China's Small Investors Get Pummeled

Retirees, Families Try to Draw Lessons From U.S. Crisis as Their Savings Dwindle

BEIJING, Sept. 23 -- The big investors were holed up in their own private room. Medium-size investors with the equivalent of up to $75,000 to trade got their own cubicles. Pressed into orange plastic chairs waiting for an available screen in the lobby were the biggest group of all: small-time traders with less than $30,000 to invest.

Today, they had even less.

"It's going down again," sighed one retiree, heading for the door and giving up his seat to a man in a blue coat.

"All the mountains and rivers are green," said Zhang Dianzhong, a retired government clerk, pointing at an electronic screen of company names and share prices in green type, making a play on a famous saying about the Communist conquest of China ("It's all become red"). Occasionally, a lone company's stock symbol moved across in red, indicating that it was one of the few share prices actually on the rise.

Tuesday was unusually busy in this branch office of Citic Securities as rumors of a minor market rally brought in both hopeful and anxious investors.

They didn't all come to trade, but in a glimpse of how Chinese investors are trying to draw lessons from the turmoil in the U.S. market, they compared notes and complained that the Chinese government should do more to support share prices.

"You can see many of these investors here are old men and women. Most of us are desperate," said Zhang, 65, who said he came in each day to chat with his friends because it's better than sitting at home and staring glumly at his computer.

Zhang began investing in 1994, a few years after the opening of the stock exchanges in Shanghai and Shenzhen. At the market's peak last year, he had made a paper profit of nearly $15,000, but never sold his shares. Today, he has losses of nearly $30,000, almost all the life savings of his entire family.

"The stock market is very tempting," he said. "Besides drugs, it is the next-easiest thing to become addicted to."

More than 100 million Chinese families have opened stock market accounts, and most of them have suffered enormous losses, said Tang Xiaosheng, chief strategist at Guosen Securities in Shanghai, who said the financial meltdown in the United States had only added to the sense of panic that Chinese investors have been feeling all year, after their stock market tanked in November.

"The right way to invest is to use your idle money to invest in shares with good margins," Tang said. "But many investors do not have a clear understanding of the risks, and they follow all kinds of unconfirmed information to make their decisions. They behave like sheep."

Last year's 130 percent gain in the stock market didn't encourage the hard work of informed decisions. "Given the market tendencies in the last year, it's easy for people to expect to make a fortune overnight," Tang said. Recent government measures such as reducing a tax on trading, lowering interest rates and ordering the investment arm of the government to invest cash to help shore up China's major banks have not been completely effective; share prices of smaller companies continue to plummet.

China's stock index now stands at 2000. Real estate prices, however, are still at the same lofty level they reached when the stock index was at 5000, leading many experts to worry about what might happen if real estate prices fall sharply.

"The Chinese government should prescribe more potent medicine to control the situation," Tang said.

The U.S. market is more transparent and its transactions more credible, Tang added. "In the U.S., the cost of a breach in the regulations is much higher," he said. "There is less insider trading. It's not good to expand the volume of the markets without a comprehensive system or institution."

Referring to China's stock exchanges, Tang said, "For such a flawed market, it's very dangerous to operate as if it were a real market."

At the Citic Securities branch, an elderly woman who would give only her surname, Ding, said the Chinese market had lost much of its credibility. "This is not a free market. The prices do not fluctuate freely and there is some manipulation," Ding said. "All the anchormen on TV are talking rubbish every day."

Ding recently sold her house for $45,000 and put all the proceeds into the market. Now she has just $12,000 left. "At that time, I was thinking I would make some money for my son's wedding," she said.

When she saw a news report that President Bush and Chinese President Hu Jintao had conferred Monday, she took it to be favorable news. "So I spent another $742, about two month's worth of my pension, and bought a few more shares of China Petrol," Ding said. "But I did not expect that they would tumble again today."

Another investor, who had lost most of his $30,000 investment, was somewhat rueful. "I should have put the money into a bank instead. I almost have no money to buy eggs," said Li Li, holding two large bags of eggs and punching into a keyboard the codes of his stocks from memory.

"What annoys me most is before the Olympic Games, the chairman of the securities supervision committee, Shang Fulin, said the government would maintain the stability of the stock markets, so I bought more shares," Li said. "This market is really heartbreaking."

Researcher Liu Songjie contributed to this report.