Honorable guests and participants,
I am delighted to attend this training seminar today and communicate with the scientists and entrepreneurs working at the frontline of innovation.
The SZSE has paid great attention to the Thousand Talents Program since it was launched by the Organization Department of CPC Central Committee in 2008. We anticipated that this high-level talent introduction and training program would bring fresh vigor and impetus to China’s scientific and technological innovation, the development of China’s innovative businesses and the formation of an entrepreneurial and innovative culture in the society. On the other hand, the emergence of a great number of entrepreneurial and innovative businesses would be the source as well as an important basis of the sound development of the multi-tiered capital market.
We are glad to see the Thousand Talents Program has yielding rich fruits and our expectations come true. A group of listed companies have been equipped with scientific and technological achievement produced by the program, greatly enhancing their technological content and market competitiveness. There are also a group of high-quality professionals under the Thousand Talents Program who are not only at the forefront of scientific and technological innovation but also spearheading entrepreneurship. The businesses they started have been admitted into the capital market. According to preliminary statistics, Thousand Talents Program fellows can be found in three SME Board-listed companies and as many as 24 people, including 4 founders, of 19 ChiNext-listed companies have also been included in the program. These enterprises have distinctive features: high technological content, fast development and firm-specific corporate governance.
It’s more encouraging to witness a growing number of enterprises under the Thousand Talents Program are meeting the listing standards and preparing for floatation on the capital market, especially the ChiNext. With the listing of large numbers of enterprises under the program, the overall quality of the capital market, especially the ChiNext, will reach a new level.
Some participants attending the opening ceremony today are already familiar with the multi-tiered capital market of the SZSE while others may just start to know the multi-tiered capital market. Here, I would like to say a few words about SZSE.
The SZSE has always been committed to serving SMEs and supporting independent innovation. As early as 2000, the SZSE began preparations for a Nasdaq-style growth enterprise market in China. For a smooth transition, in May 2004, the SZSE launched a SME Board in its existing institutional framework with the focus on serving growth and innovative SMEs. Up to date, there are 721 SME Board-listed companies, including 519 hi-tech enterprises, accounting for 72% of all the SME Board-listed companies. In the wake of the overseas financial crisis in October 2009, the SZSE launched ChiNext market. From its inception, ChiNext has been positioned to support entrepreneurial and innovative enterprises and has tailor-made institutional designs for such enterprises. For example, the listing threshold was relatively low; an advisory committee composed of scientific and technological experts provides advices on offering and review; an investor suitability system is introduced to grant access only to those investors with a sense of risk and a high risk appetite; and a direct delisting system is implemented to maintain mobility of the market and promote the survival of the fittest. The English name of the board, ChiNext, or China Next, meaning the future of China, is an epitome of the expectations of all the parties concerned.
After four years of development, ChiNext has fully displayed its role in serving the innovation-driven national strategy and accomplished the preliminary goals of its establishment as follows:
Firstly, ChiNext-listed companies involve in highly technological businesses. By the end of the first half of this year, 86% of the 381 ChiNext-listed companies are accredited by the Ministry of Science and Technology as hi-tech enterprises, 66% are in strategic emerging industries, 36% have projects that are listed in China Torch Program, and 12% have projects that are listed in the National High-tech Research and Development Program (863 Program). As such, ChiNext has become the rendezvous of China’s innovative hi-tech enterprises.
Secondly, ChiNext-listed companies have large R&D expenditure and outstanding profitability performance. In 2013, they had an average R&D intensity of 5.75% and average sales gross margin of 34%, significantly higher than the average levels of all SZSE-listed companies.
Thirdly, ChiNext companies have achieved rapid growth and are active in M&As and restructuring. During the four years between 2009 and 2013, their revenue posted a compound annual growth rate (CAGR) of 27% and their net profits registered a CAGR of 14%. Moreover, ChiNext was the most active segment in terms of M&As and restructuring. By the end of the first half of this year, 141 ChiNext-listed companies launched 169 major M&A and restructuring deals, involving RMB 53.7 billion in value, of which 37 deals, involving RMB 20.9 billion, have been completed. In contrast to traditional industries, M&A and restructuring deals of ChiNext-listed companies had the following characteristics: focusing on introduction of talents and technology, taking the restructuring of scientific research institutes as an opportunity and leveraging on equity incentives and other means provided by the capital market.
Fourthly, ChiNext-listed companies promote wide coverage of equity incentives. By the end of the first half of this year, 165 companies, or 43.3% of ChiNext-listed companies have unveiled their incentive plans covering 23,060 key employees and granting a total of 1.047 billion stock options, which effectively aroused the enthusiasm of scientists, technicians and key employees.
Fifthly, ChiNext-listed companies have boosted investment by social capital, especially private capital, in emerging industries and technological enterprises. 243 companies, or 64% of all ChiNext-listed companies, had received venture capital totaling RMB 11.1 billion before IPO. After listing, venture capital investment appreciated 17 times, displaying a strong exemplary effect for the direction of social capital investment.
