“Clearly, our top leaders want a slow bull market based on healthy pricing, rather than a crazy bull based on speculation and bubbles, after learning a lesson in last summer’s stock rout, and Liu is working on that,” said a Shanghai-based analyst with a state-owned brokerage, who asked not to be identified.

She added that buyout firms, mainland Chinese companies and others listed in Hong Kong and New York, which are seeking to return to the mainland markets where listed companies enjoy a higher valuation, are among those feeling the headwinds brought on by the regulatory tightening in recent months.

Last week, the CSRC rejected an asset purchase application made by Shenzhen-listed Baofeng Group. The Beijing-based internet technology company had planned to merge three film studios in a deal worth 3.1 billion yuan (HK$3.67 billion), raising some of the funds through a new share placement.

Earlier in May, the CSRC had made inquiries into two Shenzhen-listed companies – Leshi Internet Information and Technology and Wanda Cinemas – asking them to explain reasons for their cash-and-share deals involving aggressive profit outlooks and high valuations for acquisition targets.

Song Qinghui, a Beijing-based independent economist, said the fundamental problem with China’s stock market lies in its “positioning”.

“The China stock market primarily serves financing, rather than investment. It has become a cash pool for companies to raise fund from retail investors when they need money,” he said.

The current regulator seems to be making efforts to tackle the problem so as to fix distorted pricing on the A-share market, while it takes time to see whether their efforts are powerful enough to battle against those behind some well-connected listed companies, he added.

Last year, leveraged buying helped fuel a stock rally that pushed up China’s benchmark Shanghai Composite Index to a seven-year high of 5,178.19 points by early June, but it also helped to accelerate the market’s rapid decline, which saw the benchmark lose half its value by late August.

Since his inauguration from February 20, Liu has prioritised “stability”, regulatory sources said.

Soon after Liu took office, the CSRC postponed a reform to the initial public offering process, called “registration-based” IPO reform, which had been vigorously pushed for by his predecessor Xiao Gang.

In late April, Xu Xiang, known in China as “hedge fund brother No 1”, and three managers from Citic Securities were formally arrested on insider trading charges.

In early May, the CSRC stepped up its efforts to dissuade companies from shifting their listings back to the mainland using reverse takeovers. In a statement designed to signal its backing for a more prudent approach to relisting, the CSRC said it was “conducting an in-depth study” of the issue.

In April, share prices for some shell companies surged amid expectations they could become reverse merger targets by some US-listed Chinese companies seeking an A-share listing.

“It seems chairman Liu has been using most of his energy to cool the overheated market, now the focus is on whether he can revive the market,” said the brokerage analyst.

The Shanghai Composite Index traded near 2,900 points last week, little changed from the 2,860 level in late February when Liu took over from Xiao Gang.

Meanwhile, turnover has dropped to about one-tenth of levels in the first half of last year, a sign that China’s retail investors have yet to return in sizeable numbers.