Pi said GEM listed companies might not perform as well as those on the main board. Most of the GEM listed companies will be small and medium-sized enterprises (SMEs), which are small in scale, weak in competence, and low in yields and credibility. Due to high operational risks, they used to have difficulties in acquiring bank loans, and such risks are writ large for their investors as well.

Second, in actual trading, the share prices of GEM listed companies, due to their small equity, can easily be manipulated by speculators. Additionally, many of the Chinese SMEs lack sufficient internal management, which makes GEM a breeding ground for insider trading. As a result, the interest of innocent investors might be dampened by those illegal activities.

Moreover, the exit mechanism of the GEM will be stricter than that of the main board, making it possible for companies to be quickly kicked out of the market if their businesses are fairing poorly. For instance, according to guidelines on IPOs in the GEM, listed companies will directly exit the market and won't have to go through the agency share transfer system for main board listed companies.

In order to raise efficiency, shorten the exit time span and avoid meaningless share-trading suspension, the GEM adopts a fast exit mechanism. If a listed company fails to provide annual and half-year reports at the required time, it will be forced out of the market in three months, as compared with the six-month allowance on the main board. If a company's net asset is negative, it will be temporarily suspended from trading in the market, and whether it can go back into the market will depend on its half-year report, instead of the annual report, giving it little time to overturn the situation.

Pi warned that GEM traders must be aware of the high risks and should protect their assets.

Hoping for a Chinese Microsoft

Even briefly mentioning the GEM prompts Chinese investors to think of big names like Microsoft, Intel and Google, symbols of the success of the American NASDAQ. Domestic investors hope the Chinese NASDAQ can create industrial heavyweights similar to those in the United States.

Zhou Daojiong, former Chairman of the CSRC, thought highly of the GEM. He said the launch of the GEM will send a clear signal to the world capital market that investing in growing SMEs in China will be a big game for international capital.

Jesffer Liu, partner of the Fortune Venture Investment Group based in Taiwan, is optimistic about the GEM's future. At a venture capital investment forum held on June 5 in Shenzhen, Liu said he had been expecting the launch of GEM, and believed it would be a big success.

Liu's company is the first venture capital (VC) company investing on the Chinese mainland. His company operates more than 10 VC funds with total value of over $1 billion. "I'm glad that I'm now at the right time and the right spot. We are looking forward to the bright prospect of the mainland development," said Liu, adding he is considering investment in GEM.

But Pi has his worries, doubting the possibility of fostering companies like Microsoft in the Chinese market.

Pi said the success of NASDAQ lies in its strict rules and regulations. The companies listed in NASDAQ will be delisted if they spread fake information or fail to issue annual reports in time. Industrial giants like NEC and Dell once faced the delisting fate when they failed to comply.

"The Chinese main board does not have the guts to do that. How can we do this to GEM listed companies?" Pi asked.

On a global basis, many of the GEMs are not successful. In Germany, after only five years, its GEM was under harsh criticism as it became cluttered with worthless trash stocks. It was eventually forced to close down. GEMs in Australia and New Zealand were also shut down in 2001. Hong Kong's growth enterprise board once fell 90 percent in one month in October 2000, resulting in most of the listed companies' share prices dropping below HK$1. Even in the NASDAQ, the 2001 Internet bubble burst led to a large-scale bankruptcy of over 80 percent of listed dotcom companies.

"To date, there are few dotcom companies that survived the bubble burst. Therefore, even though we have high hopes on our own GEM, investors should remain sober of the risks in GEM trading," said Pi, citing the failure of overseas growth GEMs.

Milestones for the GEM

In October 2003, the Second Plenary Session of the 16th Central Committee of the Communist Party of China passed a decision to push for the construction of venture investment and the GEM.

On January 31, 2004, the State Council issued Guidelines for Promoting the Reform, Opening Up and Steady Growth of the Capital Market, which stated the country would carry forward the construction of the GEM.

In August 2007, the State Council approved a scheme guiding the establishment of a multi-facet capital market system focusing on the GEM.

On March 5, 2008, Chinese Premier Wen Jiabao ordered the establishment of the GEM.

On March 31, 2009, CSRC officially released rules guiding the initial public offering on the GEM, effective from May 1.

On July 15, 2009, investors started to open the GEM trade accounts.

On July 26, 2009, CSRC officially accepted IPO applications from companies.

On August 14, 2009, the first review committee of the GEM was set up.