with great expectations for their future development.

The low entering threshold, which is seen as the GEB's most important feature, makes it much easier for cash-starved start-ups to gain access to the possibility of raising money on the stock market.

The same feature also makes it easier for venture capital (VC) and private equity (PE) firms to eventually recoup their investments after the companies go public on the GEB and shares can be sold.

Through GEB, the profits gained by VCs and PEs can be reinvested in other companies, creating a circle of mutual advantage that benefits investors, companies and the entire market.

Mutual advantage circle

Although the risks on the GEB will be much higher for investors than on the main board, the potential returns sometimes are very high.

Because of the high risks on the GEB, it is strictly regulated. The core of regulation is information disclosure about the companies listed. Requiring correct and thorough information about the companies listed can help ensure high quality of the board overall.

The GEB is expected to develop much like NASDAQ, which was launched in 1971 and is the most successful second-board market to date. Hi-tech companies account for about 40 percent of its total market value. Technology giants including Cisco, Microsoft and Intel are all listed there.

After less than 40 years of development, there are 60 percent more listings on NASDAQ than on the New York Stock Exchange (NYSE), whose establishment dates back to 1792.