Marriage of Convenience Combined exchanges seek to gobble up North China

The city government has taken the plunge and merged Beijing's two equity exchanges into the largest equity platform in North China.

The phrase "equity exchange" carries a special meaning for a special phenomenon in China   a forum which enables state-owned enterprises (SOEs) to make the prickly transition into real companies.

For the astute China-watcher or business analyst, the most challenging investment opportunities begin at the equity exchange on Zhichun Lu in Haidian district.

Restructuring state enterprises

For a SOE, it is illegal to conduct any transaction outside of the equity exchange. While an equity exchange cannot be called a proper stock market, there are still bargains to be had.

Equity and assets transactions mean big business: they formed a 72.4 billion yuan (US$ 8.7 billion) business in the city last year, ranking second only to Shanghai on the Chinese mainland. "We believe, in the coming three to five years, the integrated CBEX will absorb a transaction volume as high as 200-300 billion yuan," says Xiong Yan, former president of the Zhongguancun Technology and Equity Exchange.

"By that time, Beijing will be the country s largest equity and asset transaction centre." Launched on St Valentine s Day of this year, the China-Beijing Equity Exchange (CBEX) represents the union of the 10-year-old Beijing Equity Exchange Center and 1-year-old Beijing Zhongguancun Technology and Equity Exchange.

The baby exchange, which specialized in investment and financing services for high-tech enterprises in the Zhongguancun Science Park, was founded last year by nine investors including Beijing State-owned Assets Management. Last year, 78 deals worth 11.1 billion yuan (US$1.34 billion) were signed at the Zhongguancun exchange, Chinas first financial assets supermarket.

Established in 1994, the Beijing Equity Exchange Market was renamed Beijing Equity Exchange Center in 1996. Specializing in SOEs, the center organizes information disclosure, price discovery, deal matching, deal authentication, consultancy and market services.

Home advantage

Beijings advantages in this market are obvious: Most SOEs are registered and headquartered in Beijing. In Beijing alone, half of its 280-300 billion yuan  state assets will be restructured and sold in the next three to five years.

Meanwhile the central government must lead by example in tidying its own house. One central government official estimates that at least one third of the more than 20 trillion yuan (US$2.42 trillion) state assets will be sold in the next three to five years.

As China is encouraging SOEs to grapple with market competitiveness, equity markets will supply a key channel for these state assets to retreat from the market.

"The merger helps strengthen our competitiveness. In the future, we will make the newly-formed CBEX become the best equity exchange in China, especially in fields like services, policy innovations," says Yang Gan, former acting vice president of the Zhongguancun center.

About China-Beijing Equity Exchange

• l        The new exchange has four missions:
• l        Linking domestic companies with investors worldwide
• l        Provide deal flows with transparent and globally acceptable information
• l        Create a cost-saving and efficient channel for cross-border financial activities
• l        Manage and facilities equity and asset transactions
• The China Beijing Equity Exchange (CBEX)
• l        Operates a broker-driven mechanism, attracting intermediary agencies including investment banks, consulting companies, accounting firms and law firms
• l        Offers a customer relationship management system, delivering information about China's economic trends and policy updates, aiding international clients to make investment decisions
• l        Assists clients interested in cross-border mergers and acquisitions, venture capital and private equity activities. This includes professional consulting about non-performing loan disposal
• l        Advises on domestic regulations including land policies, employee arrangements, asset evaluation and transaction processes, state enterprises promotion and merger & acquisition transactions