The Shanghai stock market slumped further Thursday morning as the benchmark Shanghai Composite Index pierced through 1,200 points before it bounced back and closed the morning session at 1,210.28 points.

It slumped to 1,199.16 points during the session, the lowest level since May 19, 1999 from 1,213.37 points at the beginning of the session.

Traders and analysts said the lower-than-expected price band for the Huadian Power International, the country's first initial public offering (IPO) share for 2005, and the news that the Baoshan Iron and Steel has been approved to offer additional shares are responsible for the fall.

The Huadian Power International is also the country's first share whose IPO price is being determined using a new pricing system, or IPOs pricing inquiry mechanism. It was put into operation on Jan. 1, 2005.

Gui Haoming, manager of the marketing department of the Shenyin & Wanguo Securities Co., said the preliminary offering price band for the share at 2.3 yuan to 2.52 yuan is too low for investors, prompting some to dump highly-priced shares traded on the market.

"I'm not optimistic about the market", he said.

The IPO prices of the shares traded on the markets were set by the listed firms and their underwriters, and were considered too high, while the new pricing system allows institutional investors to participate in setting IPO share prices.

Baosteel said Wednesday night the China Securities Regulatory Commission (CSRC) approved its application earlier that day to collect 28 billion yuan (US$3.5 billion) through issuance of additional shares.  

Traders said the markets were panic about the news as the stocks in circulation will be less attractive than the IPOs to be offered, and some investors are selling their stocks to purchase Huadian shares after its price was finalized later this week.

China's two exchanges have been bearish since 2001, and investment sentiment has been weaker for the past several months due to irregularities by listed firms, among other reasons.

Huadian Power is controlled by the China Huadian Group Corp., a state-owned energy giant with assets totaling 89 billion yuan (US$10.8 billion) at the end of 2003.

Huadian made public its IPO plan on Jan. 17 and the China International Capital Corp. will act as the major underwriter of Huadian shares.

(Xinhua News Agency January 20, 2005)