As of yesterday, the Shanghai A-Share Index eased 166.6 points, or 7.6 percent, from the close on January 19, the last trading day before the Spring Festival holiday. Yesterday alone, the index shed 47 points, or 2.3 percent.

The A shares, denominated in yuan, are traded by domestic investors, while B shares, earmarked in U.S. dollars on the Shanghai Stock Exchange and Hong Kong dollars on the Shenzhen Stock Exchange, were until recently open only to foreign investors.

Part of the reason for the gloom in A shares is that the bourse has been tainted by scandals this year, giving rise to arguments that the market was just another place for gambling.

Dozens of brokerages have been put under the microscope for possible trading violations, most prominent among them being the China Venture Capital.

Zhou Guzhong, a local investor, has already suffered losses of 4,000 yuan (US$480) this year after investing in China Venture Capital and its affiliates, which have been accused of illegal trading.

"When you enter a 'speculator's market,' you should realize that is just another casino," Zhou said, arguing, "my portfolio still can beat most of the individual investors."

Zhou - and many like him - had ignored an ongoing probe by the China Securities Regulatory Commission against China Venture Capital and invested in it, expecting the venture fund to soar after Spring Festival as it did last year. Unfortunately, it was not the case.

Analysts believe A-share holders this year will have to bear the brunt as the market watchdog clamps down against insider trading and manipulated stocks.

"The A shares will have to brave rough weather due to tight new regulations," said Qi Shi, deputy general manager of Shanghai Shiji Investment Consulting.

For one thing, analysts said the new incentives targeted at invigorating the B shares will spark an upturn in the highly under-valued shares, driving them event-ually in line with those of A shares.

"Vice versa, the downturn in A shares will eventually bring the prices almost on par with the surging B shares," Wu Kan of Shanghai Securities Consulting said.

The watchdog has been working overtime since the Beijing-based financial magazine, Caijing, carried a story late last year on malpractices in the securities funds market.

But despite the inherent flaws in the market, some economists argue that capital market was a necessity in today's world, amid fears of a wider crackdown which will lead to a greater market downturn.

(eastday.com 02/23/2001)