Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Chinese technology companies considering going private or bypassing the U.S. stock market have a new exit route. Forget Shanghai and Shenzhen: The latest magnet for entrepreneurs and investors keen to ride China's serial financial bubbles looks to be in the capital, Beijing.

PapayaMobile, an online advertising platform, achieved a valuation of 2.2 billion yuan ($334 million) when its shares started trading on the National Equities Exchange and Quotations market last week. At least two technology companies with securities listed in New York have added a presence on the market, which institutional investors are calling China's new third board. Even ZTE, the Chinese telecom-equipment maker with listings in Hong Kong and Shenzhen, has announced plans to float a unit on the NEEQ.

The Beijing exchange is a Chinese equivalent of the pink sheets, the U.S. market where Jordan Belfort, the Wolf of Wall Street, made his fortune initially. Chances are that more of the 47 Chinese tech companies traded in the U.S. will look at the NEEQ as they wait for the main boards in Shanghai and Shenzhen to clear a backlog of almost 700 companies still waiting to sell stock. 

While the interest of companies in raising funds at rich valuations is understandable, investors should be wary. As with the pink sheets, a venue notorious for penny stocks that are easier to manipulate, the Beijing market is dangerous. Growth is so fast that it's already starting to bear the traces of a bubble. The market offers little secondary liquidity and even less transparency. Trading volume totals only about 3 billion yuan a week, though companies have already raised more than 70 billion yuan. The number of companies traded on the NEEQ has surged to 7,423 valued at about 3 trillion yuan.

What Could Go Wrong?
The number of companies listed on the NEEQ increased four times since January 2015
Source: NEEQ

That figure has grown almost 50 percent since the end of December, when the market was home to about 5,000 companies. In the second week of May alone, 155 firms started trading. Total capitalization has grown from 2.5 trillion yuan at the end of last year.

Disclosure is sketchy, but estimates of the number of companies that are unprofitable hover around 15 percent That hasn't stopped valuations from soaring. On March 8, Alibaba-backed Guangzhou Evergrande Taobao Football Club reached a market capitalization of $3.3 billion, surpassing Manchester United as the world’s most valuable soccer club, according to Xinhua News

One of the hallmarks of a bubble is detachment of prices from intrinsic value. As repeat domestic champions, Evergrande may plausibly be the most valuable football team in China. To argue that it's worth more than a global merchandise and branding powerhouse such as Manchester United is a stretch.

Such a discrepancy should elicit questions about the values of many other companies traded on the Beijing exchange, especially unprofitable ones from the technology sector . It won't be clear how extreme the frothiness is until China makes the market more transparent. Until then, keep an eye out for any headlines involving the NEEQ. There may be trouble brewing.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. On May 27, the NEEQ said it will add a new "innovation" tier that will start on June 27, according to CICC. This will include only profitable companies and will have slightly more stringent disclosure requirements and a higher revenue and asset threshold. CICC said that financial institutions will be gradually allowed to invest in companies in that tier, which will also be allowed to issue bonds.

  2. The exchange has tightened requirements for private-equity firms, which will now need to have been in operation for at least five years and have completed at least one investment project, Caixin reported, citing the NEEQ website.

To contact the authors of this story:
Nisha Gopalan in Hong Kong at
Christopher Langner in Singapore at

To contact the editor responsible for this story:
Matthew Brooker at