Shanghai shares sank to an eight-year low yesterday as investors expressed their concern about a possible price rise in coal. Such jitters come on the back of a tax increase recently levied on coal suppliers.
"It's likely that coal prices will pick up this year. This is expected to eat into the profit margins of those using the raw material," said Liu Yu, an Orient Securities Co trader.
The Shanghai Composite Index, which groups yuan-denominated A shares and foreign-currency B shares, slid 2.23 percent to 1,016.06, its lowest level since February 24, 1997, when it closed at 1,009.56.
The A-share Index tumbled 2.21 percent to 1,066.54 and the B-share Index slipped 3.51 percent to 63.67.
On June 1, the central government raised the duties paid by coal producers in seven provinces and one municipality, the State Administration of Taxation announced on Wednesday.
The increase may cause domestic mining operations to pass on the cost to such coal users as power utilities and steelmakers, industry analysts said.
Huaneng Power International Inc, the listed arm of the country's biggest power generator, plunged 2.38 percent yesterday to 5.74 yuan (69 US cents).
The company said earlier it had logged a 44 percent decline in first-quarter profit because of the higher coal costs.
GD Power Development Co, the listed vehicle of one of China's five largest power generators, retreated 3.14 percent to 5.39 yuan. Shanghai Electric Power Co, which supplies a third of the city's electricity, dropped 5.03 percent to 4.72 yuan.
"The market is still mired in a weak pattern and the Shanghai key stock index may breach the psychologically important 1,000-point level next week," Liu noted.
Baoshan Iron & Steel Co, the listed unit of China's biggest steelmaker, finished at 4.66 yuan, down 2.1 percent.
Wuhan Iron & Steel Co, the publicly traded arm of China's third-biggest steelmaker, eased 2.37 percent to 3.30 yuan.
On Wednesday, the Shanghai composite index dropped 21.55 points from Tuesday to close at 1,039.19 points.
The slump immediately followed China securities regulators' announcement on Tuesday that it would start a new round of experiments on split share structure to tackle stock market problems. The benchmark index on the Shenzhen Stock Exchange also sharply fell on Wednesday.
"This eight-year low puzzles people," reported the Beijing-based Economic Reference. This is the second time for the split share reform plan to be followed by stock index diving.
After years of fierce debate, China last month began an experiment to tackle one of the major problems blamed for its sluggish stockmarkets - the split share structure.
The split share structure refers to the existence of a large volume of non-tradable state-owned and legal personal shares. This means only about one-third of the shares in domestic firms float on the markets.
The structure puts public investors in a worse position than the actual controllers in making corporate policies and disposing of the firms' profits and assets.
For the first round of split share structure reform, four firms including Tsinghua Tongfang Co, a high-tech firm, energy producer Jinniu Energy Resources Co, soft drink bottle maker Zijiang Enterprise Group Co and Sany Heavy Industry Co, an equipment and machinery producer are allowed to make all their shares tradable.
The plan of four companies has not been tested by votes of stock holders in corporate plenary sessions, so the market naturally responded negatively to the second-round reform kickoffs, said the newspaper.
 "Since every trial results in index slump, the new policy to end the split share structure obviously meets embarrassment," said the newspaper.