Shanghai B-shares extended losses on Tuesday as the government's growing clampdown on stock manipulation is casting a shadow over much-needed market reform measures.

The Shanghai B-share Index fell 1.59 points or 1.91% to 81.40 points by midday Tuesday, on a turnover of US$7.14 million (RMB59.26 million), which was less than half of Monday's total of US$14.90 million.

The China Securities Regulatory Commission, or CSRC, today published new guidelines in the Securities Times newspaper, specifying how brokerages should run their businesses. Guidelines include setting up "firewalls" between corporate finance departments and traders, and rules banning traders from using clients' funds for their own transactions.

In the meantime, state regulators are currently investigating allegations that China Venture Capital Group Co., Ltd. (0048.SZ), a Shenzhen-based poultry company, has been engaged in share price manipulation. Brokerages are alleged to have also played a crucial role in the case by providing loan guarantees used by company officials to raise the large sums of capital required to manipulate the price of shares.

Yesterday, China's securities regulator issued a detailed timetable to revise and standardize the information disclosure system of the stock market.

Worries about the crackdown already have hurt market sentiment, potentially slowing a raft of planned share offerings this year. And investigations into past price manipulation are turning an unwelcome spotlight on some of the country's leading brokerage firms, which could slow their ambitious plans to expand and link with foreign institutions.

All shares declined, with the remaining four unchanged.

Lianhua Fibre (900913.SS) dipped 4.85% to US$0.510, while Dahua Chemical (900951.SS) shed 4.40% to US$0.348.

Market outlook: Shanghai B-share market will continue to register further losses since the crackdown has dimmed investors' confidence.

TOM.COM LIMITED