China's NEEQ Reform and Beijing Stock Exchange: the Key Points

- Founded in 2013, NEEQ (National Equities Exchange and Quotations) is the third national stock exchange approved by the State Council of China, after SSE (Shanghai Stock Exchange) and SZSE (Shenzhen Stock Exchange).

- NEEQ (also called the 'new third board') serves as a platform connecting the capital market and innovation-driven, entrepreneurial and rapidly growing small and mid-sized enterprises.

- In July 2020, the third tier – the 'select' tier of NEEQ – was added in addition to the 'base' and the 'innovation' tiers, with the first batch of 32 firms included. Around the same time, the transfer system (link in Chinese) was introduced that allows stocks listed on NEEQ to be moved to the mainland's other boards.

- Currently, there are 66 companies on the select tier, 1,250 companies on the innovation tier and 5,983 on the base tier.

- Examples (link in Chinese) of the select tier NEEQ companies cover areas such as environmental protection, energy-saving and high-tech equipment:

   Transcom (创远仪器, 831961:NEEQ) is a manufacturer and provider of wireless communication testing instruments and solutions in China. 

   LINTON Tech Group (连城数控, 835368:NEEQ) supplies equipment and automation solutions for the entire industry chain, including crystal growth, cutting and grinding, insert cleaning, wet texturing and photovoltaic cell technology.

   Beijing ZHTD (中航泰达, 836263:NEEQ) provides full life-cycle service of industrial gas treatment services for non-electric industries such as steel and coking.

   Jcon (旭杰科技, 836149:NEEQ), a service provider that majors in the installation of special professional engineering, designing of energy-saving materials and development of energy-saving equipment.

- In February 2021, the measures for transfer listing of companies from NEEQ to the SSE Star market were released.

Beijing Stock Exchange (BSE)

- This new board is established based on the NEEQ select tier firms, which implies that the new exchange somewhat deepens the NEEQ reform.

- This board will serve as the "primary platform for innovation-oriented SMEs, advanced manufacturing and the modern service industry."

- Registration-based IPO system: reviewed by Beijing Stock Exchange and registered by CSRC (China Securities Regulatory Commission), similar to that of China's two tech-heavy boards – the Star Market and ChiNext.

- IPO application process (link in Chinese) on BSE:

   A NEEQ base tier listing;

   Transfer to the innovation tier;

   Listed on the innovation tier for at least 12 months – key IPO requirement.

- BSE IPO requirements for innovation tier companies:

   Market value CNY [200, 400) million

   Net profit in the last TWO years at least CNY 15 million and weighted average ROE at least 8%.

   Or

   Net profit last year must be at least CNY 25 million and weighted average ROE at least 8%.

   Market value CNY [400, 800) million

   Revenue of last TWO years must be at least CNY 100 million, a revenue growth rate of last year at least 30%, and operating cash flow last year must be positive.

   Market value CNY [800, 1,500) million

   Revenue of last year must be at least CNY 200 million, and R&D investment in the last two years must take up at least 8% of the last two year's total revenue.

   Market value CNY 1,500 million and higher

   R&D investment in the last two years must be at least CNY 50 million.

- IPO timeline:

    Review period: 2 months.

    Registration period: 20 weekdays.

    Processes and norms the same as those in SSE and SZSE.

- Companies of the select tier are allowed to go public on BSE except for those ordered to be removed from this tier. The situations when a select tier NEEQ company be removed are as follows:

   Negative net asset in the last financial period.

   Negative net profit for the last two years, and revenue for both years under CNY 500 million or revenue under CNY 300 million for the last year.

   Adverse or disclaimer of opinion in the latest yearly audit report.

- Intraday trading price movement limits:

  +-30%

- Other boards:

   NEEQ - Limit up: 100%; limit down: -50%;

   SSE & SZSE - Limit up: 10%; limit down: -10%;

   The Star Market and ChiNext - Limit up: 20%; limit down: -20%.

- When satisfying corresponding requirements (link in Chinese), the select tier companies can also opt for a listing on the GEM (Growth Enterprise Market) and Star (Sci-Tech Innovation Board).