ALEX Lu, 62, a retired schoolteacher, closed out his stock trading account last month and quit the equities market.

In the four years since he first began investing in what he deemed would be a bull market, the Shanghai Composite Index dropped by half, and he lost about 70 percent of the 200,000 yuan (US$31,746) in his initial trading account.

Indeed, the composite index has sunk from a peak of 6,124 in October 2007 to 2,127.76 on Friday.

"I don't think China's stock market will go back to its peak again, at least not in the short term," Lu said. "The earlier I quit, the more I saved."

He's not alone in his disillusionment. Data from the China Securities Depository and Clearing Corp Ltd showed that 257,000 investors folded their tents and left the stock market in the first seven months of this year.

China's top securities regulator is aware of the confidence crisis and trying hard to win back investor trust.

The China Securities Regulatory Commission has introduced measures to try to clamp down on fraud, overpriced share offerings, market manipulation, rampant speculation, insider trading and falsified disclosures. It is also trying to encourage listed companies to give back more to shareholders in dividends.

On August 16, the Shanghai Stock Exchange issued draft guidelines requiring companies offering dividends of less than 30 percent of net profit to explain why. It is also giving priority in financing to firms offering dividends of more than 50 percent of net earnings.

The guidelines came at the behest of Guo Shuqing, who was appointed chairman of the China Securities Regulatory Commission last October and has vowed to reform the mainland capital market.

Analysts have applauded the move. Li Daxiao, head of research at Shenzhen-based Yingda Securities, said the measure squarely aims at a root problem in China's stock market - meager returns.

According to the Shanghai Stock Exchange, 380 companies, or 40.5 percent of those listed on the exchange, did not pay cash dividends in 2011. This includes 257 companies that have not paid dividends for three straight years.

Without predictable and stable dividends, the nation's investors are left focusing on the rise and fall of stock prices, ducking in and out of the market to try to make profits. The result is a high-volatility market that breeds excessive speculation.

Public oversight

Hu Ruyin, chief economist at the Shanghai Stock Exchange, said improving the transparency of dividend distribution will strengthen public oversight of listed companies, encourage companies to operate more efficiently and create more shareholder value.

However, many smaller investors don't see much percentage in dividends.

"Cash bonuses alone can not reverse my situation," said Gao Dingyu, a 45-year-old grocery store owner who has been closely following the stock market for over 10 years. "Compared with my losses, cash bonuses are merely a drop in the bucket."

Since late 2007, Gao has held 3,000 shares in PetroChina Co., a national oil giant and one of the few listed firms in China that has been continuously paying cash dividends since it went public.

In the past few years, Gao has received about 3,500 yuan in cash dividends, after taxes, while the value of his PetroChina shares has shrunk nearly 70,000 yuan. The stock has dropped from a peak of 48.6 yuan at its debut to the current price of around 8.5 yuan.

Much of the market's malaise has been blamed on overpriced initial share offerings and sometimes misleading IPO information that glorifies a company beyond its actual performance. Once the new shares hit the market and the company and IPO managers have creamed off their payments, individual investors are left holding the bag as stock prices plummet.

According to Wind Information Co, 224 of 285 stocks that went public in 2011 were trading below their IPO by the beginning of 2012, including 15 that slumped over 50 percent.

The average price-to-earnings (PE) ratio soared to over 30 in China last year, according to a report by JPMorgan Chase & Co. That compared with an average of about 15 among stocks listed on the New York Stock Exchange.

The China Securities Regulatory Commission , the securities watchdog, on April 28 released a statement requiring companies going public with PE ratios to be 25 percent higher than their listed industry peers to explain the pricing and disclose possible risks to investors.

But the move hasn't done much to improve the situation. Nearly 76 percent of stocks listed after the release of the statement were trading below their debut prices at the end of August.

The "25 percent" rule is toothless without a mechanism for enforcement, analysts said.

Making up excuses

"Companies going public with high price-to-earnings ratios can simply make up excuses to get through," said Su Peike, chief researcher on public policy at the University of International Business and Economics.

Su said he believes the measure does not address the underlying causes of the problem.

Indeed, many analysts said more radical remedies are needed to redress problems such as market manipulation, insider trading and deceitful disclosures.

"The stewards should address the problems at the institutional level," said Liu Shengjun, deputy director of the CEIBS Lujiazui International Finance Research Center.

Liu suggested that the governmental approval process for new IPOs be scrapped and investors be empowered to choose who goes to market. Also, he said, regulators should improve the independence of the judicial system, optimize regulations in securities laws and beef up penalties for illegal market activities.

Now the question is how many more investors like Alex Lu will have to leave the market before things are finally set straight? "I don't think I will go back to the market again after so many years of being burned by the losses," said Lu. "I also won't recommend other people to invest their money until the top regulator makes significant changes that restore some of my confidence."