Economic Observer Online
Mar 28, 2012
By Peng You (彭友)
Translated by Ma Zheng
Original Article: (Chinese)

China's two major stock market indexes continued to fall today after steep declines of almost 3 percent yesterday, the falls have reduced both major indexes by more than 5 percent over the past 5 days, almost wiping out all the gains that have been made over the past 3 months.

The Shanghai Composite has dropped 8.5 percent from this year's high on March 2 but is still up 2.4 percent since Dec. 31.

Both the Shenzhen and Shanghai stock markets saw significant falls yesterday, with the Shanghai Composite Index falling to 2,281 points, a fall of 2.65 percent,
the largest fall in four months. The Shenzhen Component Index was down 2.82 percent.

Unlike the fall earlier in March, yesterday's dip was not accompanied by a significant increase in trading volume.

Yang Tao (扬韬), a well-known private equity fund analyst from Shanghai, offered several reasons for yesterday's large fall, these included the imminent establishment of China's new "third board" and he also cited a general weakening in the momentum of China's economy.

Signs that an existing program operating out of the Zhongguancun Science & Technology Zone might be expanded into a new equity exchange focused the trading of shares in small technology companies have been bolstered by recent visits to the area by high-level officials.

Wang Qishan (王岐山), the Chinese vice-premier responsible for overseeing the financial sector, visited Zhongguancun on March 27.

Less than one month ago, Guo Shuqing, chairman of China Securities and Regulation Commision (CSRC) also visited Zhongguancun to learn about the expansion of the new third board or the Agency Share Transfer System, as it is sometimes referred to.

Analysts are predicting that it won't be long before the newly expanded board is operating.

Aside from concerns about the announcement of the expansion of the new third board, the benchmark indexes have also been pulled down by the weakness of recently released economic data.

According to the National Bureau of Statistics, combined profits of Chinese industrial firms in the first two months this year were only 606 billion yuan, down 5.2 percent from the same period last year.

An analyst from Ping An Securities Company named Wang Cheng （王成）said there are signs of softening domestic demand and that commodity prices are decreasing. He believes that the industrial profits will continue to decline in the first quarter this year.