Last week, China announced its decision to set up a stock exchange in Beijing and build it into a primary platform for serving leading innovation-oriented small and medium-sized enterprises (SMEs).

The planned stock exchange will be the third of its kind in China, alongside the Shenzhen Stock Exchange and Shanghai Stock Exchange.

The establishment of the Beijing Stock Exchange can be seen as a move to further deepen the reform and upgrading of China’s National Equities Exchange and Quotations (NEEQ), also known as the New Third Board, an equity trading system for SMEs which was launched in 2013.

After decades of rapid GDP growth, China has established itself among the middle-income tier of nations. However, the next step in becoming a “high income” country will be a challenge for the country, as doing so will require creating a stable consumer economy, as well as comprehensive success in scientific and technological development.

China’s development theory in the post-1978 era has always been about making the decisions necessary to meeting the country’s needs, and right now that involves reforming the capital market and developing innovation.

As major market entities, SMEs play a key role in providing jobs and securing the fundamental advances China is looking to achieve.

While China is pursuing its targets of fostering a new development paradigm and boosting high-quality progress, further reform of the capital market has become necessary in order to deal with the complicated challenges it faces in the economic, financial and trade sectors.

As such, the planned stock exchange in Beijing has a more specific goal which is to complement China’s development needs and deal with the financing difficulties that face innovation-driven enterprises, most specifically of the small and medium variety, so as to ensure their long-term and sustainable development. This is an innovative and creative solution which will streamline capital in a highly beneficial way.

China has already created comprehensive and advanced digital and online economies, with a large number of innovative SMEs emerging during this process. However, difficulties in obtaining financial support have long been the biggest hurdle for SMEs in achieving further progress, which accordingly impedes them from playing their part in boosting consumption and the economy.

The planned Beijing Stock Exchange will create more channels for SMEs to get financing support and help them realize their innovative visions, which will allow the Chinese economy to develop in a more innovative manner.

Moreover, it will also make it easier for SMEs in northern China in particular to obtain financing support, considering Beijing’s geographical position.

China has been improving policies related to reforming its New Third Board to further open its capital market and support the needs of SMEs in recent years. The establishment of the new stock exchange in Beijing will allow more innovative enterprises at home and abroad to achieve their development vision with the help of greater financing support.