China's shares dropped to a five-year low Thursday, as heavy selling of blue-chip stocks by some institutional investors further eroded the weak investor confidence in the stagnant market.

The benchmark Shanghai composite index, grouping A shares and hard-currency B shares, finished down 1.9 percent at 1,284.307 points Thursday, after touching 1,281.749, the lowest since June 4, 1999.

Some of the biggest fallers were among blue-chip stocks, such as Baosteel, one of China's biggest steel maker, whose A shares fell 3.1 percent to 5.89 yuan (US$0.711) Thursday.

Analysts said the fact that the index dropped below the psychologically important level of 1,300 points would further weigh down market sentiment that was already weak.

The 1,300-point has been generally regarded as the testing point for bourses. The market had rebounded after reaching the level several times in the past.

"More investors are now losing confidence in the listed companies, because many do not give returns and simply use the market to raise funds," said an official with Southern Fund Management Co.

Investor sentiment was also affected by speculation that policy-makers are unlikely to come to the rescue with a fresh policy boost.

The China Securities Regulatory Commission (CSRC) held an internal conference in the Shenzhen Stock Exchange over the weekend to discuss the problems in the market and ask for views on the solution.

A CSRC official said during the conference that the commission does not intend to rescue the market with a policy boost, but put more focus on curing the existing problems, according to sources that attended the meeting.

The Shanghai composite index has plunged by more than 27 percent since early April, hit by the authorities' macroeconomic measures to cool down the economy, including tightening the credit supply and curbing overinvestment in some overheating sectors.

Reports that predicted a possible interest rate hike in the near term also put more pressure on the market, although central bank officials said no decision would be made until August's major economic indicators are revealed.

In spite of yesterday's fall, investors have not panicked over the market correction, said Gao Li, deputy director of the research institute of Ping'an Securities.

(China Daily September 10, 2004)