Chinese unravel puzzle of losing money: Investors in an illegal, but officially sanctioned, stock market in Chengdu learn that share prices go up - and down. Teresa Poole reports

IN THE shadow of Chengdu's northern sports stadium, some of China's freelance stockbrokers and share-traders have recently learnt all about the financial market's own laws of gravity: prices that go up may also go down.

Every day, from 8am to 7pm, about 2,000 people crush together in the open air, waving share certificates and identity cards, or stacks of cash, at the city's unofficial - and illegal - stockmarket. About 50 full-time 'stockbrokers' operate from small rented desks, share certificates displayed under glass, and radios tuned in for the market-sensitive news from China's two official exchanges in Shanghai and Shenzhen. At the entrance, women sell financial newspapers and a scorecard of the week's stock prices in Chengdu. But all are older and wiser than when trading started last year.

'I bought Sichuan Changjiang Co at 5,800 yuan ( pounds 485 for 1,000 shares),' said one middle-aged woman. She didn't even know what business the company was in but in the old days it was a buoyant, one- way share market that offered much better returns than the banks. 'When it went down to 5,000 yuan I didn't want to sell at a loss, but it continued falling to 4,000 yuan, and now it's 2,600 yuan. The more it falls, the more you don't like to sell]' And why did the price collapse? 'Because of the government's financial policies,' she laughed.

'Chengdu Shoudu Mansions is the best buy,' shouted one broker. It had soared as high as 20,000 yuan ( pounds 1,670 for 1,000 shares) in April on rumours that it would make the profitable move to one of the official exchanges. Now it is back at 6,000 yuan. 'A recovery stock]' promised the broker.

Speculative unofficial share issuing and trading, and the property market bubble, were two key targets of the austerity drive launched by the government in July to cool down the economy. The government needed people's savings in the bank, not in the frothy share markets. At its peak, more than 50,000 people a day were turning up at the pavement 'Beimiaozi' (Northern Temple) stockmarket in Chengdu, capital of Sichuan province in the west of China. The market began spontaneously in 1992 in a city street, but the crowds were so disruptive for traffic, schools and businesses that in March the city government moved it to the stadium.

In theory most of the shares, issued by state enterprises to their employees, should not be traded at all by the public, even at official securities houses. Staff are supposed to keep them for three years before selling them outside the company. In practice the temptation of quick profits proved too strong and the unofficial 'secondary' market started.

'The local government's attitude had been 'no support, but no block',' said one investor. According to Xu Xing, at Chengdu's Commission of Foreign Economic Relations and Trade: 'It's a spontaneous market. The deals are illegal. The government encourages the people who engage in stock-trading to sell and buy in the official security companies.' Another official added philosophically: 'The stadium market is a balance between what the shareholders want and public policy.'

When the austerity drive was announced, the Chengdu authorities ordered that all share certificates be deposited at the official security houses. Sichuan's government cadres were also told they were not allowed to trade in stocks, and state enterprises were not allowed to issue shares without permission. This, and the national clampdown on bank loans and money supply squeeze, had the desired effect: since July, prices on the Chengdu market started slipping, and investors began to stay at home. It's still a Wild West market, but smaller than before.

Now, Chengdu's investors and stockbrokers are again full of optimism. Since last month the austerity drive has been relaxed and businesses report the banks are lending money again. 'In October, our share prices began to rebound slightly,' said a man at the stadium.

(Photograph omitted)