Shenzhen's stock exchange is expected this week to launch its long-anticipated second board, which will offer another financing channel to China's numerous small and medium-sized enterprises (SMEs), local media reported last week.

The Economic Observer, a Chinese-language newspaper, reported Shenzhen's exchange will launch new shares of SMEs, likely on Wednesday.

The newspaper, citing sources, reported the exchange will first consider companies that sell less than 50 million shares.

An official at the exchange, contacted last week by China Business Weekly, did not deny the report.

But he said the exchange was still waiting for the approval from securities authorities.

"Technically speaking, we are ready to start the business immediately. We already have everything in place," said Jiang Xiangdong, an official with the exchange.

The bourse has spent more than a year preparing to conduct transactions, such as adding new facilities and drawing up relevant rules, he said.

Experts have suggested the time is ripe for the establishment of a second board in China.

The second board, which is expected to resemble the NASDAQ in the United States, will be aimed at SMEs that demonstrate growth potential.

However, due to strict criteria for entry to the country's main board, SMEs often find it too hard to get into the stock markets, even though some have experienced more than three years of profits.

The main boards at Shanghai and Shenzhen, China's two stock exchanges, stipulate only those firms with annual profits exceeding 50 million yuan (US$6 million) are eligible to list.

Statistics indicate there are more than 8 million SMEs in China, which account for 99 per cent of the country's firms.

More than 80 per cent of those SMEs lack funding.

Difficulty in attracting funding hinders their expansions.

A multilayered structure and more market-driven rules must be introduced, experts suggest.

China Business Weekly news

(Business Weekly 02/25/2004 page4)