As China's stock market continues to tumble, investors have been less willing to put money into it or put reserves in their trading accounts.

A recent survey by the Shanghai Securities News discovered that the amount of guaranteed funds stock traders put in domestic-securities brokerages had shrunk to 30 billion yuan (US$3.6 million) by the end of August - less than half of the size three years ago, when stock indices surged rapidly in a bullish run of the market.

To facilitate trading, a stock trader has to put in certain guarantee funds, normally a minimum 5,000 yuan (US$603), at the account opened at the securities brokerages.

However, since the stock market has been moving downwards for more than two years, many stock investors, especially the smaller ones, have suffered great losses or got trapped in the bearish bourse.

Therefore, more and more stock investors started to take sidelines to avoid further losses or withdraw from the bourses, analysts said.

According to statistics provided by a major brokerage in Shanghai, the company once held an outstanding volume of stock guarantee funds of 60 billion yuan (US$7.2 billion) at the prime time in 2000.

But the figure dropped to only 20 billion yuan (US$2.4 billion) by the end of last year and further declined to 17 billion yuan (US$2 billion) this August.

A recent report by Qingdao Daily also said that the amount of stock trading guarantee funds put out by individual stock traders at the city's 36 securities brokerages had declined by 43 per cent during the first half of the year on a year-on-year basis.

As most analysts did not give an optimistic prediction of market conditions in the second half of the year, the guarantee-fund reserves are expected to further decline.

That would also erode the income for the brokerages out of the brokering fees and the deposit interest rate gap.

Besides the sluggish trade in the stock market, another major reason attributed to the decline in guarantee funds of stock traders is the reform of China's new share-purchase scheme, which floated more new share issues directly to the secondary market at market prices.

In the past, many institutional investors or the big individual traders would prepare funds at the account to wait for profit-taking opportunities in the primary market during the new share issuance.

They could normally subscribe the share in the primary market at lower prices than after the shares were floated to the secondary market.

But such opportunities decreased after the regulators announced a circular to practically suspend the primary market last May to give secondary-market investors, normally small and medium-sized investors, fairer chances in investment and to curb irregularities.

To shore up investor confidence, Chinese securities regulators are also checking on the securities companies on the abuse of the guarantee fund, which has aroused a series of lawsuits launched by investors.

Shang Fulin, chairman of the China Securities Regulatory Commission, said at a work conference in August that securities companies are prohibited to embezzle the guarantee funds of their clients or their entrusted assets and bonds.

They are also asked to strengthen management of the trading branches with an efficient inner control system instead of simply trying to attract customers with good promises or commission offerings.

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