BEIJING - China's volatile stock market is taking shareholders on a white-knuckle ride, threatening to drive out the small investors Beijing hopes will help pay for reforms of state industry.
After falling 6.1 percent on Tuesday, the market benchmark declined another 5 percent on Wednesday before rebounding in the final minutes of trading to close up 1.2 percent.
Beijing's multibillion-dollar intervention over the past month helped to stop a stock market slide that knocked down the Shanghai Composite Index by 30 percent from its June 12 peak. But the state-owned company charged with buying stocks to prop up prices by buying shares has said it will avoid taking action every day, which could allow wide swings in a market filled with rumors and anxiety.
"Maybe sharp volatility is becoming the new normal," said Zhang Yang, a market strategist for Sinolink Securities.
Some individual stocks have fluctuated by much bigger margins than the overall market, stinging small investors.
Zheng Xuchu, a Shanghai high school teacher, said trading in a stock he owned was suspended after markets plunged. Once it resumed trading last Thursday, the price fell by one-third.
"I've decided to get out of the market," said Zheng, 28. "My mother and I bought the same stock, and we've lost 170,000 yuan ($26,000) in the past five days."
On Wednesday, the Shanghai index closed up 8 percent from its July 8 low but still was 26 percent below its June 12 peak.
The reasons for Wednesday's surprise rebound were unclear, but analyst Bernard AW of IG Markets suggested that state-owned China Securities Finance Corp., a pillar of the price-support effort, might have stepped in to buy shares.
"Did the 'plunge protection team' bail out the stocks again? Probably," Aw said in a report. "This should not come as a surprise, given the government's commitment to stabilizing Chinese equities."
Analysts warned earlier that even if the price supports worked, markets would face aftershocks in the form of occasional bouts of volatility in coming weeks.
The wild price swings threaten to disrupt the party's plans to use China's stock markets to raise billions of dollars for state companies to pay off debts and modernize.
The party also wants to encourage stock ownership as a way for families to save for retirement, reducing demand for social spending. But small investors whose holdings have plunged in value say they will no longer buy shares.
Chang Dong, a bank teller, said his portfolio is down 40 percent after last month's decline. He is waiting to see whether prices recover before he decides whether to sell.
"I really don't know what to do except wait and see, with my money stuck in the market," said Chang, 26.
Support measures include a pledge by state-owned brokerages and pension funds to buy stocks and more credit to finance trading. Big shareholders and board members of companies are barred from selling shares and have been told to buy more if prices fall too far.
On Friday, regulators began gradually shifting back toward normal operations.
The securities regulator eased a month-old moratorium on new share issues, announcing 14 publicly traded companies will be allowed to raise money by selling stock.
A total of 51 companies have applied for approval to sell shares, according to Chinese business news media.
The China Securities Finance Corp., previously a little-known entity that lent to brokers to finance trading, said shares it had bought to support prices would be transferred to the government's sovereign wealth fund. That was aimed at reassuring investors they would not be sold back into the market, possibly depressing prices.
At the same time, last week's surprise devaluation of China's yuan added to downward pressure on stocks. Investors worried the change will lead to money flowing out of China, reducing credit available for trading.
The central bank responded this week by pumping extra credit into financial markets.
"Most small investors haven't recouped their losses and hope to make them back by trading frequently," said Zhang of Sinolink Securities. "The government has already promised not to meddle with the market unless necessary, and I don't expect them to do so unless there is once again a problem of liquidity."