BEIJING, July 7 -- Ask a mainland IT company where it would float its shares if choices were open, and the answer would most likely be the NASDAQ.

Why not Hong Kong, some would question, citing the fact it has passed the test of time and has become the first-choice destination for mainland listings.

In response, many would say the city does not have a board like the NASDAQ.

Fortunately, that problem might eventually be solved, as Hong Kong regulators are exerting efforts to reform its ailing secondary board, the Growth Enterprise Market (GEM), into a viable alternative to the NASDAQ.

Hong Kong Exchanges and Clearing (HKEx), operator of the city's stock bourse, is soliciting market views to rejuvenate the 9-year-old board, which has long been troubled by lukewarm transactions and loss of high-quality firms.

HKEx would either incorporate the GEM into the main board or reform it into a secondary board for small and medium-sized enterprises (SMEs), it has proposed in a discussion paper.

"I think HKEx wants to make it Asia's NASDAQ, instead of a simple merger," said Andes Cheng, associate director at South China Research Ltd. "That's also the voice from the market."

To achieve that goal, new policies in favour of smaller companies mainland firms in particular are expected to be introduced.

"There could be incentives to refresh the board ... although the current threshold to list on the GEM is low enough already," Stephen Hui, a member of HKEx's listing committee, told China Daily.

For example, he suggested the board introduce an upgrade-downgrade system, which would allow qualified GEM firms to automatically be upgraded to the main board without any charges.

Under the current regulations, the GEM and the main board are operated separately. GEM players have to hire investment banks to float shares again to switch to the main board.

"An automatic upgrade regime would save them a lot of money," Hui said.

Experts believe Hong Kong needs high-quality tech firms from the outside to strengthen the GEM. And the mainland is considered the right candidate.

The city itself has a very weak technology base, said Bank of China (Hong Kong) Ltd, the investment banking arm of Bank of China.

This, along with the global IT downturn at the turn of the century, has "created an unfavourable environment for the GEM," it said in a research note.

Therefore, to turn the tables, "Hong Kong should look to the vast backyard on the mainland to court IT firms," said Cheng.

SMEs represent the most active part of the mainland's economy, and all the world's leading bourses have gone to the mainland to woo them, with innovation-oriented IT firms topping their list.

"Hong Kong cannot afford to miss this 'beauty contest' round," Cheng said.

Claiming the GEM could have a role as "the mainland's high-tech board," Bank of China (Hong Kong) believed growth enterprises in the Asia-Pacific region would be attracted to Hong Kong "once Hong Kong has established its status as the mainland's growth market."

Listing in Hong Kong would also be good for mainland high-tech companies and their overseas investors, said Vincent Chan, chairman of the Hong Kong Venture Capital and Private Equity Association.

(Source: China Daily)