01 The Narrow Bridge vs. the Wide Path
The pace of BSE IPOs has accelerated alongside the "bull market" that began in August. Judging by the intervals between listings, companies like Youli, Zhigao, Hongyuan, and Nengzhiguang have gone public with only single-digit days between them, averaging less than one week per listing, which is much more active than the Shanghai and Shenzhen exchanges.
As an independent exchange, the BSE currently has fewer than 300 listed companies, which is relatively small and indeed requires rapid expansion. Due to the small market capitalization and suppressed issuance valuations, first-day gains are very high, which is the fundamental reason why the new stock lottery market is becoming increasingly heated.
However, attentive investors have discovered that in every BSE new stock subscription "Issuance Announcement" and "Issuance Results Announcement," there are "strategic placement investors" who have already secured significant portions (currently around 20% of total BSE IPOs) before the online issuance.
In contrast, individual investors participating in online subscriptions need to deploy tens of millions of funds just to secure a few lots, which seems like "mosquito legs" in comparison, making it quite enviable.
02 BSE Strategic Placement Cases
What's even more enviable, and perhaps jealousy-inducing, is that some institutions don't appear to be the "high-end" central state-owned enterprises, Fortune 500 companies, or leading corporations typical of Shanghai and Shenzhen strategic placements, but rather seem ordinary, with some having business unrelated to the invested companies, or even being themselves "rusty."
(1) Entertainment Company "Investing" in Computer Hardware
Dingjia Precision (920005.BJ), which went public on Army Day, specializes in structural components for laptops. However, among the strategic placement institutions is "Shenzhen Qianhai Xinfeng Tangde Film Fund Investment Management Co., Ltd." The other dozen or so institutions include securities firms like Yichuang and Guangfa, several familiar faces in BSE strategic placements, with the remainder mainly being equity investment vehicles that appear respectable on the surface.
But how this entertainment company connects with computer manufacturer Dingjia Precision is something investors would need to imagine for themselves.
Upon closer inspection, this entertainment institution is not unknown. The fund's parent company, Tangde Film, is itself a ChiNext-listed company, now called Zhejiang Huazhi Digital Media Co., Ltd. (300426.SZ), which has participated in productions like "The Eternal Wave," "Empress Wu," "Nothing Gold Can Stay," and "Dying to Survive."
On March 14, 2016, Tangde Film established this fund, stating that "the fund's investment direction includes films, TV dramas, television programs, variety shows, and other investment projects determined by Xinfeng Tangde or Tangde Elements Investment Decision Committee."
Based on past "hit" products, the company should have excellent resources in the entertainment industry, but there's no evidence of any involvement in computer hardware. Such a large leap in strategic placement investment raises the question: Is Tangde really transforming from an entertainment industry leader to technology manufacturing? If so, that would be truly admirable, while also concerning original investors about the success rate of such transformation. If not, this looks more like a financial investment aimed at the substantial profits from BSE strategic placements.
(2) Questionable Company Participating in Ten-Bagger Stock
The BSE produced a "ten-bagger" stock in the second half of the year - Guangxin Technology (920037.BJ). With its low issuance valuation and total market value, plus excellent fundamentals, the company gained 5 times on its first day and subsequently reached 10 times within less than two months, which is rare even on the BSE.
Logically, such a high-quality company should receive "heavy investment from strong partners," achieving strong alliances through strategic placement to elevate the enterprise to new heights in the capital world. However, the company's strategic placement list includes a "rusty" problematic private fund, which seems to violate the market's "three fairness" principles.
This private fund is owned by three natural persons with no subsidiaries or projects under its main entity, making it essentially an SPV (Special Purpose Vehicle). While this model is common in primary market investments for risk and business separation, it's uncommon among IPO strategic placement institutions. After all, once companies go public, they face the public, major shareholder lists must be disclosed, and most importantly, strategic placement institutions need to provide real value-added services to enterprises, so naturally "bigger and stronger" is better.
However, this private fund operates purely as a financial investment model, making it difficult to expect it to provide strategic empowerment or business synergy to companies like Guangxin Technology.
Furthermore, regarding violations and questionable practices, this company hit a "trifecta," as shown in a warning notice published by the Asset Management Association of China:
First, the private fund has insufficient paid-in capital. According to Article 8 of the AMAC's "Private Investment Fund Registration and Filing Measures": "Private fund managers' paid-in capital shall not be less than 10 million RMB or equivalent foreign currency, and the paid-in ratio shall not be less than 25% of registered capital." However, these three shareholders only paid in a total of 1.2 million RMB.
