New Third Board to crimp A shares

Bank loans normally lay the financial foundation for businesses in the real economy, with stocks and bonds representing a much smaller slice of fundraising. In China, loan delivery has long fallen short of demand from small and medium-sized enterprises (SMEs). Most of these businesses lack the assets to secure credit from traditional banks.

China's share transfer system for medium and small-sized companies, also known as the New Third Board, has removed many of the barriers which have traditionally blocked smaller businesses from obtaining financing. With no financial requirements to get on this board, SMEs are finding it easier than ever before to connect with investors.

Many of China's top high-tech companies have listed overseas simply because they could not meet the criteria for a domestic listing. Several of these businesses have since developed into corporate champions with foreign money.

Activity on the new third board is heating up, with about 776 million yuan ($126 million) raised there last year. As more investors look to this board for China's next big tech start-up, a shock to the A-share market is inevitable.