The bearish sentiment gained traction amid growing fears over the economic slowdown and inflation that may require aggressive policy measures to soak up excess liquidity. The central bank has told commercial banks to slow their pace of lending and also raised the ratio of deposits that banks must set aside in reserve seven times.

But many analysts and investors reckon that the recent market decline represents a buying opportunity, rather than the start of a long-term bear market.

"Valuations are still far from the over-stretched levels seen in 2007 when rate hikes induced more profit taking," said Helen Zhu, a senior analyst at Goldman Sachs. "There are still some significant contributors to a rosy market prospect. The domestic macro-environment is robust; fiscal policies are supportive and monetary policies are more selective but still relatively accommodative. Despite likely weak external demand, we believe China will gradually decouple by stimulating domestic growth, both in consumption and investment."

Jerry Lou, an analyst at Morgan Stanley, agreed. "The market's downside risks should be very limited," said Lou. "Cheap valuations, solid corporate earnings visibility, contained inflation risk with stable monetary policies, and strong currency will provide support to equity markets in 2011."

Shipbuilders Struggle

China's shipbuilders are recouping their strength, but uncertainties still hang over their prospects.

Chinese shipyards received new orders of 9.37 million deadweight tons in November 2010, soaring 140 percent over October, said the China Association of the National Shipbuilding Industry (CANSI). The figure brought the amount in the first 11 months to 63.98 million deadweight tons, 2.8 times that of the previous year.

The industry, however, has yet to move out of the shadow of the financial crisis. "The outlook for 2011 isn't too bright since there's already less demand for vessels," said Wang Jinlian, General Secretary of CANSI.

The Baltic Dry Index, a proxy for shippers' costs and profits, plunged 41 percent in 2010. More disturbing is the fact that many shippers have postponed vessel deliveries and payments, which would exacerbate financing woes for shipbuilders.

The CANSI in a recent report even expected the industry to spill red ink in 2013, receiving a deadly blow from costs inflation and appreciation of the yuan. "Chinese ship makers source around 70 percent of their orders from overseas," the report said. "If the yuan gains 1 percent in value against the U.S. dollar, the industry would lose at least 4 billion yuan ($601.5 million)."

"In response, the enterprises are required to improve their technological innovation to compete with foreign rivals," said Wang. "South Korea, for example, is making a push into green vessels while Japan seeks to adopt more advanced information technologies."

Property Fares Well

Chinese property developers reaped a bumper harvest in 2010, basking in the glow of significant market euphoria.

Topping all domestic developers, China Vanke Co. Ltd. reported sales revenue of 8.35 billion yuan ($1.3 billion) in December 2010, skyrocketing 51.3 percent from a year ago. The December figure brought the total amount last year to 108.16 billion yuan ($16.3 billion), up 70.55 percent from 2009. The Poly Real Estate Group Co. Ltd. was estimated to have sold 66 billion yuan ($9.9 billion) worth of houses last year, compared with 43.4 billion yuan ($6.5 billion) in 2009.

The sales boom came as no surprise, given how buoyant the market was in early 2010. Prospective buyers jumped off the sidelines for fear that they may miss out on a bull market, while real estate developers scooped up plots of land to lock up future profits.

In response, policymakers stepped up a stringent clampdown on the real estate sector, including higher down payment requirements and tighter mortgage rules. House prices in 70 large and medium-sized cities grew 7.7 percent year on year in November, the seventh consecutive month of slowdown from the peak of 12.8 percent in April.

While the big developers held up well, many smaller players are feeling the pinch of austerity policies, said Yang Hongxu, a senior researcher at the Shanghai-based E-house China Research and Development Institute.

The government is expected to further keep its feet on the brakes to rein in speculation, and also bump up supplies of affordable houses, said Yang.

"It may be a buyers' market in 2011 since the investment demands have been seriously restricted," said Tan Huajie, Secretary of Board of Vanke. "House prices are likely to stabilize this year, if not heading south."