Observing the panic, the China Securities Regulatory Commission approved the issue of four new stock funds on June 4 to save the falling market.

Later, Wu Xiaoling, Deputy Governor of the People's Bank of China, urged investors to keep faith in China's fledgling yet rising stock market.

Major securities journals in China issued commentary, arguing for investors' confidence and belief in the bull market.

"This round of market corrections came as a sudden shock," said Zhao Xijun, financial professor with Renmin University of China. "The Ministry of Finance's midnight announcement to raise the stamp tax should be condemned." Zhao argued that the government decisions must be transparent and foreseeable, and should be in line with the actual development pace. "A healthy market doesn't mean a declining market," Zhao said, "They are still in the planned economy mentality."

Zhao believed market correction was necessary, but it must be achieved through moderate and careful means.

Cash Is King

The early June report from the People's Bank of China shows that cash is still the preferred choice in transactions and the bank is calling for greater use of credit cards as well as urging more shopping centers, tourist spots and hotels to accept credit card payments.

The China Banking Regulatory Commission (CBRC) statistics reveal that in 2006, cash in circulation accounted for 13 percent of the country's GDP. In the United States cash accounts for only 6.4 percent, and in Great Britain, 3.5 percent.

Central bank statistics also show that purchases through card payment reached 1.89 trillion yuan in 2006, surging 97 percent compared with the previous year.

Domestic banks in China have issued over 1.1 billion bank cards and recently, the CBRC has officially begun approving locally incorporated foreign banks to issue bank cards.

Guo Tianyong, banking professor with the Central University of Finance and Economics, said that in the short term, domestic banks' advantages over foreign banks won't disappear since they have built huge networks which enhances their experience in developing bank cards. Cards issued by foreign banks can be another option but won't influence domestic banks much in the near future.

Spotlight on Interest Rates

Whether there will be a new round of interest rate hikes will depend on May's consumer price index (CPI), said Zhou Xiaochuan, the Chinese central banker, on June 5.

His statement was issued amid rumors that the central bank would raise lending and deposit rates once again due to increases in pork and egg prices.

Statistics from the Ministry of Commerce show that wholesale pork prices in 36 major Chinese cities in early May climbed 43 percent from a year earlier, largely due to the culling of large numbers of pigs infected with blue-ear disease in recent months. Egg prices rose 31.6 percent year on year. The price jump has also led to an increase of complaints from citizens, especially those with lower income levels.

"We have paid attention to the increasing price of pork," Zhou said. "Food prices have a heavy impact on the CPI."

Zhao Xijun, financial professor from Renmin University of China, praised the central bank's way of expressing itself. "The central bank has learned a lot from the United States in terms of how to use the economic lever to guide the development trend," said Zhao. "The central bank's decision making mechanism has become more transparent, so that the citizens can be fully prepared for the hike."