A golden bull sculpture stands in front of a screen showing share prices at the Shenzhen Stock Exchange in 2011. (Wu huijun/Wu huijun - Imaginechina)

Not one, or two, but three bulls stand sentinel outside the Shenzhen Stock Exchange, symbols of a city, and a country, that have spent more than three decades charging up, and up, and up.

This spring they stood watch as the market went on yet another epic tear, a frenzy of borrowing and buying that saw Chinese stocks rush to ridiculous heights, attracting millions of new investors along the way.

By summer, the bubble had burst, sending share prices plunging and wiping trillions from the books. Spooked, Chinese authorities resorted to extraordinary measures: Trading was suspended in half the shares in the market, big investors were ordered not to sell, state funds were told to buy shares, and officials threatened criminal charges for “malicious” short-sellers.

It worked, sort of — for a few weeks.

Now volatility has returned. Chinese stocks dropped again Friday, with the benchmark index dropping more than 4 percent. The Shanghai Composite ended the week down 11.54 percent and the Shenzhen Composite down 11.73 percent, making this the worst week since the summer sell-off — despite the government’s ongoing efforts to stop the slide.

Investors and analysts say the whole affair raises red flags about the overall health of the economy and the government’s ability to handle it. The opening of markets helped power the country’s economic transformation, but China’s leaders have grown nervous about letting them move any way but up, wary of political fallout that could threaten the regime.

Perhaps no place captures this tension as clearly as Shenzhen, the former fishing village that became China’s first special economic zone in 1980 and a testing ground for then-leader Deng Xiaoping’s plan to bring some of the trappings of capitalism into what was then a Marxist-
Leninist state.

Li Chi, chairman and chief executive officer at Shenzhen Co-Power Venture Capital, said the government’s embrace of the market was like two people dancing together, awkwardly, as both try to lead.

In this sense, the handling of this summer’s stock fiasco represents a “step back,” said Patrick Chovanec, chief strategist at Silvercrest Asset Management Group. “When they do not like what the market likes, they flinch,” he said.

“In competition between market forces and state forces, the state will always win,” echoed Victor Shih, an associate professor at the University of California at San Diego’s School of Global Policy and Strategy. “If they feel the power of the regime is threatened, all the reform policies can go out the window.”

Shanghai stocks closed down 4.27 percent on August 21 after a gauge of manufacturing activity tumbled to its lowest in more than six years, showing more weakness in the world's second-largest economy, dealers said. (Johannes Eisele/AFP/Getty Images)

Two months into China’s stock rout, with the world still reeling from the surprise devaluation of the yuan, concerns are particularly pronounced among foreign investors, who have started to reevaluate China’s economic miracle.

But the real challenge for Beijing is at home. Many Chinese have come to expect a lot from the economy. The government’s monopoly on power is premised on the realization of the “Chinese Dream,” President Xi Jinping’s vision of a prosperous, powerful nation. Now that vision is at risk of eroding.

When Li, the Shenzhen investor, arrived in the city in 1989, China’s great economic experiment was just getting underway. Like millions of other migrants, he was drawn to the southern Chinese city’s dynamism and the chance to make good on Deng’s invocation to “let some people get rich first.”

He started investing in stocks in the early 1990s, riding the market through several booms and busts. Li said the government’s recent efforts to stop the stock slide took him back to the days of a planned economy: “Their interference pulled China’s stock market back at least 20 years,” he said.

Shenzhen’s market has always been speculative — a wild ride that Li and other investors often describe using the language of gambling. What’s changed is the market’s capacity and its links to the economy as a whole.

The stock frenzy brought millions of new, inexperienced investors to the market. In Shenzhen, that meant securities firms popping up across the city like chain restaurants. Workers at several firms said they struggled to keep up with demand for new trading accounts, extending their operating hours and exhorting overeager customers to form orderly lines at the door.

First-time investors such as Vector Yang, 31, had little to go on. He picked stocks the way he picks vegetables, he said, buying the cheapest ones at random because they were what he could afford.

The newcomers’ confidence was buoyed by upbeat editorials in the state-backed press — ­People’s Daily called stocks “carriers of the China Dream.” Plus, with real estate prices slumping and an interest rate cut in November, people needed a place to put their cash.

Complicating the picture: margin lending. Over the past few years, China made it easier to borrow money to buy stocks. As this year’s rally heated up, investors borrowed heavily from banks, but also from unregulated “shadow” lenders, who helped some small-timers in particular get leveraged up to their necks.

Even the pros got pulled in: Wang Yanwei, a planning director at Chongming Asset Management in Shenzhen, said she and many of her peers “ignored alarm bells,” borrowing heavily in the first half of the year, then losing big. “We were eaten up with stock fever and blindly optimistic,” she said.

Buying on margin turned what a few years ago might have been a relatively isolated stock bubble into a threat to the heavily indebted system as a whole.

“It’s not about the stock market, it’s about the financial system, because now you have all this debt that rests on this system,” said Anne Stevenson-Yang, research director at J Capital, a firm that helps foreign investors in China do research and track macroeconomic trends. “If asset values come down, that’s when the debt pyramid starts to collapse, and then what they are concerned about is a financial crisis.”

Wu Xianfeng, the head of Lonteng Asset Management and another veteran of Shenzhen’s stock market, said he was not surprised that the government stepped in to stop a crisis, as other governments do, but thinks that finance officials’ approach was haphazard and short-sighted, exposing “their lack of experience handling stock crises.”

But Wu, who like Li watched Shenzhen rise from nothing, said that while the short-term picture looks bleak, he is confident about his country’s future. China’s growth is slowing, but it will still lead the world’s big economies for the next five to 10 years, he said.

China’s leaders have kept the charge going so far — evidence enough, to him, of his young city’s knack for reinvention and the party’s unparalleled ability to “self-correct.”

It’s a sentiment expressed by Deng on the landmark 1992 southern tour that set China’s new course. “Certain aspects of capitalism can be adopted by socialism,” he said. “We should not be worried about making mistakes.”

Xu Jing contributed to this report.