The "Seminar on Co-operation Between Technology and Capital in Shanghai and Hong Kong" had hoped to encourage small mainland high-technology firms to list on the GEM (Hong Kong's equivalent of the Nasdaq) following the repeated delay of a second high-tech board's being set up on the mainland.

Officials from the China Securities Regulatory Commission and Hong Kong Exchange and Clearing Ltd all expressed their encouragement for small high-tech companies in the mainland to float on overseas second boards.

"It can not only help them raise capital from overseas, but also improve their corporate governance," said Geng Liang, vice-chairman of the CSRC in the seminar, praising the Hong Kong GEM as an international stock market with transparent and quality supervision.

However, responses from many participating high-tech companies in the seminar show that these hopes have yet to be fulfilled.

"Our company will not be listing on the GEM," said one high-tech entrepreneur as he walked out of the high-ceilinged convention room and into the expensively minimalist hall outside.

The consensus among smaller high-techs was summed up by the president of Nova Chemical.

"We're too small to get listed - we don't have enough assets," he said. "I'd say 60-70 per cent of the companies here are too small."

His views were echoed by Sun Xudong, president of Wuxi Software Park.

"We need private investment before we can float," he said. "Money is needed to develop the market. Lots of companies have the same problem."

An executive of the Hong Kong stock exchange rejected the high-techs' conclusion that they were too small to list.

"It's a misunderstanding," he said. "Most of the companies are well developed, often established for more than 10 years. They think listing in Hong Kong is difficult. Actually the GEM specifically targets small companies."

While acknowledging that the cost of listing in Hong Kong was greater than that of listing on the mainland, he accused them of shortsightedness.

"The higher cost of floating in Hong Kong is balanced against the benefits found there, benefits not found on the mainland," he said.

It can be a vicious circle. Companies do not have enough capital, so they cannot float, but without floating they cannot generate the necessary capital.

Small high-techs, in particular, want investment from venture capitalists before flotation. But venture capitalists are unwilling to invest in unlisted companies since they cannot retrieve their profits due to the inconvertibility of the yuan.

Despite the sense of anti-climax felt by all, the investment bankers put on a brave face.

Responding to accusations of lack of enthusiasm among his potential clients, Jin Ye, head of J.P. Morgan in China, said: "Judging by today's response, there has been a lot of interest."

But he conceded that "a lot of companies on the mainland are in their early stages."

For all his dark-suited gravitas, his bullishness was not entirely convincing.

Of the 22,000-odd high-techs in China, only 60 have been approved for flotation on the GEM. The others feel they are too small to apply.

A number of high-techs with enough assets to go public on the Hong Kong GEM, and who had formerly planned to list there, are having a change of heart.

"Hong Kong is always the place where we hope to go when listing, since the market is more regulated there," said Xu Jianmin of Shanghai Kingstar Computer Co Ltd, a foreign-invested firm originally thought to be a hot applicant for the listing in Hong Kong GEM.

"Considering the sharp disparity of the capital companies can collect by listing in the mainland and in Hong Kong, we prefer to wait for the launch of the second board on the mainland," he said.

"We might even seek to list on the main board when we are stronger."

His views appear to have been borne out by the recent debacle concerning the flotation of Kindee Software on the GEM.

Kindee Software Co Ltd and Yongyou Software Co Ltd were firms similarly endowed in assets, profitability and market potential.

They had both planned to float on the projected second board on the mainland.

When the second board failed to materialize, they were forced to seek other financing channels.

Yongyou software finally got listed on the main board on the mainland, while Kindee Software floated itself on the Hong Kong GEM.

The former collected over 800 million yuan (US$96.4 million) and its share price was pushed over 800 million yuan (US$96.4 million), twice its issue price, on its first trading day on the Shanghai Stock Exchange.

But the latter collected less than 100 million yuan (US$12 million) after its initial public offering.

"We are hesitant about listing on the GEM in Hong Kong now, although GEM status is advantageous in terms of raising hard-currency," Xu said.

Shanghai Kingstar is one of several larger high-techs that want to develop their business first and consider listing later. Cheng Zhongya, financial manager at Shanghai Microport Medical Electronics, said: "We won't consider listing until the second half of next year."

She believes many high-tech companies are still waiting for the launch of the second board on the mainland.

"In our case, since our products are expected to be most popular in America and Europe, we might consider the Nasdaq," she said.

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