Building a tight, healthy bond between the capital market and the real economy has been high on the agenda of China's top regulators, and the opening of the Beijing Stock Exchange last year was one of its latest embodiments.

It took only 74 days for the BSE－aimed at nurturing technologically advanced small and medium-sized enterprises－to grow into a full operation from its inception in 2021.

The BSE was modeled after the NEEQ Select, which is the highest tier of the nine-year-old National Equities Exchange Quotations, launched in 2013 to help smaller companies with lower market liquidity find investors. NEEQ Select has stricter listing rules, higher investment thresholds and different trading mechanisms.

The BSE, which was announced on Sept 2 and opened trading on Nov 15, saw its total trading volume top 47.9 billion yuan ($7.52 billion) during its first month of trading. That number, according to BSE Chairman Xu Ming, has shown the positive reputation that the new bourse has earned within a short time.

BSE investors are likely to have been content with its performance in its first month. Share prices of the 11 companies that made their initial public offerings on the BSE surged 110.84 percent on average in their first month. The 71 companies transferred from the NEEQ Select to the BSE saw their shares rise 30 percent on average since Sept 2.

But the significance of the BSE is much more than numbers. While stressing the importance of capital market support for the real economy in his speech during the annual meeting of the World Federation of Exchanges in September, Yi Huiman, chairman of the China Securities Regulatory Commission (CSRC), said the launch of the BSE is one of the best ways to build a complete system in the Chinese capital market to serve the innovation and development of SMEs.

The BSE is expected to nurture more companies called "little giants" by the Ministry of Industry and Information Technology. These companies are leading SMEs that specialize in niche sectors, command a high market share and boast strong innovative capacity and core technologies, said Zhu Haibin, chief NEEQ analyst at Essence Securities.

The central government has begun to pay more attention to the development of the "little giants". Their development was included in the 14th Five-Year Plan (2021-25), released in March 2021. As of Nov 23, there were 4,762 national-level "little giants" recognized by the ministry, which plans, by the end of 2025, to nurture at least 10,000 such small technology pioneers.

As Matt Weller, head of global research with online trading services provider GAIN Capital explained, the BSE is set to attract the highest-quality SMEs, which can later be converted to boards on the Shanghai and Shenzhen exchanges without the need for IPOs. It is also a step forward in capital market reforms, as it enhances the multilayered capital market system and direct financing, he said.

The influence of the BSE may also be more far-reaching for the Chinese capital market because the Beijing exchange adopted a registration-based IPO mechanism from the very beginning. Under this mechanism, stock exchanges decide which companies can go public, instead of the decision being made by the CSRC. Weller said implementation of a registration-based IPO mechanism on a stand-alone exchange is expected to pave the way for a rollout throughout the entire A-share market.

The registration-based IPO mechanism has been in use for some time now. It was first tested at the Shanghai Stock Exchange's technology-focused STAR Market in July 2019. A framework plan for implementing the registration-based system at ChiNext in Shenzhen, Guangdong province, was announced in April 2020.

In an interview with Xinhua News Agency on Dec 30, Yi of the CSRC said that adoption of the registration-based IPO mechanism throughout the entire A-share market will be a focus of the CSRC in 2022 as the country's top securities watchdog aims for more reform and progress during the year, he said.

The registration-based IPO mechanism is seen as the engine that will drive reforms in the entire capital market. Based on it, Yi said, the quality of public companies will be improved and the delisting mechanism completed.

Reforms regarding intermediaries, investor protections, law enforcement and even the juridical system for securities can all beanticipated, Yi said.

To help achieve high-quality development in the country's real economy, IPO and refinancing should be further normalized in 2022, he added. The capital market should play a positive role in advancing technological development and protecting intellectual property rights, he said.

According to the annual Central Economic Work Conference in early December, more reform and opening-up policies should be rolled out in the capital market to bring more vitality to the country's economy. The adoption of the registration-based IPO mechanism should be one key step forward in capital market reform, regulators said during the meeting.

The vibrant IPO market at the STAR Market and ChiNext is one factor showing the advantages of adopting the mechanism. According to professional services provider Deloitte, ChiNext at the Shenzhen Stock Exchange recorded the most IPOs for 2021, reaching 199, while 162 IPOs were finished on the STAR Market at the Shanghai bourse.

Measured by the size of IPO proceeds, the STAR Market raised the most funds with 202.9 billion yuan last year, followed by the 162.3 billion yuan raised at the main board of the Shanghai exchange.

"The rise in new listings on the ChiNext and the STAR Market in 2021 also reflects the strong, positive results of registration-based IPO reform. These are landmarks that will shape the A-share IPO market," said Tong Chuanjiang, A-Share offering leader at capital market services group of Deloitte China.

Chen Youxin, head of equities markets at China Securities, said more than 100 companies are likely to complete IPOs on the BSE in 2022.

Ever since it went operational in 2019, the STAR Market, which nurtures "hard technology" companies－often high-end entities that require a huge amount of investment－saw 352 companies listed by the end of October, with total market capital amounting to 5 trillion yuan. Over the first three quarters of 2021, STAR Market companies reported a total turnover of 484 billion yuan, up 45.08 percent year-on-year. Their net income also surged 64.01 percent to 63 billion yuan.

The board is approaching its goal, as biomedicine, high-end equipment and integrated circuit companies have dominated it. Nearly half of the A-share integrated circuit companies are now listed on the STAR Market.

Similar dynamics can be found at the ChiNext of the Shenzhen bourse, which is aimed to facilitate the integration of new business models and new technologies with traditional industries. While ChiNext companies have seen their sales revenue rise by 26.02 percent on average over the first three quarters of 2021, their research and development investment has jumped 34.2 percent year-on-year to top 82.4 billion yuan.

While the BSE is connected to the Shanghai and Shenzhen exchanges by allowing BSE companies to transfer to the other two exchanges without an IPO, their positioning varies as the bourses provide financing for companies from different industries, said Li Daxiao, chief economist of Yingda Securities.

The launch of the BSE indicates the high level of China's multilayered capital market, under which the three exchanges make their contributions to the real economy, he said.