After nearly a decade of deliberation, the growth enterprise market (GEM) on the mainland will soon be opened, providing a boon to the country's start-up companies.

Shang Fulin, Chairman of the China Securities Regulatory Committee (CSRC), vowed to push forward the debut of China's growth board to establish a multi-layer capital market.

The exciting news for growing enterprises was marked by the debut of the draft rules guiding GEM listing, published on March 24. The draft rules outline basic requirements for growth enterprises, allowing a more generous threshold for those companies that want to list.

The government expects the GEM to function like the U.S. NASDAQ, which has created many hi-tech miracles in its history. But how to turn goodwill into reality is a question for all.

SMEs applaud new channel

Currently, a large number of fast growing companies are thirsty for capital. The GEM has been greeted warmly by those with high growth potential.

Xing Ming, CEO of Tianya.com, said his company planned to launch IPO in the GEM in 2009, even though Tianya.com's profitability has met the criteria to be listed on the main board. It was one of the 13 companies invited by Shenzhen Securities Exchange to discuss the CSRC's GEM draft rules. "The pricing mechanism on the GEM is more flexible and this allows a higher price/earning ratio," said Xing, "We eventually came to the decision that we should be listed on the GEM."

Tianya.com was founded by Xing in 1999 and did not make a profit until 2005 when it received $5 million in venture capital, mostly from Legend Capital and Zero2ipo. The company's business has soared since then. As a fast-growing online community, Tianya.com's profits in 2007 were 18 million yuan ($2.56 million), nine times higher than its 2006 profit. Xing expected the website's profits this year could triple or quadruple that of 2007.

Xing said he is confident about the GEM function to finance growth enterprises. "Currently, venture capital and private equity investments in China are very vibrant, and the country is filled with capital liquidity," said Xing.

Traditionally, most of the small companies are funded by individuals who start the company. They will pitch investment proposals to venture capital firms or other investment agencies after their businesses are taking shape and starting to make money.

Yobo.com, set up in 2006, is a typical example showing how Chinese small companies are growing. Its director of technology Yu Tuo told Beijing Review that the company got angel investment (funding companies at an early stage), and later secured venture capital from several American companies. The company works to decode people's music DNA and provide music products according to individual needs. The company has no timetable yet to list, as "we have to make profits first," said Yu.

Timing is key

After the GEM draft rules were released in March, the market had a heated discussion on when the board would finally be put into practice. Clearly, the present bearish atmosphere on the mainland is not a good sign.