The unprecedented sluggishness of the stock market has dealt a serious blow to investors' confidence.

The market's leverage on the economy is becoming marginal, as the benchmark Shanghai Composite Index has shed more than a third from its 2001 peak and more disappointed investors are opting out.

Only 1.6 per cent of domestic companies' funds came from share issuances in the first half of this year, compared to a 12.6 per cent in the bonanza year of 2000, according to central bank statistics.

Even the top regulator has expressed concern about the situation.

Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC), recently urged the tapping of the market's potential to restore investors' confidence.

However, experts view this issue from different perspectives.

"Many seem to agree that the stock market lost its appeal because of continuous price falls," said Xie Geng, director of CSRC's Department of Market Supervision.

"But a deeper reason is that this immature market involves so many uncertainties that even a reasonable investment decision could turn out to make a loss."

Xie made the comments at a forum in Shanghai earlier this month while discussing the current stagnation of the stock market.

He listed public firms' poor credit and a lack of protection for investors as two major problems which often drag the market down.

But the old ideology of cashing in on price-rigging and government interference no longer works as the market is growing, which is another reason making many investors glum, Xie noted.
Many experts attending the forum agreed that the depressing picture at present, rather than a natural low in market fluctuation, is the result of some systematic deficiencies in the fledgling market.

Even policy makers are yet to fully understand the stock market's role in fund raising, corporate governance and the redistribution of economic resources, which would make more room for the healthy development of the market, some say.

The government often uses mandatory orders to tackle risks and other problems in the market, which has, in many cases, led to sharp ups and downs. As a result, the function of the market itself to control risks and adjust indices is long suppressed.

Ba Shusong, a researcher with the State Council's Development Research Centre, said the stock market is actually under the reins of a string of government departments other than the CSRC.

He said these departments should co-ordinate to guarantee the smooth operation of the market and prevent discord through regulatory measures.

But Han Zhiguo, a renowned economist, warned that many listed companies as well as investors tend to take cues from the government instead of the market, because the administration's influence is so powerful.

The lack of independence and rational investment decisions will hinder the maturity of the market, he said.

Gu Mingde, a researcher with the Shanghai Branch of the People's Bank of China, urged active steps to solve problems left from the past, such as the issuance of non-tradable State shares.

When issuing initial public offerings, many State companies used to retain a majority share while selling the rest at a premium. Thus, they collected a lot of capital from the market without losing control of the enterprises.

The problem will not disappear automatically unless an appropriate State share compensation scheme can be reached, said Gu.

Moreover, the longer the problem drags on, the more difficult it will become to put the stock market onto a truly sound path of development.

Some experts also call for harsh punishment for those who commit fraud or manipulation, which will be key to restoring the credibility of the market and investors' confidence.

Still, many experts are buoyant about the future of the stock market.

The national economy is on the track of sustained growth and the stock market has cut its teeth over the past decade, which will support the market to run in a positive direction, said Chen Dongqi, deputy director of the Research Institute of Macro Economics under the State Development and Reform Commission.

The revenue of public companies in general is improving gradually, he added.
 "It will not take long for the market to get out of the nadir," he said.