The popular Chinese saying 'cross the river by feeling the stones' means you can take action even if not well prepared. It is an accurate description of the approach to mainland stock markets. There were markets of sorts before the Shenzhen and Shanghai exchanges were established in 1990. Share issues began in 1980, mainly through banks in big cities, as a way for state-owned enterprises (SOEs) to raise funds. Not surprisingly, they were manipulated and the benchmark Shanghai Composite Index swung wildly from a low of 98 points to up to 2,200 points. Test restructuring of large- and medium-sized SOEs began in 1988, when share sales were seen as a viable way to raise money for the anaemic enterprises. Public interest took off in 1990, so much so that police were forced to maintain order at packed markets. This rose to fever pitch on August 9 and 10, 1992, when more than a million people queued in Shenzhen to subscribe for newly issued stocks. They were undeterred by a four-hour thunderstorm and rioted when people with ties to financial institutions, police and other government bodies sold the 100 yuan share application forms for 500 yuan each. The unrest led to the creation that year of the China Securities Regulatory Commission (CSRC). The central government publicly acknowledged the role of the stock market for the first time in November, 1993. To safeguard the state domination of enterprises, the government insisted on retaining a controlling stake in SOEs. Individuals could own a maximum 40 per cent stake. That was how the uniquely mainland phenomenon of non-tradeable state shares emerged, a legacy that proved a tough sell for successors in the enterprises. Also, 1993 saw the start of a three-year market downturn, induced in part by macroeconomic tightening designed to cool the overheated economy. The government tried policy incentives but by this time many individual investors had learned the word 'risk'. The three-year lull was followed by a sudden upswing in 1996. In the eight months from April that year, the Shanghai index rose by 120 per cent and Shenzhen was up 340 per cent. The People's Daily described the market surge as abnormal and irrational, and blamed speculation by institutional investors, mostly owned by SOEs. The newspaper also attacked banks which were not allowed to invest in stock markets, securities companies which had overdrawn their own and their clients' accounts, as well as media reports encouraging people to take investment risks. The CSRC eventually implemented a dozen policies, including the a 10 per cent price fluctuation cap, which ushered in a consolidation period lasting until May 1999. Then a cut in bank deposit interest rates and other measures pushed people back into the market. Most individual investors did not expect a downturn after the Shanghai index hit a historic high of 2,245.44 on June 14, 2001, but later that year a state share flotation scheme triggered fears of a supply glut. Add that to a series of scandals at listed companies and sentiment again dissolved. Since then the market's capitalisation has been halved, which some academics applaud as a return to rationality. They say the average existing share prices of between 10 and 20 times earnings, down from 50 to 60 times in the 2001 peak, better reflects values. A range of recent surveys indicate that individual investors have lost confidence in the markets. 'There is no real love among the government, listed companies and investors,' wrote Mi Lang, a contributor to the China Finance Online website. 'The government wanted to open a benign investment and financing platform. After a period of trial operation, it found that China's stock market had no real investment value and was only suitable for speculators. Anyway, because all parties need a market, the government must pretend there is one.' But some academics are not so pessimistic. 'If it weren't for the stock market, joint stock companies would not have been established, balance sheets and other western financial systems would not have been introduced; not to mention the information release system, corporate law, securities law and other regulations protecting small investors,' said Professor Wang Guogang, of the Chinese Academy of Social Sciences. To revive investor confidence, over the past two years the CSRC has moved to improve corporate governance, suspended initial public offerings, cut transaction fees, rescued brokerages close to bankruptcy and initiated a scheme to make state shares tradeable. Hopes are rising that the Year of the Dog may finally entice the long-awaited bull into China's ailing market.