About half of the 2,800 stocks on mainland Chinese markets have been suspended from trading as companies attempt to stem further losses by sitting out the market upheaval.
The trading halts appear to be separate from the flurry of measures rolled out by Beijing over the past week, as the country's Communist leaders made increasingly desperate attempts to stabilize tumbling markets.
The Shanghai Composite Index has dived about 30 per cent from its June 12 peak. The steep decline comes after a spectacular rally that sent the Shanghai index up 150 per cent in the previous 12 months despite slowing growth in the world's second biggest economy.
The government fanned the rally by sending encouraging signals through state media that enticed the Chinese public to pile in to the market. But the ensuing downturn and Beijing's frantic response, which includes banning major shareholders from selling stakes for six months, highlights the limits of its control over the market.
Experts said the wave of trading suspensions could have the opposite of the intended effect. Instead of stabilizing the market, they could add to the selling pressure by transferring it to other shares that remain active.
It's a naive strategy that shows "how immature the China market is," said Jackson Wong, an associate director at United Simsen Securities.
Ordinary Chinese investors have mixed feelings about the trading halts.
"I'm worried and happy at the same time," said Shanghai resident Ella Hong, who plowed 300,000 yuan ($31,400) into six companies starting in May, just before the market turned.
Trading in half of those stocks is now frozen, including two companies whose share prices have dropped by more than half.
"What I'm happy about is that they would not lose more in these next few days," said Hong. "But what I'm worried about is that I heard once the stock comes back to the market, it would drop anyway."
Her shares of seafood processor Shandong Oriental Ocean Sci-Tech Co. are stuck at 14.01 yuan after she bought them for 35 yuan. And her shares of hydraulic machinery maker Fujian Haiyuan Automatic Equipments Co., which she bought for 32 yuan a share, are stopped at 12.28 yuan. Both said this week they temporarily suspending trading pending the release of "relevant information," which they have not yet disclosed.
Hong said she turned to the rest of her portfolio and dumped half of those shares at a big loss. She started playing the market after seeing many other people making quick money and chose stocks based on recommendations from an astrologer and a friend with investing experience.
Her experience illustrates how China's novice investors tend to be the biggest losers in the event of a market meltdown.
That was the case in the 2007-08 market boom and bust, in which China's stock market plunged 70 per cent. The boom was a windfall for Chinese companies and big investors who sold before the peak. Small investors who piled in late suffered huge losses.
Most of the companies that have suspended trading are smaller businesses listed on the Shenzhen stock exchange. These firms have been hit harder than the big state firms listed in Shanghai because they don't benefit as much from recent government support measures, such as a plan for brokerages to buy stocks.
The Shanghai Composite Index rebounded 5.8 per cent on Thursday, continuing a pattern of roller-coaster trading. The market turmoil is rattling neighbouring markets. Hong Kong's benchmark tumbled as much as 8.5 per cent on Wednesday. However it's unlikely to seriously affect U.S. investors because they have limited involvement in China's largely hermetic markets.
Analysts say the trading halts will make the Chinese markets more volatile in coming days.
"If you hold other shares, you think: quick, sell them now before those are frozen," said Michael Every, head of Asia-Pacific financial market research at Rabobank. "Anything you hold could be frozen at an unrealistic level and you can't get out."
"There's no easy solution to this but China still seems to think there's a command-economy way to control something as chaotic as an equity market. And there really isn't," he said.
China is also revealing to global investors that its markets aren't fully developed, analysts said. For example, index compiler MSCI's recent decision to delay China's inclusion in its global benchmarks, which would have spurred more capital into the country's markets, now seems justified.
Anyone who was upset about the decision last month is now "probably thinking what a bullet they dodged," said Every.
With so many shares suspended from trading, many market watchers have suggested, partly in jest, that China completely shut its exchanges to let everyone cool off.
History suggests that won't be a cure either.
Hong Kong's stock exchange closed for four days after the Black Friday global market crash in October 1987. When it reopened, the benchmark Hang Seng index plunged 43 per cent, an event that spurred fundamental changes aimed at better protecting investors.
Associated Press writers Joe McDonald in Beijing and Bernard Condon in New York and researcher Fu Ting in Shanghai contributed to this report.
Follow Kelvin Chan on Twitter at twitter.com/chanman
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