MARKET sentiment has swung 180 degrees since the spring, when red-chip fever was running so high that brokers were turning investors away. Now, they admit, they can't drum up interest in any China-related stocks, and the Hang Seng red-chip index and Hang Seng China Enterprises Index have fallen to half their May levels. Over the same period, the Hang Seng Index fell about 30 per cent, indicating the China plays were being seen as a worse bet in this economic climate than those focused on a recession-hit Hong Kong. The market frenzy inflated the value of many of the China-related companies, leaving them more vulnerable when market sentiment turned. Now, they are perhaps being penalised harshly - not all deserve the drumming the stock market is giving them. But it's no use looking for a conspiracy. The market may be fickle, but its reasons for selling down the China-based stocks are understandable. There have been real and momentous changes to the business environment and the market is reacting. Since Zhu Rongji became premier in March, the scale of reform has taken on a new dimension. A rationalisation of the civil service will see half the staff made redundant - the the central bureaucracy is cut down to just 29 ministries. The People's Liberation Army is to break up its 50,000-business commercial empire. Such measures cannot be taken without a fair degree of pain being felt - socially and economically - on the mainland. It's no surprise that Mr Zhu has had to back-pedal on many reforms: state-owned enterprises have been given a little longer than the original three-year period to pull themselves into shape. Housing reforms will proceed more slowly to ensure the sell-off of work-unit owned housing does not damage the construction sector. Despite assurances he would fundamentally reform the banking system, in June Mr Zhu asked banks to go on lending to ailing state-sector firms. The shake-up is now frightening away the investors, at a time when the mainland needs the market's confidence. In dealing with the issue, perhaps Mr Zhu should be a little less hasty. Instead of rushing ahead with radical reforms, only to retreat months later, it might be better to set a slower pace from the start. Instead of 8 per cent growth, he could be settle for 6 or 7 per cent. With the regional economy in its weakened state, pushing for such an ambitious growth target might be counter-productive.