In the last two decades of the 20th Century, the Chinese economy grew at an electric rate, averaging 9.7 percent annually. Along with this, China's securities market experienced in 10 years what had taken Western stock markets over 200 years. By the end of April 2004, a total of 1,314 enterprises had been listed domestically, raising 821.2 billion yuan (nearly $100 billion). Market capitalization accounted for more than 40 percent of China's GDP and the number of stock investors reached 70 million.

Statistics show that by 2000, the number of start-up companies in China exceeded 70,000 and hi-tech enterprises, confirmed by the Ministry of Science and Technology and departments of science and technology at provincial and municipal levels, topped 20,000. Meanwhile, more than 100 hi-tech enterprise incubators, over 30 university-based science and technology parks, more than 20 start-up parks for returned students and more than 500 productivity promotion centers for small and medium-sized enterprises (SMEs), were established throughout the country.

At the same time, China's securities market also began to take a development path in conformity with the country's new economic structure, after 10 years of extraordinarily high growth.

In July 1998, the Shenzhen Stock Exchange issued a study report on the second board, the first of its kind in the country. On March 2 the following year, the China Securities Regulatory Commission (CSRC), the industry watchdog, for the first time, explicitly proposed the establishment of a special board for hi-tech start-ups.

On April 17, 2000, then CSRC Chairman, Zhou Xiaochuan, stated that his commission had made full preparations to launch a second board.

However, a global crash hit technology-heavy stock markets worldwide from the end of 2000 to 2001, signaled by slumping Nasdaq index. All the markets had to revise rules to raise quality thresholds for listed enterprises and consolidate market foundations. The Chinese Government therefore halted the creation of the second board.

The standoff remained until late 2002. The Standing Committee of the National People's Congress passed the Law on Promotion of Small and Medium-Sized Enterprises on October 14 of the year, calling to broaden direct financing channels for small and medium-sized enterprises.

The Third Plenary Session of the 16th Central Committee of the Communist Party of China adopted the Decision on Issues Regarding the Improvement of the Socialist Market Economic System on October 14, 2003, stressing that China should establish a multi-tiered capital market system through promoting venture capital investment and the establishment of a start-up board.

This year, the Proposals of the State Council on Promoting the Reform, Opening and Steady Development of the Capital Market have drawn wide concerns after it was issued on February 1. The document reiterated that a multi-layer stock market system should be established in China, including building the second board in a progressive manner, improving the venture capital investment mechanism and increasing direct financing channels of SMEs. China's capital market has since entered a new phase of development.

(Beijing Review June 17, 2004)