Yesterday crowds were again gathering outside banks in Shenzhen, just across the border from Hong Kong, seeking the chance to buy shares in 14 companies to be listed later this year. The issue of tickets had drawn up to a million people from all over China to Shenzhen, which has one of the country's two stock exchanges, bringing chaos over the weekend. One person was reported to have been crushed to death.
On Monday disappointed investors went on the rampage, attacking plainclothes police, overturning vehicles and setting some on fire. They claimed that many of the 5 million tickets had been kept back by corrupt officials for themselves, their families and friends. Yesterday the police staged a show of force, ordering those hoping to buy tickets to squat in groups of about 300 in blazing summer heat. They used truncheons to attack anyone who tried to bring water, and yanked young men seemingly randomly out of the crowd, often beating them mercilessly.
China's official media yesterday blamed 'a tiny minority' for Monday's trouble. The Peking Evening News, in the capital's first reference to the rioting, said: 'A few people took advantage of the imbalance in the supply and demand for new share lottery tickets and a few faults in the organisational work to stir up the emotions of a portion of the crowd.'
The scenes in Shenzhen illustrate both the success and failure of China's economic reforms. Rampant growth has led to a sharp increase in disposable incomes and wide availability of consumer goods, but there are next to no outlets for savings beyond deposit accounts paying only 1.8 per cent a year, a rate which has not changed for the past 12 months. This explains the near- desperation of investors to buy the small number of shares quoted in Shenzhen and Shanghai, where the stock market was reopened in 1990 after being closed for more than 40 years by the Communists.
Enzio von Pseil, an economist with Smith New Court stockbrokers in Hong Kong, estimated that there was a 'savings overhang' of 1 trillion Renminbi yuan ( pounds 95.1bn) in China. Although the tickets give buyers only a slim chance of buying shares - they can be exchanged later for 10 application forms, none of which may be successful - the potential gains have brought speculation to boiling- point in China. In the 12 months to April this year the Shenzhen market rose 117 per cent, while Shanghai was 153 per cent higher.
Yesterday shares slumped 11 per cent in Shanghai, and there was a similar fall in Shenzhen before the authorities ordered an early halt to trading at noon. Further declines are likely to heighten the caution of the authorities, who have run television advertisements warning investors that shares may go down as well as up, and who have been slow to approve attempts by other cities to open exchanges.
An emergency Cabinet meeting was called in Peking yesterday to discuss the turmoil, but Mr von Pseil said: 'I would be very surprised if there was a clampdown. It is more likely that they were discussing how to make the markets more orderly, by such means as speeding up share issues.'
Conservatives who are resisting the efforts of Deng Xiaoping, China's supreme leader, to speed up economic reform may be encouraged, however. The speculative fever has brought complaints of rising corruption and violence in Shanghai and Shenzhen, as well as fears of an embarrassing collapse ahead of the five-yearly party congress, to be held in the final quarter of this year. Mr Deng himself has said that the exchanges should be closed if they were a failure.