China's benchmark Shanghai Composite Index fell 5.3 percent yesterday on waning confidence in the bull market, amid worries that a slew of new share listings might drive prices lower.
Analysts said that the lack of apparent support from state-controlled institutional investors for blue chip shares was undermining confidence.
Dealers said that news the government was issuing 500 billion yuan (US$65.8 billion) in special bonds soon, as the first tranche of a planned 1.55 trillion yuan offer, could also soak up liquidity as part of overall efforts to cool the economy and the bourse.
The Shanghai index closed at 3,615.87. The Shenzhen Composite Index of China's smaller, second market plunged 5.8 percent to 1,015.85.
"People usually have lots of confidence in those government-backed companies. After they begin to drop, the whole market follows," said Peng Yunliang (
Declines in heavyweight banks, such as Industrial & Commercial Bank of China (中國工商銀行), and Baosteel Group (寶鋼集團) suggest that the market is yielding to downward pressure.
Despite several recent corrections, the Shanghai benchmark is up 35 percent for the year, following a 130 percent jump last year.
But regulators have signaled their intention to prevent the markets from surging too high, too quickly.
Worries over government moves to tighten credit intensified after state media quoted China's foreign exchange regulator as saying China will raise investment quotas under its Qualified Domestic Institutional Investor program "in a timely manner."