It was the biggest party in the short history of the Chinese stock market – a rise of 500 per cent in the country's top indices in Shanghai and Shenzhen, millions of new investors joining every day, champagne corks popping regularly as the latest once-creaking state enterprise unveiled its new sleek self for public listing.
But China's stock market bubble has burst, leaving 150 million share investors waking up to their worst hangover ever. The combined effect of a vertigo-inducing rise in inflation, new regulations and a slowdown in the US economy has brought share prices down as quickly as they went up. Indeed, after further falls this week, Chinese shares are worth just half what they were last October, when the market peaked
One problem is the strength of the Chinese economy – and the inflationary pressures that has brought. Fears that government initiatives to tackle inflation will damage corporate profits has wiped $1.9 trillion off the value of Chinese companies since the beginning of the year. "The dive is the reflection of investors' mounting concern about the economic scenario," said Zhang Ling, a fund manager based in Beijing. "Runaway inflation is pretty bad for the economy and equities, raising costs and slowing earnings growth."
Nor does the outlook for the global economy help confidence in China, which has built much of its boom on exports, the demand for which may now dry up. The rising cost of global commodities also threatens profits.
There are local concerns, too. The China Securities Regulatory Commission (CSRC) said at the weekend that any large sales of formerly non-tradable shares will have to be conducted in a "bulk" trading system, separate from the normal exchanges in Shanghai and Shenzhen.
The move was designed to address one concern dogging the market in recent months – the potential impact of the release of huge amounts of shares, as firms are allowed to sell them after lock-up periods following their completion of share structure reforms.
The Communist Party is certainly concerned at how a new generation of millions of investors will react to their first market decline. With tensions rising internationally over the Tibet crackdown and the Olympic torch relay, the last thing the government needs is a domestic crisis related to stock market woes.
It took just two years for China's blue-chip share index, the Shanghai Composite share index to register a 500 per cent gain, rising from 1,000 to 6,000 points but it has taken only around five months for it to tumble from 6,000 to below 3,000.
"To leave quietly, or to stay bravely, that is the question," is how one anonymous investor put it in a web posting.
The brokerages in China's financial capital, Shanghai, and in the southern boomtown of Shenzhen are surrounded by distraught small investors – stallholders and taxi drivers, pensioners and waiters who find themselves on the wrong side of the biggest sell-off in Chinese share owning history.
There have been short rallies on bargain hunting and analysts expect the Shanghai index to consolidate around the 3,000 mark in the coming days. Even so, the market could be primed for further falls in the absence of market-boosting measures from the government. Investors are looking for measures such as a cut in the stamp duty on stock transactions and further restrictions on refinancing by listed companies.
"The breach of 3,000 may trigger more support from Beijing as a volatile stock market will have a negative impact on economic growth and hurt social stability," Wu Feng, an analyst from TX Investment, said.
Major declines in this market have hit China's army of small investors hardest. Last year, they piled into the stock market in numbers that recalled former Federal Reserve Chairman Alan Greenspan's dot.com era warnings of "irrational exuberance".
Market analysts' and government regulators' vocal warnings of a bubble were largely ignored – intermittent price dips were seen as a chance for a bit of profit-taking and an opportunity to go bargain hunting.
Unsurprisingly, China's emerging investment community is a reflection of the group that has benefited most from the 66-per-cent expansion of the Chinese economy in the past five years – young and upwardly mobile. This means that 57 per cent of investors on Shanghai's stock market are retail investors, compared to 20 per cent in New York or 30 per cent in Hong Kong.
There are reports of people picking stocks at random, using lucky numbers or consulting fortune-tellers to buy shares. And rather than buy a stable portfolio of shares to spread the risk a bit, they stick to one or two stocks. A survey this month by the Kapronasia group showed a lack of diversification in portfolios, with 65 per cent of investors holding between one and three stocks, a high-risk strategy in a volatile market.
Conditioned to believe in old-school Communist interventionism rather than New China free market thinking, many investors believed there was no way the stock market could fall before the Olympic Games in August. They expected muscular government intervention to keep everything in the garden rosy ahead of China's big party to mark its emergence as a global economic and political power. They were wrong.
Many of the anonymous comments on an investment website focus on what they see as government inactivity and show a lack of understanding of basic free market economics.
"The stock market has fallen terribly and this is because of the government doing nothing. The government should do some thing for the interests of shareholders," said one angry webizen.
"The stock market is a baby and the people running it are like new-borns, taking money from civilians to pay for their growth," complained another investor.
For many young Chinese, buying stocks has been a way of boosting disposable income, rather than helping to build a long-term savings plan. They needed to get out of investment models such as property investment, which had become overregulated and with too many new buildings: oversupplied.
Stocks beckoned, and millions of investors crowded the brokerages to set up share accounts.
One young consulting firm worker, Li Jun, 27, told the Shanghai Daily how she opened her stock account at the start of last year and was happy to ride the bull market and take quick gains.
"Whatever shares I bought, they gave me a handsome return then. With the yields on stocks, I earned enough in just a couple of months to decorate my new home and filled it with an air-conditioner, LCD television and other things I needed," she said. Now she faces a major loss.
It is worth pointing out that the long term outlook for the Chinese market is fairly healthy and the market remains at a level that is three times' higher than two years ago. The investment house JP Morgan reckons there are 150 million stock market investors in China, a remarkable pool of investor resources even if it is just over 10 per cent of the Chinese population. Now it becomes a question of whether nerves will hold.
"I don't know what to do next. I only hope that I can suffer small losses..." said one clearly rattled investor.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies