Review of China's stock market in 2007 This year, China's stock market has made new discoveries for the world.

Chinese investors poured money into the stock market at an unprecedented rate, sending the stock market into an eye-popping surge.

The entire world clearly saw that the sharp decline in China's stock market in February this year triggered a comprehensive sell-off in global stock markets for the first time in history, fully demonstrating the huge potential influence of this previously ignored market.

China's stock market quickly recovered from the sharp decline in February, and the Shanghai Stock Exchange Composite Index immediately surged. The cumulative increase for the year reached 97%, becoming the world's best-performing major stock index.

But analysts say the index won't have the same stunning performance over the next year and the current market turmoil will continue.

UBS economist Jonathan Anderson wrote in a recent report that despite this year's gains, the market may not be as exciting in 2008.

While many Chinese believe the government will work hard to keep markets stable ahead of the Beijing Olympics in August 2008, other risks loom.

Beijing is currently doing everything it can to control inflation and may raise interest rates further.

In addition, the U.S. subprime mortgage crisis has increased the risk of a recession in the U.S. economy, which may in turn weaken U.S. demand for Chinese exports.

Jason Zhou is one of many domestic retail investors who have been tempered by the ups and downs of China's stock market this year.

After PetroChina was officially listed on the Shanghai Stock Exchange in November this year, Jason Zhou, who works for a foreign trade company in Shanghai, bought some shares of the company at a price equivalent to US$5.90 per share.

Advertisement Normally, the stock prices of key state-owned enterprises such as PetroChina will continue to rise after their domestic initial public offerings (IPOs).

According to some calculation methods, PetroChina's market value briefly exceeded US$1 trillion after its domestic IPO, but the stock price has since fallen back to a level of just over US$4.10, although this has nearly doubled its IPO price.

But the decline was enough to cost many investors heavy losses.

When the stock fell to around $5.20, Jason Zhou liquidated his position and sold the stock.

Jason Zhou said the loss was small but unforgettable; it was not a pleasant experience.

The same was true when the Shanghai Composite Index plunged 8.8 percentage points on February 27, which frightened global investors and was one of several frightening declines in 2007.

In another sign of China's growing market power, Shanghai has become a hot spot for public offerings after New York.

According to statistics from the World Federation of Exchanges, as of November, companies conducting IPOs in Shanghai had raised US$48.62 billion.

That exceeds the $31.81 billion raised by Hong Kong IPOs in the first 11 months of this year and the $43.47 billion IPOs in London, according to the federation.

Only the New York Stock Exchange's $52.06 billion is higher.

However, although China's two major stock markets, Shanghai and Shenzhen, are rising in prominence, the Chinese government still strictly limits foreign investment and has largely isolated them from the rest of the world.

Foreign companies are not allowed to list in Shenzhen and Shanghai, and foreign retail investors can only purchase a limited number of A shares through the qualified foreign institutional investor (QFII) mechanism.

Chinese regulators announced in early December that they would expand the QFII investment quota from US$10 billion to US$30 billion.

The Chinese stock market still exists to a large extent to raise funds for state-owned companies - which is why the Chinese stock market was born in the 1990s.

In 2007, Chinese oil and coal companies China Shenhua Energy Co. and China Construction Bank Corp. responded to the government's call and returned to the local market to raise funds, thus raising the standards of listed companies.

China Mobile, China's largest mobile service provider, plans to raise $10 billion in an IPO in the coming months, and more than that is also possible.

The success of China's stock market is not entirely due to economic prosperity - the Chinese government must rebuild investor confidence, because in the past few years, various serious problems have kept investors away from the stock market, and stock prices have been sluggish.

The government has carried out a series of reforms aimed at combating rampant stock price manipulation and other illegal activities, improving shareholding arrangements, and strengthening information disclosure requirements.

But in Zhou's view, these measures are not enough.