Shrugging off repeated warnings of the China Securities Regulatory Commission that it would crack down on insider trading and share manipulation, China’s main stock index shot up 0.61 percent to a record close on Monday as investors caught up in the market’s bullish sentiment. A strongly worded announcement at the weekend by the CSRC warned that ‘market irregularities have increased’ during the Bull Run and many investors did not understand the imminent threat. The Shanghai Composite Index closed at 4,046.39 points after hitting a record intra-day high of 4,081.42. The CSRC has announced that it would stiffen supervision of the market and ordered brokerages and fund managers to pay for efforts to instruct investors on risks and threats involved. Some experts have conceded that this could be followed by more official action to try to dampen down the market and avoid a risky bubble from forming, for example, steps to slow flows of fresh funds into the market. More than 70 billion yuan (9.1 billion US dollars) was transferred from savings accounts in Shanghai to stock trading accounts in the first four months of this year, the Shanghai branch of the People’s Bank of China estimated on Saturday. Apparently, there is unquestionably many new investors are riding the market’s momentum, expecting to make immediate returns like many others. Nevertheless, it is also obvious that the prime mover of the market’s renaissance has been the strong returns that equities appear to offer. There are some other factors present in the Chinese system that compel investors to offer their money into stocks. As for example, at one hand, opportunities to invest their money at home or abroad remain extremely limited. In addition to it, interest rates on bank deposits are restricted by the state to a level only slightly above 2 percent. At the same time, consumer price inflation now hovering around over 3 percent, therefore actual returns on deposits are in point of fact negative, that too without taking into account the tax on interest earnings. Consequently, it certainly does not appear surprising that investors have flocked to take benefit of the quick money that appears to be on offer on the exchanges. On the other hand, with over $4 trillion in deposits in the banking system at the end of 2006, and the Chinese financial markets is flooded with liquidity and investors still have a lot more in the way of disposable funds to throw at the market if they remain convinced of its curve. Alarmed by the prospective political implications of a stock market breakdown, government officials have issued frequent caution that prices may fall. The state social security fund has also declared that it is sinking its exposure to equities. In spite of this, the other alternatives to calm the market are more challenging. As a matter of fact deposit rates are obviously expected to be raised to make saving more attractive, but given that the fragility of the financial system reflect that they cannot be increased not to the level that would match the returns equities have recently delivered. Moreover, initiating inquiries into specific companies or brokerages over alleged regulatory defiance could have some impression on investors, as it might toughen pressure on the banks to make certain that loans are not being redirected into equities, even though the overall effect would be limited.