Dominated by innovative enterprises, ChiNext is well and widely received by investors. Currently, the price/earning ratio of the overall A-share market is roughly 13 times, while that of the SME Board and ChiNext Market is 34 times and nearly 60 times respectively. The ChiNext Index was launched in May 2010. From then on, the broad market has experienced a downturn, while the ChiNext Index jumped 45%. Particularly in 2013, the ChiNext Market soared nearly 90%. Among others, the structural rise of ChiNext Emerging Industry Index became the focus of the market.
After review of the past four years’ operation of ChiNext, this year, SZSE amended ChiNext IPO rules, unveiled ChiNext refinancing rules, further lowered the listing threshold and introduced a small-sum fast financing system. These changes made ChiNext in sharp contrast to the Main Board and more aligned to the development needs of scientific and technological enterprises. You may have noticed that we are set to establish a separate segment within ChiNext to provide special service for not-yet-profitable Internet and technological enterprises. Currently, relevant preparation work is underway. The launch of this segment will enhance ChiNext’s ability to serve technological enterprises.
At present, it is more important and urgent than ever before to implement the innovation-driven national strategy. Implementation of the innovation-driven national strategy depends ultimately on talented people. Since the 18th CPC National Congress, President Xi Jinping has given a series of important talks on talents which make us realize that our era needs innovation and innovation craves for talents. At the opening ceremony of the 17th Congress of the Chinese Academy of Sciences and the 12th Congress of the Chinese Academy of Engineering in Beijing on 9 June, 2014, President Xi reiterated the importance of innovation and talents in a systematic and vivid way. As President Xi put it “Knowledge is power and talents are the future. If we want the country to play a leading role in scientific and technological innovation, we must discover talents in innovation practices, train talents in innovation activities and gather talents in innovative undertakings. We must make great efforts to build a big and well-structured talent pool of innovative high-quality scientific and technological personnel.”
Our society is in urgent need of interdisciplinary talents who are not only scientists with insights into the trend and course of technological development but also entrepreneurs with the capability to start and properly manage a business. During President Xi’s visit to Zhongguancun Science Park in Beijing last year, he said, “we must make further efforts to bridge science and economic and social development, as to bring market’s role into full play in creative resources allocation and let enterprises to play the leading role in technological innovation.” Technological entrepreneurs are the main undertakers at micro-level in implementing this requirement, as they have taken great risks, not only assuming responsibility for their shareholders and employees but also shouldering the future of our country. Over the past decade, the SZSE’s SME Board and ChiNext have listed more than 1,000 enterprises. From our conversations with hundreds of technological entrepreneurs, we have got a taste of the bitterness and toughness of entrepreneurship and innovation. All of the entrepreneurs share an ordeal of entrepreneurship. Many have been caught in a dilemma or struggled with frustration and despair. Even after the listing of their businesses, they fall short of capital, human resources and capital operational experience compared with industry giants. These entrepreneurs still need attention and support from all walks of life
The current and next few years are of crucial importance for China to become an innovation-induced country. China is experiencing comprehensively deepening reforms, with an innovation and entrepreneurship surge sweeping across the entire nation. Entrepreneurs are lucky to be in such an era and receive attention and support from all social sectors. The SZSE has initiated a special plan for the Thousand Talents Program. I’d like to take this opportunity to put forward three proposals on how to serve the Thousand Talents Program for your comments:
Firstly, institutional optimization with a focus on improving the ChiNext’s rule system. Over the past few years, a great number of Chinese innovative enterprises, especially all leading Internet businesses, have floated shares on overseas markets. One major reason is that the rules of our capital market have been outgrown by the needs of innovative enterprises. This is a serious lesson and we’ll never let mistake repeat itself. Under the leadership of China Securities Regulatory Commission, the SZSE will accelerate the reform of ChiNext to make its rule system more accommodating to the characteristics of innovative enterprises, so as to give full play to the role of the capital market in financing, standardizing, M&As, restructuring and equity incentives and allow the domestic capital market to serve domestic innovative enterprises better.
Secondly, strengthening training programs. In 2000 when SZSE was preparing the ChiNext market, we came to the Nasdaq to learn from its experience. A major suggestion that Nasdaq gave us was training of listing candidates. This is because the founders of tech SMEs mainly have technological backgrounds and are generally unfamiliar with the capital market. However, the capital market is of vital importance to the governance structure and long-term development of enterprises and also a highly complicated and professional market. Entrepreneurs can make good use of the capital market only after they have sufficient knowledge of the market. As a result, we set up a venture enterprise training center after our visit to the Nasdaq. To date, SZSE have trained tens of thousands of enterprises and executives. The training seminar opened today is the beginning of our cooperation with the Thousand Talents Program. We will try to make it more targeted and efficient.
Thirdly, deepening service. Despite more than ten years’ experience in serving innovative SMEs, SZSE still has a lot to do. Besides traditional training, we have noticed that start-up companies need services in many ways. For example, they have expressed a strong desire for communicating with each other. Based on this requirement, last year, SZSE set up the “Home for SMEs” for the purpose of integrating the resources of SZSE and even the entire society to create a comprehensive service platform for enterprises, and providing them with value-added services covering listing, training, information, research, exhibition and business promotion. It will also facilitate the interaction between enterprises and between market participants so as to help them expand and build their competence. We will continuously improve our service, and we welcome your opinions and advice.
Thank you.