China is expected to launch its Nasdaq-like growth enterprise market as early as the first quarter as it hopes to help smaller companies raise capital and restore investor confidence, sources said yesterday.

Preparatory work for the set-up of the GEM in Shenzhen, Guangdong Province, has been completed and the board will be unveiled soon if no big volatility occurs in the main markets, according to sources close to the regulator.

"Among all proposed reforms, the GEM is likely to be realized first as it's in line with government polices to help small firms," said a Shanghai-based securities executive. "Its launch won't cause big liquidity pressure on the main broads and features low risks."

The China Securities Regulatory Commission, the stock-market regulator, held its annual work conference in Beijing yesterday and today, among which the agency may work out a rough timetable for the GEM's launch, the sources said.

An official at the CSRC's investor relations department said yesterday he has no information to disclose about the GEM. Calls made to the Shenzhen stock exchange went unanswered.

Chinese stock authorities have been striving in the past three years to push forward the GEM, hoping to help capital-strapped small enterprises raise funds for survival.

But the launch was delayed due to large market fluctuations and differences among officials on profit and revenue thresholds for listings on the board.

Under the revised rules, candidates for the GEM are required to have been profitable for two consecutive years with a combined income of at least 10 million yuan (US$1.5 million).

If a company fails on the two-year profit requirement, it must post revenue of at least 50 million yuan and a net profit of at least 5 million yuan in its latest fiscal year to qualify for listing.

In comparison, companies that plan to list on the main boards in Shanghai and Shenzhen must post a profit for three consecutive years, during which the collective earnings should reach 30 million yuan.

"The current thresholds are appropriate as they can help small companies with real growth potential, thus protecting investors' interest," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "The GEM's size won't be big initially as the regulator may wish to see the market's response before acting further."

Industry insiders said that other market overhauls, including stock index futures and a short-selling mechanism, will largely hinge on the success of the GEM.

"The regulator doesn't want to rush reforms that may lead to market worries under the background of a global financial crisis," said a Beijing-based source familiar with the matter.

The CSRC last year unveiled plans to let retail investors borrow securities and capital from brokerage companies but has temporarily suspended the proposals due to risk concerns, industry people said.

(Shanghai Daily January 14, 2009)