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Playing Stock Market in China No Longer as Carefree

The rise of China's stock market led inexperienced investors to believe the stock market was a safe bet for investment. But a recent slump has taught many the hard way that stock markets do fall. From Beijing, Sam Beattie reports.

Until recently, most had only seen their stocks rise, leading many to believe the market was guaranteed easy money.

But reforms introduced on May 30th coincided with the Chinese market's biggest tumble in recent years, wiping $350 billion off the market's value in four days.

Inexperienced investors, like Zhao Xian Sheng, are still reeling from their losses, not fully comprehending how the market works.

"It's not like if someone came to my home and robbed me -- then you're being robbed,” says Sheng. “But here the money suddenly evaporates. I have no idea where it's gone."

The market started to tumble the day after the government tripled the transaction fee on stock trades to discourage short term traders. The fee increase was aimed at cooling the fevered market. Before the tax hike, China's market had more than doubled in value so far this year. And that was on top of a 400 percent rise in 2006.

Due to controls on real estate, and low interest rates offered by banks, economists, such as Shen Ming Gao of Citigroup, say the stock market remains the only viable and profitable investment opportunity for many Chinese. "Yes, the stock market is very risky, but relatively speaking the lack of a better-developed capital market makes many bet on the stock market, which is unfortunate for Chinese investors," says Gao.

Despite their losses, few are giving up. Some are addicted to the market's casino-like rush. Others like Guo Wei, a legal secretary, still think it is a safe bet, believing the authorities will prevent an all-out rout. "There is risk, but the risk is not too high, at least not under the current economic conditions,” says Wei. “The government will not allow the market to crash."

It is not clear other Chinese investors share Gao's optimism. After the dramatic fall in early June, the Shanghai market is below the records it set in late May.