China's stock markets plunged more than 7 percent each today and the Hong Kong exchange suffered a sharp drop yesterday on rumors that Prime Minister Zhu Rongji was resigning. A spokesman for the information office of the State Council, China's Cabinet, denied the rumors.

There is no indication that Zhu will step down. However, ever since he traveled to the United States in April, Zhu has come under intense criticism in China for purportedly giving too many concessions to the United States as part of China's attempts to join the World Trade Organization. That criticism, published mainly on the Internet, rose to a fever pitch following the May 7 NATO bombing of China's embassy in Yugoslavia as Chinese leftists sought to profit from a surge here in ultra-nationalism to sully the reputation of the cosmopolitan premier.

Shares in Shanghai were down 7.61 percent and stocks in Shenzhen had fallen 7.99 percent at the close of trading today.

The fall of China's bourses followed weeks of record-setting rises on both exchanges, leading some analysts to speculate that many investors were dumping their shares both because of the Zhu rumors and to clear a nice profit.

China's government has worked recently to drive up stock prices here and plans to allow more companies to list shares. This has been part of an effort to persuade Chinese families, which save an average of 40 percent of their incomes, to take their money out of the banks and put it into the markets. Government economists have reasoned that this will improve China's weak economy by placing more capital in the hands of Chinese businessmen. The problem is that most of the firms listed on China's bourses are still effectively state-owned firms and are managed by bureaucrats, not businessmen. The other problem is that the government policy has created a speculative bubble that could easily pop, leaving thousands of investors with big losses.

The policy is part of a government campaign to spur economic growth. The campaign began last year when the government tried to encourage Chinese consumers to spend more. It failed because many consumers expressed concern about the future of the Chinese economy. They have also been faced in recent years with a whole slew of new bills -- for items such as tuition for their children, medical insurance and a pay-as-you-go pension scheme.

The government next turned its attention to pumping up the markets. Regulators cut taxes on trading and China's banks slashed the interest they paid on savings accounts. Then on June 19, the People's Daily, the mouthpiece of the Communist Party, uncorked a stunning editorial, promising higher returns in the market.

Since mid-May, Shanghai's main index has jumped 51 percent while Shenzhen has shot up 54 percent. "B" shares, which can be purchased by foreigners, were up 113 percent in Shenzhen and 78 percent in Shanghai before today's fall.

Also today, China unveiled its new securities law, which will replace a mixed bag of rules, regulating the nation's securities industry. Last week, China's securities companies, in the run-up to the law's issuance, pledged publicly to stop stealing money from their clients -- a common practice in China -- in order to invest.

Started in the early 1990s, China's stock markets are known as dens of corruption, insider trading and intrigue. Most bettors view the market more as a horse race than as a long-term investment.

For example, Chen Xisheng, a 47-year-old owner of a private pharmaceutical company from Henan province, said he had held onto shares from the Qingdao Beer company and the Changhong TV firm for a total of 16 days before he dumped them early this week, making a profit of about $200.

"And that was a long time to hold those shares," he added. "I almost qualified as a long-term investor."

CAPTION: Chinese officials denied that Premier Zhu Rongji was resigning, but markets dropped more than 7 percent.