Chine e-Commerce portal, Taobao, is a massive online marketplace that connects small business with millions of consumers. Shoppers can usually find products like clothes, specialty paper, green tea and pet food on the site. However, a business man from Beijing saw Taobao as another marketplace. He decided to sell stock on the e-commerce portal. The entrepreneur gave his buyers the opportunity to own a piece of a video content producer named Makev for the incredible price of $20 per 100 shares. Zhu Jiang, the brain behind the startup was doing well with his sale of stock on Taobao until the portal stopped his activities claiming that their rules did not allow the sale of stock. Zhu Jiang was not pleased and had thought that his offer to online buyers was a great solution to the credit crunch that Chinese startups are facing.
He claimed on his blog that, “For startups, time is life.”
For startups in China the opportunities to get funding have shrunk drastically. The larger banks are not giving out loans along with very few investors giving out seed money. IPOs are also not doing well and according to Chinese regulators 16 companies that were looking to go public have decided against the move. Furthermore, no new firm has been listed on Chinese exchanges since September of 2012.
Investment banks in the country are feeling the pinch because of this because their revenues are based on the activities on the exchange. According to data the income of these firm in the past year was as low as levels in 2009. This has led to banks dropping employees and refraining from bonuses.
The fundamental factors behind the reductions of IPO’s is that the market has been weak overall. Investors do not want to take any more risks and are staying away from new company’s that are listed on the exchange. Regulators are trying to shore up confidence by being strict with reviews of financial statements for firms that plan to list om exchanges. This is being done to improve the quality of firms being traded.
A long list of company’s that were hoping to raise capital in China now find themselves in limbo. US investors are also wary of these firms after some high profile failures. A startup like Makev is still in the initial stages of its life and is not expecting to go public. However, the RMB1.2 million ($193,000) that it has been able to raise on Taobao will help it to keep doing business for a little while longer.
Source: Forbes
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