ATTEMPTS by the mainland's top financial regulator, the China Securities Regulatory Commission (CSRC), to restore confidence in the country's nascent stock markets appear to have fallen flat on their face. True, buyers returned in bulk to the bourses, turnover rocketed and, from being two of the dullest markets in the world for the last 18 months, the A-share markets in Shenzhen and Shanghai made a Lazarus-like recovery and were for one week the best performing markets on earth. The figures are staggering. During the first week of this month, the Shanghai market soared 113 per cent while its smaller counterpart in Shenzhen rose a huge 73 per cent. Turnover in just one day in Shanghai peaked at 10.4 billion yuan (HK$9.3 billion), while Shenzhen generated turnover of 2.87 billion yuan. But, as an economist at a major Hong Kong securities house candidly pointed out: ''Since when has a market going up over 100 per cent in a week been a reason to be confident about that market?'' The rescue package devised by Liu Hongru, the CSRC's top man, contained three main proposals. First, a 10 billion yuan credit line to be made available to large mainland brokerages to invest in the market; second, permission for overseas institutions to set up joint ventures with local brokerages to purchase A shares; and third, the suspension of all new listings and issues. The idea was to boost the liquidity of domestically traded shares and hence revive the market. But according to experts in Hong Kong and China the CSRC action was flawed. ''The CSRC's measures are only proposals, not actual money in the market,'' said South China Brokerage managing director Howard Gorges. Christina Ko, China analyst at Morgan Stanley, agreed: ''It's all in the air. The market is waiting for confirmation from the Government.'' The central tenet of the package - and the thing that really got investors going - was the proposed 10 billion yuan loan to large mainland stockbrokers. This liquidity injection was interpreted as a shot in the arm for the markets, as well as a token of faith on the part of the CSRC in the credibility of the markets. Gilbert Choy, an economist at W. I. Carr, preferred to see the package as ''unrealistic and inadvisable''. ''The banks are already in a tight situation. If they lend money to brokers, it will take money away from state-owned enterprises,'' he said, adding that it would also increase the risks being shouldered by banks who already had high exposure to low-quality loans. Charlotte Stephens, head of Crosby Securities' China team, also took exception to the decision to lend money to brokers. ''We would regard a situation where a 10 billion yuan credit facility was made available to be impractical,'' she said adding that it would be hard to justify lending government money to the most speculative part of the economy, especially when interest rates on the loan would have to be set arbitrarily. The CSRC's confidence-boosting measures had actually destroyed confidence in the CSRC itself, according to C. Y. Ho, head of China research at Credit Lyonnais. ''The CSRC can't make decisions. It is under the control of the State Council, which is made up of seven government departments, of which the CSRC is only one. The CSRC is a tiny and unimportant organisation in the overall hierarchy in China.'' In an attempt to push its credit facility idea through, the CSRC arranged a meeting in Beijing with top mainland brokers. The meeting was hosted by the CSRC, but did not include representatives from the People's Bank of China, whose permission is needed to initiate any relaxation of credit. ''The situation we find ourselves in,'' said a representative from an international brokerage based in China, ''is of having the CSRC announcing things which it has no idea it can implement. It can say what it likes, but that doesn't mean it can do what it likes.'' The CSRC's other confidence-restoring proposals have also come in for criticism. ''The suspension of new issues does not address the fundamental problem of why the A-share market went down, which was because the quality of the listed companies was not sufficient. That's what drove the market down,'' said Mr Choy. An analyst at a large American house said: ''The argument that by reducing people's choice of investments means they will still invest is incorrect. It is more likely that they will either invest elsewhere, or keep their money in the bank.'' Allowing foreigners into the A-share market is also being regarded as an unlikely avenue for the restoration of confidence. The problem is once again one of quality. ''The standards of disclosure, poor transparency and a wayward attitude to internationally accepted accounting standards will make foreign buyers extremely cautious about entering the A-share market,'' said an analyst at a major US brokerage. So, when all is said and done, what has the CSRC's recovery package managed to achieve? ''It tells you the [mainland] equity market is very volatile, and that if foreigners want to participate, they had better be careful,'' Ms Ko of Morgan Stanley said. ''The CSRC shouldn't have done what it did. I think it was a sign of maturity that the market was coming down. I favoured the narrowing of the gap between A and B shares. It's fair to say that B-share investors generally know better and value shares more fairly. If the differences between the two were narrowing, it shows that mainland investors were maturing,'' she added. An analyst with Standard Chartered Securities said: ''The CSRC's attempts at intervention have demonstrated that it is an immature market.'' But Ms Stephens at Crosby Securities, while not wholly favouring the CSRC's methods, said: ''It sends a very strong signal. For the last 18 months they have been saying that the markets do not need adjusting, and now they are saying that they do. ''They are saying that it is okay to invest in the markets and it is okay to be a shareholder. Some of the CSRC's measures will be enacted and some won't, but the overall message is positive.'' BUT will the rally be sustained? That depends on bonds. Last year's government bond issues were a runaway success and a major contributing factor to the persistent doldrums afflicting A shares. According to Mr Choy: ''It looks like there are going to be a lot of short-term bonds on the market next year offering attractive yields. There is no reason to think investors will find these unattractive. For this reason, I don't think the rally will last.'' Ms Ko said: ''For the time being, government paper is fully subscribed, so the pressure is off. But the focus will go back to fixed income.'' It is strongly rumoured that Zhu Rongji is considering a two per cent rise in interest rates to rein in inflation. This would serve to make bond yields even more tempting. ''The fact is that if interest rates go up, it will be at the expense of the A share market,'' said Ms Yau. Mr Ho said: ''Bonds are more important to the Government than the stock market. As far as Zhu Rongji is concerned, the stock markets are a tertiary development and he is a lot more important than the CSRC.'' So has the CSRC managed to increase confidence in the A-share market? At best, it would seem, only temporarily.