The Chinese mainland's options to halt tumbling stocks are limited and any measures may falter as a campaign to slow inflation erodes company profits, JPMorgan Chase & Co said.

The Chinese central government may limit share sales, increase the funds that local banks and insurers can invest and raise the amount that foreign institutions can spend on China's stocks and bonds, according to Jing Ulrich, JPMorgan's chairwoman of China equities.

"As with other recent measures, the boost to investor confidence may be short-lived," Ulrich wrote in the report. "Many investors view the central government's price controls and macro-tightening policies as being responsible for weakening the profitability of major companies."

The Chinese mainland's CSI 300 Index yesterday advanced 5.2 percent after a record 10 straight declines. The index has tumbled 48 percent this year, the second-worst performer among the 88 global benchmarks tracked by Bloomberg News.

The CSI on Tuesday ended 50 percent below its record close of 5877.20 set on October 16, as the central government stepped up efforts to control rises in consumer prices. The central bank required lenders to set aside a record amount of money as reserves this year after boosting interest rates six times in 2007.

The increase in the reserve requirement "delivered a clear message that the central government's focus remains on reining in inflation," Ulrich wrote.

Shares of refiners and power producers may receive a boost should inflation slow and enable China to relax controls on fuel and energy prices to offset higher raw material costs, Ulrich said.

Tax cut

China Petroleum & Chemical Corp, the nation's largest refiner, and Huaneng Power International Inc, a unit of China's largest power producer by capacity, have plunged 47 percent this year.

China has introduced measures since the start of the year to halt the stock market slump, including resuming approval for new mutual funds and suspending a tax on mutual fund income, Ulrich said.

China cut the tax on share trading on April 23 to 0.1 percent from 0.3 percent to halt the slump, two days after the Shanghai Composite Index fell to more than 50 percent below its October record.

(Shanghai Daily June 19, 2008)