The mainland's key stock indicator slipped below the psychologically important 2,000-point level yesterday, entering a territory last seen nearly four years ago.
The Shanghai Composite Index fell 26.3 points, or 1.3 per cent, to close at 1,991.17, the first time below the key level since January 23, 2009.
With the main gauge breaking through the symbolic barrier, investors are hoping the regulators will be stirred into action.
"The government is doing nothing to help us," said Zhang Zhisheng, an investor who has lost 300,000 yuan (HK$373,600) in equity investments. "The new leaders [of the country] need to pay attention to the stock market. They can't just talk, it's time to take some action."
Breaching the 2,000 level can have disastrous consequences for the market as investors may become convinced that the downward spiral is irreversible.
China was the world's worst-performing stock market in the past two years. The composite index is down 9.5 per cent so far this year.
Analysts had been expecting the index to eventually close below the 2,000-point level after it hit an intraday low of 1,995.17 in the afternoon session last Wednesday. Talk of a potential cut in banks' reserve requirement ratio that afternoon helped the market recover to finish higher.
"Investors will be surprised to know that the securities regulator is also feeling hopeless," said a Beijing-based source close to the China Securities Regulatory Commission.
"Regulators are worried the index has now fallen below the threshold."
Since the 18th Communist Party congress ended on November 14, there has been speculation that the CSRC would step up efforts to reform the initial public offering system, seen by many as the cause of the lingering slump. Investors have been hoping the new party bosses will move to shore up the market.
In 2008, when the market was stuck in a rut because of the worldwide financial turbulence, Beijing unveiled a 4 trillion yuan stimulus package to combat a slowdown at home. That effort sparked a rally as an influx of speculative capital breathed life into the market.
The world finds itself in a similar situation today as Western economies go through a protracted slowdown. The Organisation for Economic Co-operation and Development yesterday cut its growth forecasts, warning of the risk of a "major" global recession and urged the European Central Bank and the People's Bank of China to ease their monetary policies.
In 2009, a report by the State Council's Development Research Centre said at least 1.2 trillion yuan of banking loans were misused by corporate borrowers to speculate on stocks, part of the reasons why the mainland stock market bounced back from the depths of a crisis the last time.
"We don't care whether the speculative mood was reasonable or legal [back then], we just want our money back," said Zhang, a retiree rehired as a security guard. "I hope [Vice-President] Xi Jinping will note the plight of the poor investors."
The Communist Party is expected to hold an economic work conference next month to discuss key policies related to economic development. It is not known if the top leadership will give the beleaguered stock market a priority at the conference.
"The key to a stock market turnaround is a massive capital inflow," Shanghai Vstone Capital president Chen Jiwu said. "The regulators have been encouraging equity investments but it will take some time before the efforts begin to show."
According to Chen, who participated in a seminar hosted by the Shanghai Stock Exchange this year, the regulators are studying ways to liberalise the hedge fund sector, allowing fund managers to freely raise capital to trade stocks.
The source close to the CSRC said the regulator would exercise caution in approving new stock offerings although there is a long pipeline of more than 800 listing applicants. The regulator has temporarily suspended approvals since October 10.
A flood of share offerings in the past two years were blamed for the market slump as they soaked up about 800 billion yuan of funds from the market. Ironically, China took the dubious honour of the world's No 1 IPO market in those two years.
"The market is worried about another IPO blitz," said Shenyin Wanguo Securities analyst Li Xiaoxuan. "A technical rebound would occur in the next few days, but a lack of solid economic and corporate fundamentals would make any rebound shortlived."