The Composite Stock Index on the Shanghai Stock Exchange dropped 21.55 points from Tuesday to close at 1,039.19 points Wednesday, the lowest since February 1997.

The slump immediately followed China securities regulators' announcement Tuesday that it would start a new round of experiments on split share structure to tackle stock market problems. The Component Stock Index on the Shenzhen Stock Exchange also fell 84.88 points Wednesday.

"This eight-year low puzzles people," reported the Beijing- based Economic Reference Thursday. This is the second time for the split share reform plan to be followed by stock index diving, according to the newspaper.

After years of fierce debate, China last month began an experiment to tackle one of the major problems blamed for its sluggish stockmarkets -- the split share structure.

The split share structure refers to the existence of a large volume of non-tradable state-owned and legal personal shares. This means only about one-third of the shares in domestically listed firms float on the markets. The structure puts public investors in a worse position than the actual controllers in making corporate policies and disposing of the firms' profits and assets.

For the first round of split share structure reform, four firms including Tsinghua Tongfang Group, a high-tech firm, energy producer Goldbull Energy Co., soft drink bottle maker Zijiang Enterprise and Sany Heavy Industry Co., an equipment and machinery producer for the experiment aiming to make all their shares tradable.

To security regulators' surprise, however, the stock indexes kept going down in May after the first round of reforms were publicized.

The plan of four companies has not been tested by votes of stock holders in corporate plenary sessions, so the market naturally responded negatively to the second-round reform kickoffs, said the newspaper.

"Since every trial results in index slump, the new policy to end the split share structure obviously meets embarrassment," said the newspaper.

More than 80 percent of fund managers think that the current stock market is still at the beginning or in the middle of a bearish period, according to the newspaper. In early 2005, though, the same proportion of fund managers thought the stock market was already at the end of a bearish period, the newspaper said.

Even though the market performance is contrary to the expectation of security watchdogs, the split share structure reform will not be halted.

"The reform of split share structure is vital to the Chinese capital market," said Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC). "It has started and the pace will not cease."

"The reform in the first group of four firms is going on smoothly and has begun to work," said CSRC in a circular issued Tuesday.

Basic conditions are mature for further pilot work, though the reform in the four firms have not finished yet, said the circular.

Source: Xinhua