Feb. 1, 2007 (China Knowledge) – Shares in Mainland China fell nearly 5% yesterday, prompting a 1.73% decline in Hong Kong stocks after a top legislator warned that a bubble is forming in the mainland market and securities houses took steps to curb speculation.

The Shanghai Composite Index plunged 144.23 points, or 4.92%, to close at 2,786.33 while the Shenzhen Composite Index plummeted 40.5 points, or 5.82%, to end at 655.53. In Hong Kong, the Hang Seng Index closed the day down 354.04 points or 1.73% at 20,106.42 on turnover of HK$50.63 billion.

National People's Congress Vice Chairman Cheng Siwei was yesterday quoted as saying in an interview with The Financial Times that there is “a bubble going on”, and that investors “should be concerned about the risks."

China's Shanghai Stock Exchange (SSE) also issued a warning on its website yesterday that stock markets risk disruptions from record turnover and growing volatility.

Mainland media reported that some securities houses have started to check the identity of investors when they open new trading accounts and are taking photos of new account holders for their records. These measures are seen as preventing traders from opening multiple accounts for themselves or their clients, and to reduce speculation on the stock markets.