Shanghai's composite index tumbled 13.131, or 0.86 percent, to 1,511.711 while Shenzhen's sub-index closed 24.20 points, or 0.79 percent, down at 3,046.88.

Shanghai's hard-currency B-share index edged down 0.46 percent to 137.824 points while Shenzhen's fell 0.20 percent to 210.67.

Turnover on the B-share markets, open to foreigners, was tiny at US$6.98 million in Shanghai and HK$32.03 million (US$4.24 million) in Shenzhen.

Investors' eyes were on Jinglun, the first firm to sell its initial public offering (IPO) solely to investors who already hold stocks in other companies.

Brokers said the market had expected many to hang on to their IPO shares to help Jinglun's price double on its first day of trade. Domestic firms' share prices often soar upon initial listing because they are set artificially low.

Jinglun, which makes equipment for public telephones, had also been expected to be supported by its strong historical earnings, analysts said.

But such was not the case.

"Recent weak market conditions made investors reluctant to hold positions, causing Jinglun to perform worse than expected," said analyst Xiao Tengwen of Chengdu Securities.

Its A shares, off limits to foreigners, closed up only 64.52 percent at 26.62 yuan (US$3.2): A mild debut by domestic standards and far below analysts' forecasts of 33 to 36 yuan (US$3.97-US$4.33).

China's markets are down more than 30 percent since their peak last June due to a string of factors, including a sweeping crackdown on irregularities and frequent IPOs.

Sentiment has also been weakened this week by negative corporate news, such as Wednesday's statement by Guangdong Kelon Electrical Holdings Co that regulators were investigating its dealings with related firms.

But analysts said they did not expect steep falls because the government has vowed to support the markets.

"Repeated government pledges to support the markets are likely to keep share indices around present levels although nagging weakness has deterred fresh liquidity from flowing into the markets," said Guotai Junan Securities analyst Dai Yizhong.

Regulators revised IPO regulations in May and ordered that at least 50 percent of offerings be sold to investors with an existing equity portfolio. The aim was to prevent punters from selling existing stocks to raise money to bid for new shares.

But the official China Securities Journal said yesterday the reform failed to draw more money into the secondary market.

Institutions which used to invest in IPOs now prefer to put their money in banks, partly due to the poor quality of listed companies, the newspaper said.

Selling in the B-share market focused yesterday on small capitalized stocks, often speculation targets due to their volatile nature, brokers said.

Construction materials maker Shenzhen Fangda Co was the worst B-share performer and closed down 2.11 percent at HK$4.65 (61.6 US cents) on thin volume of 50,500 shares.

Shenzhen's A index ended down 0.95 percent at 471.57 points and Shanghai's fell 0.87 percent to 1,577.617.

On the foreign exchange market, China's yuan ended unchanged at a strong 8.2769 against the US dollar yesterday as dollar supply and demand from domestic importers and exporters were roughly in balance.

"The yuan did not change much in the morning and traded very tightly around the strong 8.2769 level," said a Chinese dealer in Beijing.

(China Daily June 14, 2002)