China expands its OTC equity market

China has made its long-awaited move to further expand its over-the-counter equity markets on Wednesday. The so-called "new third board" unveiled this morning in Beijing will provide an equity trading system for China's cash-stripped small and emerging businesses. Experts believe the OTC board is one of a flurry of recent measures unveiled by China's policymakers to expand access to credit for small and private-owned firms.

The expanded "over-the-counter" equity market platform features a lower-threshold point of entry so that a wider range of emerging businesses can get access to it.

The so-called "new third board", is actually an over the counter equity trading agent system that's aimed to help China's cash stripped emerging businesses, especially in high-tech sector, to solve their financing problems. "

The platform is part of China's efforts to improve the country's equity market performance, often blamed by investors as too volatile.

The new OTC platform was based on a trial version of the OTC market started in Beijing's Zhongguancun tech district in 2006.

Up until now, more than 200 small firms have listed on the platform, accumulating a total capital of 5.5 billion yuan, or 884 million US dollars.

Experts say the platform aims to create more growth opportunities for China's smaller firms.

Prof. Huang Yiping, National School of Dev't of Peking University, said, "Certainly it will provide more options for investors. And certainly it will add pressures to the corporate governance. Despite it's not sufficient to solve all the problem. But I think things like that will improve the quality of the stock market."

Some experts also say that the new third board platform, will largely lift pressures saddled by the main board, and will thus provide more financing opportunities for smaller firms.

Lu Ting, China economist at BofA Merrill Lynch, said, "Important not only for stock market, but financial market. China lacks financing channels. This platform will provide financing."

In a forum held by The Economist magazine on Wednesday in Beijing, Guo Shuqing, head of China's securities regulator, re-emphasized the central government's decision to further open up the country's equity market.

The newly unveiled OTC platform is similar to the US's Over-the-Counter Bulletin Board. It will provide an electric platform for non-listed companies to raise funds. It's the third of its kind in China following regional OTC stock markets in Shenzhen and Shanghai.

However, details regarding specific trading regulations of the platform are yet to be issued.