No Time to Retreat.(International Edition; CHINA)(China's Growth Enterprise Market )

Byline: Duncan Hewitt

Beijing could have used the crisis as an excuse to slow market reform. Instead, it's all systems go.

You wouldn't think that the worst economic downturn in 70 years would be a good time to open a new stock exchange. But the Chinese do. After a decade of delays, Beijing has decided to debut its Growth Enterprise Market (GEM)--China's very own version of New York's NASDAQ exchange. Under rules due to take effect this month, China's "second board," located in the southern city of Shenzhen, across the border from Hong Kong, will allow companies with just three years of operation, net assets of 20 million renminbi (just under $3 million U.S.) and combined profits of just 10 million renminbi to sell stock to the public.

The plan is going ahead even though China's main exchange in Shanghai has only partially recovered from its bottom late last year, when it was down by some two thirds. That says a lot about the economic competence--and the confidence--of the Chinese. Just as Beijing used the Asian financial crisis as a push to move ahead with trade reform, so leaders today see the global downturn as a chance for China to expand its reach in capital markets--to grow while others are faltering.

China recently announced plans to allow settlement in renminbi (RMB) for trades in Hong Kong--an important step on the road toward full convertibility of the Chinese currency. A flexible currency is a key part of making Shanghai a truly international financial center, another goal that the Chinese are now putting front and center. At a recent press conference, Liu Tienan, deputy director general of China's National Development and Reform Commission, gave a strong speech to that effect, proclaiming that the country's aim by 2020 is to build financial centers "appropriate to China's economic power and the international status of the RMB." Liu also stressed that China's financial sector should be not just "big, but strong."

A market like GEM, which targets small and midsize privately held businesses, will be a crucial step toward that goal. So far most of Beijing's $585 billion stimulus program has gone to state firms in industries like construction, real estate and transport. But about two thirds of China's GDP comes from the nonpublic sector--and small businesses create the majority of new jobs. In GEM, they'll have a new mechanism for ...