Can the Beijing Stock Exchange stimulate innovation and inclusive growth?

Beijing Stock Exchange. / CFP

Beijing Stock Exchange. / CFP

Editor’s Note: Alexander Ayertey Odonkor is an economic consultant, chartered financial analyst and chartered economist with a deep understanding of the economic landscape of countries in Asia and Africa. The article reflects the views of the author and not necessarily those of CGTN.

The Beijing Stock Exchange opened for investor registration on September 17, 2021. The new stock exchange is the third largest stock exchange in mainland China after the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE), which were created in 1990.

Designed to support innovative startups and high-growth small and medium-sized enterprises (SMEs), this securities market has helped strengthen access to finance for SMEs in China.

While SMEs are an integral part of the Chinese economy, the growth of some of these companies is generally hampered by financial constraints, a major challenge that the global economy has faced for many years. Seen as the backbone of any development model, a robust SME sector fosters innovation and promotes inclusive green growth which is essential for achieving sustainable development. Typically, SMEs represent the largest share of all businesses; this situation is no different in China.

In China, SMEs account for over 90 percent of all businesses, provide 80 percent of total jobs, and contribute over 60 percent of the country’s gross domestic product (GDP).

Serving as an engine of growth and a major engine of innovation, the collective contribution of SMEs to Chinese patents exceeds 70% of the country’s total.

Thanks to the considerable contribution of SMEs to research and development (R&D), China once again became the world’s leading international patent applicant in 2020 with 68,720 applications, an increase of 16.1% over the previous year .

Despite the significant contributions of the SME sector to the Chinese economy, the growth of many of these enterprises has been stunted mainly due to financial constraints, which limit the innovation capacity of the country’s SMEs. However, in recent years, Chinese policymakers have been consistent in their approach to address this demanding challenge with the aim of spurring innovation and stimulating inclusive growth.

A worker adjusts equipment at a factory in Hefei, capital of eastern China’s Anhui province, September 9, 2021. / CFP

A worker adjusts equipment at a factory in Hefei, capital of eastern China’s Anhui province, September 9, 2021. / CFP

For example, in 2019, the Chinese government announced measures to reduce taxes and fees by more than 300 billion Chinese yuan ($ 44.7 billion) with the ultimate goal of fostering growth and innovation in the SME sector. To achieve this, a reduction in R&D tax was increased by 25% from 50% to 75% and value added tax (VAT) was reduced by 3% for manufacturers and 1% for the transport and construction sector.

Again, to improve innovation in the SME sector, in the first quarter of 2021, the Ministry of Finance and the National Intellectual Property Administration launched a patent transfer plan to support innovation. The three-year plan offers a financial reward of approximately $ 15 million to provincial-level regions that have excelled in promoting patent technology transfer from SMEs across the country.

All of these evidence-based policies and other initiatives have been implemented effectively to provide a solid foundation for the successful functioning of the Beijing Stock Exchange. Overall, while the stock market will strengthen the Chinese capital market, it will also be an invaluable resource for the SME sector to rebuild lost financial and innovation capacity, especially since the disruptions created by the COVID pandemic -19 have left an imprint on supply chains and desecrated economic activity around the world.

Thanks to the services of the Beijing Stock Exchange, the SME sector will be able to access another window of opportunity that will serve as a catalyst in the country’s economic recovery after the pandemic.

The financial provision that will be offered by the exchange will not only increase the financing, research and development capacity of SMEs, but will ultimately strengthen inclusive growth by creating more employment opportunities in SMEs and in other related sectors, improve inequalities and support sustainable development by creating more climate-resilient technologies.

In fact, the economic, social and environmental benefits that could be reaped from the Beijing Stock Exchange’s goal of boosting innovation and SME growth will not be limited to China.

This is true because countries around the world are importing Chinese clean energy equipment, technical expertise, and other climate-resilient technologies that enhance efforts to build infrastructure in all regions of the world to meet the goals of United Nations Sustainable Development (United Nations SDGs).

These tech products made by SMEs in China help climate-sensitive countries protect lives and livelihoods.

Again, the scientific contribution of SMEs in China advances cutting-edge global research that fosters innovation, drives inclusive growth, and ultimately supports sustainable development around the world.

(If you would like to contribute and have specific expertise, please contact us at [email protected])

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