Rioting forces China to shut down stock markets


BEIJING -- Authorities suspended trading on one of China's two fledgling stock markets yesterday in the wake of a riot by tens of thousands of frustrated speculators in the booming Shenzhen Special Economic Zone near Hong Kong.

The stock exchange is expected to reopen quickly, but the political fallout from the incident -- the most severe social disorder in China since the 1989 Tiananmen Square protests -- could be far-reaching.

Hundreds of thousands of would-be speculators -- perhaps as many as a million, according to one account -- poured into the southern Chinese city over the weekend to stand in long lines to enter a lottery to gain the chance to buy new issues on the exploding exchange.

The get-rich-quick frenzy turned into a wild stampede late Monday night when authorities ran out of lottery applications and disappointed investors rioted to protest suspected corruption. They claimed officials hoarded many of the applications for their own use.

Hundreds of club-wielding riot police used tear gas, rubber bullets, water cannons and at times their fists to quell the protests, which calmed only after officials agreed to hand out more applications yesterday. At least a dozen were injured, and there were unconfirmed reports that one investor was killed.

The situation in Shenzhen remained tense last night, with thousands still lining up to get a chance to buy shares and unconfirmed rumors of more rioting. China's State Council, the equivalent of its executive Cabinet, was believed to have held an emergency session in Beijing yesterday.

The disturbance comes as China's top leaders are meeting in the northern seaside resort of Beidaihe to decide on the policies that will be formally endorsed at a critical Communist Party congress this fall.

The Shenzhen riot could provide useful fodder for hard-line socialists who have been trying unsuccessfully to slow Chinese patriarch Deng Xiaoping's new drive to accelerate capitalist-style economic reforms here, such as stock markets.

Mr. Deng began that push with a trip to Shenzhen earlier this year, and it subsequently led to a rash of moves to liberalize China's once centrally planned economy.

A popular backlash against official corruption -- as arose among the Shenzhen investors -- was one of the main motivating forces underlying the 1989 Tiananmen Square protests. Those demonstrations prompted the most recent wave of leftist repression here that just now appears to be waning.

Authorities opened the Shenzhen and Shanghai exchanges over the last 18 months in order to sop up China's rocketing level of personal savings, provide badly needed capital for its rapidly expanding economy and force long-subsidized Chinese companies to operate on a sink-or-swim basis.

Combined trading volume on the two exchanges in the first half of thisyear was four times that of all of 1991, and recent issues of new shares have provoked smaller and much less violent, but similar, surges of interest over the last year among Chinese speculators.

Quick profits are likely because authorities have so far allowed only 32 companies to be listed on the two exchanges and because there are few other investment options for most Chinese. Listed shares' price-earning ratios already have soared -- to the high 80s in Shenzhen and to more than 300 in Shanghai.

Five million lottery application forms, each costing about $18, originally were to have been sold in Shenzhen over the weekend. A lottery is to be held later -- with only 10 percent of those who purchased the forms ultimately winning the chance to buy 1,000 new shares.

Investors who prevailed in a similar lottery in Shenzhen last year have turned investments of $1,290 into holdings worth at least $5,535, the English-language newspaper China Daily said last weekend. "No wonder all trains and flights are squeezed with people from all corners of the country, with money from the whole village in their pockets," a Shenzhen resident told the newspaper.

Chinese are not the only ones flocking to the Shenzhen and Shanghai bourses. Ten special issues lately have become available to foreign and overseas Chinese investors.

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