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An old man’s ups and downs in China's stock market
2008/10/01

Above the Sogo, one of Beijing’s most bustling department store, in a room reserved for stock market barons, Zhang Chengzhi took a sip from a delicate pottery teapot and started writing his “stock market diary”.

The morning session had just ended, and the LCD screen in front of Zhang showed the market didn’t rein in its downtrend.

“The Shanghai Composit Index (SCI) hit below 2,500 points, smashing the investors’ last psychological barrier. Things have gone too far from the economic fundamentals,” wrote Zhang, a 69-year-old retiree from the Chinese Academy of Sciences who had been trading for almost 15 years.

Though more than half of the money had been wiped off his portfolio, Zhang still felt lucky to sell off his shares in mid July, since the Beijing Olympic games in August didn’t bring a stimulus to the stock market as expected.

But many were trapped deeper.

Outside in the public trading room opened by BOC (Bank of China) International Limited, a securities company, anxious traders, some gray-haired, sparsely dotted rows of black chairs, waiting for the opening of the afternoon session. The atmosphere was dreary.

The scene, however, was totally different last fall. Every day, enthusiastic small investors would swarm into this room, staring at the big electronic board to watch their investments soar and cheerfully chatting with each other about their new gains through stocks.

The Chinese market was riding a rocket then, climbing nearly sixfold to a historic high of more than 6,000 points last October after a four-year bear market ended in the third quarter of 2005.

More and more white-collar employees, retirees and housewives plunged in, with an average of 300,000 stock-trading accounts opened every day from April to October last year.

Trading by individual investors took up about 60 percent of the market volume, estimated the Shanghai-based brokerage Guotai Junan Securities. In the United States, individuals account for only five percent of trading, while institutional investors dominate the market.

Traders like Zhang were models chased after by these fresh new investors. Profits from the stock market had made him an owner of three apartments, including one worth 4.5 million yuan (661,764 U.S. dollars) bought in 2007.

As the benchmark SCI kept rising last year, what Zhang earned on the stock market also lifted him from the public trading room to a VIP room -- exclusively for those with investments of 5 million yuan (735,294 U.S. dollars) or more.

But nobody always succeeds. Zhang still remembered how awful it turned out just one year after he took his first step into the market in 1993. When the Shanghai index slumped by 79 percent in July 1994, he lost almost every penny he saved from work. It later led him to a hard decision – to sell the traditional Chinese courtyard, a place his family had lived in for decades and also a legacy his ancestors passed to him – to raise money for shares again.

“It’s worthwhile doing it. My life has changed ever since in a way that was never imagined before,” Zhang said, recalling the long way from his work days during the 1960s and 1970s。

"Back then, everyone looked the same, spoke the same way and got the same pay," he said.

In 1986, the Chinese people were introduced to a new way of making money – investing in the stocks. On Sept. 26 of that year, the country’s first stock exchange counter, measuring no more than 10 square meters, operated by Jing’an Trust and Investment, a securities company affiliated to the Industrial and Commercial Bank of China, opened to the public in Shanghai.

“Hundreds of people enveloped the counter’s small gate in the early morning,” described a story by the second day’s Shanghai-based Wenhui Daily, “At 9 a.m., the trading started. The clamor (in the room) made the people’s ears feel humming all the time …”

When the counter closed at 4:30 p.m., 840 of the 1,000 shares of Yanzhong Industry Co. Ltd., one of the only two companies that put their shares on trade that day, were sold out.

Zhang, deeply attracted by the scene, cut the story out of the newspaper and pasted it inside a notebook. By the story, he wrote, ”I don't know whether this is capitalism or socialism. But I hope it can also happen in Beijing." It was since then that he started writing his “stock market diary”.

It was eight years after China adopted a reform and opening-up policy, and ideological concerns were still prevailing in many reform fields.

In 1992, China’s late leader Deng Xiaoping, dubbed as the general architect of the country’s reform and opening up drive, visited Shenzhen, a booming southern city bordering Hong Kong, and reassured those eager to explore the capital market in China. "It’ll take careful study to determine whether stocks and the stock market are good for socialism or not. This also means that we must first try it out!” he said.

Deng’s words certainly encouraged more people to walk in the Shanghai Stock Exchange and Shenzhen Stock Exchange, the country’s two national-level stock markets both commencing operations in 1990.

“It was astonishing that ordinary people could become one of the owners of a collective business by buying its shares,” said Zhang, leafing through his three notebooks, “at that time, the private property right was not legalized yet.“

Zhang jumped in the market and never dropped out. Stocks are now an indispensable part of his life, just like eating and sleeping.

"For a long time, everyone ate from the same big pot of rice regardless of how much or how little they did, dulling their sense of achievement," says Shi Junqi, a psychologist specializing in consumer behavior at Peking University. "Stock market investment helps restore that."

It also met the demands of the Chinese economy, which was in dire need of capital then, explained Hu Ruyin, director of the research center of the Shanghai Stock Exchange.

The government has taken steady measures to ensure a stable development of the stock market. In 1992, China Securities Regulatory Commission was set up. A series of related laws and regulations were also enacted, including the Company Law in 1992, Securities Law in 1998 and Administrative Regulations on Futures Trading in 1999. Some of them were amended in the past two years to better protect the investors’ rights and standardize the listed companies.

Now, tens of millions of Chinese people have got familiar with the stock market. Many have tasted the glory of getting rich, as Deng Xiaoping once said that "to get rich is glorious", a famous phrase that boosted a series of reforms in China in the past three decades. Now, with the stock market down by more than 60 percent from last October’s peak, many have also had a taste of risk.

"The stock market is much more intricate than the gears I once studied for dozens of years at work. There are no formulas to follow," Zhang said, “but there is one point for sure that with each plunge, the investors will grow more mature and more immune to market volatility.”

Last year, when the market was climbing at uneven steps, the government had tried to give warning signals, including increasing stamp duties upon securities transactions. But rapid recoveries from two government-triggered sell-offs made traders believe that nothing could crash the stock market and lured more new investors to pile in the market.

"I may not be wiser than those green hands, as my shares are not the most lucrative ones. New investors are like newborn calves that don't fear tigers, but I know what to fear," he said.

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