Notably, just from Guangxin Technology's strategic placement alone, this private fund received 1.5 million shares, now worth over 15 million RMB. Therefore, this 15 million RMB high-value stock asset currently belongs to an SPV with only 1.2 million RMB in paid-in capital.
Second, the private fund is suspected of major information disclosure violations. According to CSRC and AMAC regulations, private fund managers should establish inquiry accounts for investors, ensuring investors can check product information at any time, with "opening rates below 50% for three consecutive months considered major information disclosure violations."
According to the association's announcement, this private fund has been clearly identified as having "major violations." In fact, as an SPV specifically designed to hold strategic placement shares, this institution may not conduct asset management business and lacks product information to disclose.
Third, the private fund participated in strategic placement during a major change period. According to the BSE's "Stock Issuance and Underwriting Rules": "Strategic investors must commit that their participation qualifications are legal and compliant, with no incomplete major change approval procedures." In principle, strategic investors are professional institutions that value companies' long-term prospects and are willing to deeply bind with them in equity and business, so excluding companies that have undergone major recent changes adds an extra layer of protection.
However, this small private fund secured strategic placement shares on June 13, then submitted change documents on June 20, changing the company's main qualifications, actual controller, and contributors simultaneously, essentially using an empty shell to hold Guangxin's strategic placement shares, then packaging them for Chen/Zhou/Zhao.
Clearly, whether it's an entertainment company investing across industries in computer hardware or a problematic private fund using a rusty SPV to receive ten-bagger stocks, BSE strategic placements indeed exhibit phenomena that violate "three fairness" principles.
Some institutions don't focus on enterprises' long-term value and growth potential but rely on non-market "relationship" channels to squeeze out valuable quotas that should belong to genuine strategic investors. Their purpose is often not to accompany enterprise growth but to target primary-secondary market spreads for quick arbitrage. This behavior of obtaining quotas through "relationships" rather than "value" likely deviates from the original intent of the "strategic placement" system and may even challenge regulatory authority.
03 Illegal Proxy Holding and Benefit Transfer
The author has noticed that since the BSE market surge began, there has emerged a trend of private strategic placement institutions "exchanging cash for projects," including some active institutions with generally poor market reputations and complex, diverse project participation. Despite leading the market in investment quantity, their process compliance is questionable, including obtaining strategic placement quotas through rebates and transfers, and designing cashback chains through related parties or specific relationship persons, packaging IPO strategic placement project returns as consulting service fees or channel commissions.
Additionally, some private equity funds deliberately design structures to avoid regulatory penetration. While their surface LPs (Limited Partners) appear to be institutional entities, actual contributors are mostly individual natural persons with complex, hidden identities, including relatives of prospective listed company executives, sponsor-related parties, and sensitive roles like local government platform officials. This structure makes fund flows difficult to track while allowing high profit margins to flow to individuals, even premium state assets.
Looking further, for exchanges, this essentially perverts the financing channels carefully built by the state to support innovative SMEs into tools for institutional arbitrage by a few interest groups, distorting market pricing mechanisms, eroding resource allocation efficiency, and harming the fair opportunities and market confidence of vast numbers of investors who adhere to value investing principles. When "relationships" become the key to accessing scarce resources, the core function of "value discovery" is severely weakened - how can we speak of healthy market ecology?
Currently, the BSE is still young, having been open for less than four years. Injecting market vitality has indeed been the development goal for a long time, but the BSE's health and vitality cannot tolerate the erosion of "relationship arbitrage."
Looking ahead, every investor sticking with the BSE actually expects regulators to tighten institutional boundaries to restore order, returning strategic placement to its original purpose of serving the real economy and discovering value, laying a solid foundation of value investing for the long-term healthy development of the BSE and the entire capital market.
Regarding BSE strategic placement, the following specific recommendations are proposed:
1. Significantly enhance requirements for participating institutions' comprehensive strength and industry reputation, gradually replacing strategic placement members with central state-owned and ultra-large institutions through improved screening and evaluation systems for strategic placement institutions.
2. Establish comprehensive fund monitoring mechanisms to ensure legal and compliant fund sources and flows, especially for individually-controlled enterprises and small private companies, with strict scrutiny of fund flows.
3. Strengthen securities companies' screening and ongoing management responsibilities, accelerating the implementation of lifetime accountability for strategic placements.
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