THE stock market's love affair with the mainland is over, as investors dump mainland-related stocks in a backlash against the motherland, complaining of a host of problems - from yuan devaluation fears to a loss of faith in Premier Zhu Rongji. All firms with a significant proportion of their business in the mainland have suffered, according to brokers. The Hang Seng China Enterprises Index, which covers H shares, and the Hang Seng red-chip index had fallen to about half their early May levels by last week, a greater decline than that of the blue-chip Hang Seng Index. Market sentiment appears to have turned full circle since last summer, when connections to the mainland were seen in a positive light. DBS Securities Hong Kong research head Frederick Tsang Sui-cheong said: 'People are selling all sorts of China-related stocks. In the past, [business in the mainland] was seen as an asset. Now it is treated as a liability.' The key worry for investors appears to be a yuan devaluation against the US dollar, which most economists see as inevitable. With the shares listed in US dollar-linked Hong Kong dollars, all sectors could take a hit. Kent Rossiter, deputy general manager of Asian equities at Nikko Securities, said: 'Investors are worried about the devaluation. They've lost any appetite they once had [for China-related stocks].' Many investors were waiting for the devaluation before they returned to the market. A string of poor results had also dampened interest. Morgan Stanley Dean Witter economist for Greater China Andy Xie Guoshang said: 'Earnings have been much poorer than the most pessimistic estimates.' Deflation on the mainland was likely to further depress many companies' earnings and keep investors away. A key problem appeared to be that stocks were overvalued in the past, as red-chip fever swept the region last summer. Over-confidence in the mainland had led many investors to expect bigger returns than had been possible. 'Most people had too rosy a picture,' Mr Xie said. But new worries about the business climate are beginning to surface. Many foreign companies doing business in the mainland are being hit by the sweeping reforms to the state sector, changes to the bureaucracy and uncertainties over the tax system. Companies that built alliances with the People's Liberation Army (PLA) businesses are concerned their ventures might suffer as the PLA is divested of its commercial interests. Others have found Mr Zhu's move to cut the bureaucracy by half has left companies unsure who to deal with and local officials uncertain if they will be there to see a project through. To achieve the 8 per cent economic growth target for the year, many expect the government to be more vigilant in collecting tax revenue. Some fear foreign-invested companies could be targeted in the drive to collect more tax. Local and provincial governments have been known to increase levies and fees demanded from investors as a way of boosting tax revenue. Baker & McKenzie partner Cole Capener said there had at times been a tendency to tap the foreign investors for more revenue, although he had seen no widespread increase in taxes recently. 'Foreign-invested companies are perceived to be more profitable than state-owned companies,' he said. 'Perhaps because of that they are sometimes targeted.' The central government is keen to crack down on such practices, however, and recently announced that Hebei province had cancelled more than 100 extra fees. Others fear that tax concessions given to foreign companies as incentives to invest in the mainland might soon disappear. Many concessions are granted by provincial governments without approval of the central government. DBS Securities' Mr Tsang said: 'Now Zhu Rongji wants to abolish all these tax concessions.' The pace of reforms is also creating problems. Since taking office as premier in March, Mr Zhu has tried to push ahead with sweeping reforms of housing, government and the state sector. In many cases, he has been forced to backtrack on the reform, as the speed of change has created problems. 'It's very difficult for people to adapt over such a short period of time,' Mr Tsang said. Mr Zhu understood that market reform was needed for the mainland but was pushing changes through too fast, he said. 'No doubt he is a good doctor. He is just giving too heavy a dose of medicine.'