China Launches NASDAQ-Style Market for Growth Enterprises

Shang Fulin, chairman of China Securities Regulatory Commission, announced the launch of NASDAQ-style growth enterprises market, or GEM, on Friday.

The launch is considered a milestone for the Chinese capital market. Since it was first initiated in 1999, ten years have passed.

Shang Fulin points out that more efforts should be done to stabilize the GEM and prevent risks.

"The Growth Enterprise Market is a new board and it requires exploration and constant improvement. We are convinced that the GEM's success is not something that can be achieved overnight, and its development is not going to be an easy road. But we strongly believe that with the leadership of the Central government and support from various parts of society, as well as cooperation from the stock market, this brand new market will surely pay off."

Experts say that the GEM is designed to attract funding for the kind of innovative enterprises the government wants to nurture, such as software companies, pharmaceutical firms and creative industries.

At the inaugural ceremony, Zhu Hongren, chief engineer with China's Ministry of Industry and Information Technology, said the GEM should serve the development strategy for the whole country.

"After the launch, a number of issues need to be addressed. First, to make the GEM meet the country's industry policies and the strategy of sustainable development. Second, to preserve the market resources and help more small and medium-sized enterprises get listed on the market."

Meanwhile, China's financial regulator has warned investors that because there will be a small number of companies on the board, they may be vulnerable to jumps and slumps.

They are higher-risk investments in part because their small size means it may be harder to work out whether or not they are genuine viable businesses.

Liu Jipeng is an economics professor with the China University of Political Science and Law.

"Please remember that they are stocks with all the shares tradable. Moreover, GEM investment is just like risk investment, where coolheadness and caution are very much needed."

The first batch of 28 enterprises will be listed and start trading next Friday.