VZCZCXRO3458
RR RUEHCN RUEHGH
DE RUEHGZ #0216/01 0991041
ZNR UUUUU ZZH
R 091041Z APR 09
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0400
INFO RUEHBJ/AMEMBASSY BEIJING 0276
RUEHGH/AMCONSUL SHANGHAI 0086
RUEHSH/AMCONSUL SHENYANG 0084
RUEHCN/AMCONSUL CHENGDU 0084
RUEHHK/AMCONSUL HONG KONG 0120
RUEHGZ/CHINA POSTS COLLECTIVE 0148
RUEATRS/DEPT OF TREASURY WASHDC 0073
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC 0131
RUEKJCS/DIA WASHDC 0127

UNCLAS SECTION 01 OF 02 GUANGZHOU 000216 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/LEE 
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER 
STATE PASS SAN FRANCISCO FRB FOR CURRAN 
TREASURY FOR MOGHTADER 
 
E.O. 12958: N/A 
TAGS: EFIN ECON CH
SUBJECT: Shenzhen Start-Up Board to Open in August...Probably 
 
Ref: 08 Guangzhou 214 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly.  Not for release outside U.S. government channels.  Not 
for internet publication. 
 
¶1. (SBU) Summary and Comment: The Shenzhen Stock Exchange's (SSE's) 
long, long wait to establish a new "NASDAQ-like" start-up board may 
be nearing an end.  The board received final approval from 
securities regulators in Beijing and could open as soon as August. 
It will target fast-growth companies; 400 qualified companies are 
already waiting to list, according to SSE officials.  Approval had 
been held up for fear that it would fail to attract investors and 
foster growth for viable companies.  Officials believe that the 
start-up board will help with the allocation of credit and attract 
private equity and venture capital for China's SMEs, sparking a 
sense of urgency about the opening. 
 
¶2. (SBU) Reftel reported in early-April 2008 that the new board 
would likely open in August of that year.  However, the warnings 
from an SSE official at the time that continuing market volatility 
could delay opening turned out to be well-founded.  The approval 
process for the board has advanced another step, but SSE officials 
are still not sure how soon it will be up and running.  As global 
economic uncertainty persists, we may yet see more delays for the 
SSE start-up board.  End Summary and Comment. 
 
Final Approval for SSE's NASDAQ 
------------------------------- 
 
¶3. (U) On March 31, 2009, the China Securities Regulatory Commission 
published rules for initial public offerings (IPOs) of SMEs on the 
Shenzhen Stock Exchange's much delayed start-up board.  The rules 
will become effective May 1, allowing the SSE to begin formally 
approving firms for listing and the start of trading on the 
"NASDAQ-like" board as early as August. 
 
¶4. (SBU) The new board will target fast-growth companies, and 
officials hope it will help encourage more innovation-based growth 
in China's economy.  Strong records of revenue flows and profit will 
be key requirements for companies wishing to list.  Dai Wenhua, SSE 
Deputy General Manager, told visiting Assistant U.S. Trade 
Representative for China Timothy Stratford on April 3 that there 
were already 400 qualified companies waiting to list on the start-up 
board.  Another 3,000 candidates are interested in listing but have 
not yet demonstrated their qualifications.  Dai predicted there 
would be many IPOs in the board's opening days - perhaps even 
several dozen a day - in order to prevent the market from getting 
"too hot" with too many buyers chasing too few listings. 
 
SME Needs Override Fear of Failure 
---------------------------------- 
 
¶5. (SBU) SSE has been working on establishing a start-up board for 
nearly ten years.  The board had received preliminary central 
government approval more than a year ago, but ongoing market 
volatility further delayed its opening.  Dai explained that 
officials feared the board would fail to attract investors and 
foster growth for viable companies after seeing the failure of 
similar boards in other markets.  However, the worsening credit 
environment for SMEs associated with the global financial crisis 
prodded Beijing to finally give the green light to the new board. 
 
¶6. (SBU) Dai pointed out that bank preference for large 
capital-intensive projects has contributed to SME difficulties in 
obtaining financing.  Echoing comments we've heard repeatedly from 
financial sector contacts, Dai said that banks had lots of capital 
and were under pressure to lend it.  However, because they view 
large capital-intensive projects as less risky and because local 
officials strongly support such projects, SMEs are not getting 
enough access to bank loans.  Dai emphasized that more assistance to 
SMEs should be a priority since they are the most effective engine 
for job-growth, the top concern of the Chinese government. 
 
Benefits for Private Equity and Venture Capital 
--------------------------------------------- -- 
 
 
GUANGZHOU 00000216  002 OF 002 
 
 
¶7. (SBU) The start-up board will also help attract more private 
equity (PE) and venture capital (VC) investment to China, according 
to Dai.  The start-up board will increase the potential for PE and 
VC investors to get high returns quickly from their investments when 
firms launch IPOs.  Dai pointed out that private equity companies 
already control investments worth RMB 200 billion in China.  (Note: 
Media sources have placed the figure at RMB 300-500 billion.  End 
note.)  In addition, China has the second highest amount of venture 
capital investment in the world after the United States, according 
to Dai. 
 
Starting in August...Probably 
----------------------------- 
 
¶8. (SBU) When asked how soon the start-up board would begin trading, 
Dai predicted with a smile that it would open on one of three dates 
- August 8, August 18 or August 28 - noting the Chinese belief that 
eight is an auspicious number.  His colleague Jin Liyang, Director 
of the SSE Secretariat, expressed doubt that the board would be up 
and running that soon due to the long and complicated approval 
requirements for individual IPOs; he suggested that September 8, 18 
or 28 might be more realistic.  The start-up board has cleared a 
major bureaucratic hurdle, but may yet face further delays before it 
finally becomes a reality. 
 
GOLDBERG