New Delhi, Feb 17 The Beijing Stock Exchange (BSE) reveals a deeper feature of China’s political economy, where capital markets function less as liquidity-driven than as policy instruments that prioritise strategic industrial objectives, according to a new report.
China’s stock exchange illustrates how China deploys capital markets as instruments of industrial policy while accepting limited market liquidity, said the report in East Asia Forum.
“Designed to fund ‘little giant’ firms in strategic sectors, the exchange prioritises strategic allocation and regulatory coordination over trading depth,” the report mentioned.
Its total market capitalisation exceeded 900 billion yuan ($129.1 billion). As China’s third stock exchange, the BSE was not intended to rival the Shanghai or Shenzhen exchanges in scale.
As overseas listings for Chinese companies become riskier and foreign investors more cautious about Beijing’s role in them, domestic markets like the BSE assume greater responsibility for financing innovation without undermining financial stability.
“As a result, more than 80 per cent of BSE-listed firms operate in strategic emerging industries and nearly 53 per cent come from China’s Little Giants initiative — a government program supporting small-scale firms in strategic technological sectors,” said the report.
Despite rapid growth in listings, the BSE remains marked by thin liquidity.
“The BSE’s investor structure is narrow. Retail investors dominate while facing high eligibility thresholds. Institutional investors, on the other hand, account for under 10 per cent of trading,” the report further revealed.
Small firm size, limited analyst coverage and exclusion from benchmark indices reduce the exchange’s attractiveness to institutional investors, it added.
Low liquidity is thus not simply a market failure but a deliberate institutional trade-off to prioritise strategic financing and regulatory control over market-driven price discovery.
“Unlike the other two exchanges, where stronger institutional participation and clearer exit pathways support higher turnover and valuation premiums, the BSE functions as a stabilising platform for firms unlikely to generate rapid growth,” said the report.
The report further states that Beijing appears willing to tolerate thin trading and limited price discovery in exchange for tighter policy control and strategic capital allocation.
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