SHANGHAI -- China has embarked on a mission to slowly sideline Hong Kong as a financial center, building up rival stock exchanges on the mainland and now in Macao.
There are now over 60 listings on the SSE STAR Market, Shanghai's new platform established for high-tech companies. A proposed yuan-denominated bourse in Macao is intended to serve as a model case of China's "one country two systems" formula, something Beijing has struggled to do with Hong Kong.
China has also eased restrictions on foreign investment in securities to further bolster these moves.
But despite these developments, weak stock prices and trading volume on the SSE STAR Market show that hastily arranged market moves sometimes backfire.
Already, there have been a series of setbacks on the SSE STAR. The exchange had initially planned to launch an index for the SSE STAR in mid-October but had to abandon that plan due to the weak market.
The first batch of 25 companies surged more than twofold when they were listed on the SSE STAR Market on July 22. But by Dec. 13, they were down 14% from their first trading day.
The number of listed companies on the market has more than doubled, but on most days, the trading volume of the entire market has been around one-fifth of the first day of operation.
Investors are also growing dissatisfied with the quality of listed companies. Ningbo Ronbay New Energy Technology's stock price slipped below its public offering price on Nov. 7 after the company announced a delay in the collection of account receivables worth 200 million yuan (about $28.5 million).
The company manufactures parts and materials for automotive batteries. The company's troubles were in large part due to a slump in electric vehicle sales in the wake of subsidy cuts. But it is unusual for a company to book an extraordinary loss so soon after its listing.
The screening of a listing application from Jingying Shuzhi Technology is now underway. But concerns about the system development company's financial conditions have already emerged, as it booked a huge amount of loan-loss provisions.
Forty years have passed since China advocated a policy of "reform and opening-up" and started fostering privately run companies.
The Shanghai Stock Exchange and the Shenzhen Stock Exchange were established in 1990. But powerful Chinese companies made their debuts on stock markets outside the mainland first, including New York-listed Alibaba Group Holding and Hong Kong-listed Tencent Holdings.
Many Chinese startups, including Shanghai Yunna Intelligent Technology, a developer of technology for unmanned convenience stores, are also looking to float overseas.
The attraction of listing overseas is that the companies receive their proceeds in U.S. dollars and Hong Kong dollars. Furthermore, investment banks and institutional investors in the U.S. and Hong Kong are better equipped to evaluate tech companies, given their longer experience in the sector.
Companies have little incentive to go public in China, where they receive their proceeds in yuan only and where they are subject to the authorities' strong influence. They also face capital controls.
The fundraising capabilities of the Shanghai and the Shenzhen stock exchanges have been questionable. The amount raised on the boards this year totaled about 350 billion yuan by mid-December, only one-third of the 1.1 trillion yuan raised in 2016.
The benchmark Shanghai Composite Index is hovering at levels below those seen at the end of 2017, as retail investors, who account for 80% of transactions, have held back due to a lack of confidence in the market.
In China, not only the line up of companies that are listed but also the creation of markets are led by the Communist Party and the government.
Despite such setbacks in Shanghai, He Xiaojun, head of Guangdong Province's financial supervision authorities, said that he has submitted a proposal to Beijing to set up a yuan-denominated bourse in Macao. The attention given to Macao, a fellow territory ruled under a "one country two systems" model, has Hong Kong suspecting that this is a way to punish Hong Kong for its political turmoil.
Yet the Macao market would face an uphill climb challenging Hong Kong's crown as Asia's leading financial hub. While Beijing has removed some regulations regarding asset management and insurance, yuan exchange and overseas remittance still remain highly regulated.