The battle over the psychologically important threshold of 2,000 points considerably intensified as the benchmark Shanghai Composite Index dipped to a three-and-half-year low of 2,005 points on Monday morning.

A mild rebound in the afternoon might have temporarily saved domestic investors from panic selling, but it still looks more than likely that the Chinese stock market is yet to find a bottom given the economic weakness both at home and abroad.

Chinese policymakers should listen attentively to the increasingly loud cry for administrative measures to galvanize the stock market.

Such a public call for government intervention may sound counter-intuitive to those who believe that the fundamental function of the stock market is to optimize allocation of resources with an "invisible hand", nevertheless, the mind-boggling divorce between the poor performance of the stock market and the strong growth of the economy does justify calls for some bold actions to arrest the tailspin of the market.

Undoubtedly, there are plenty of explanations for the current slump of the stock market. Slower domestic growth has made it harder than ever for Chinese listed companies to deal with both rising costs and soaring wages. And weaker global trade has confirmed a downturn in their profitability.

But unfortunately, these facts cannot explain the failure of the domestic stock market to mirror the remarkable recovery of the Chinese economy from the 2008 global financial crisis especially because the Dow Jones is returning to its pre-crisis level far ahead of the US economy.

It is reassuring that the Chinese securities regulator has so far not resorted to stopgap measures as it has in the past. The suspension of IPOs, like the one in late 2008 and now demanded by many retail investors, may give a lift to the market by stopping the supply of new equities, but it will not improve the functioning of the market at all.

Admittedly, the securities regulator has introduced a number of new measures to put the domestic stock market on a more solid footing since late last year. But still missing is a grand design for renovating the stock market in which investor confidence can be anchored.

To facilitate the Chinese economy's transformation toward consumer-led growth, policymakers must restructure the stock market to serve not only the listed companies, but also, more importantly, the tens of millions of individual investors who will be a key driver behind any domestic consumption boom.

(China Daily 09/25/2012 page8)