Aug. 1 (Bloomberg) -- China is restricting approvals for initial public share sales to arrest a decline in the world's worst-performing major stock market, two people familiar with the matter said.

The China Securities Regulatory Commission is delaying the issuance of written approval documents, the final regulatory stage, to companies preparing initial public offerings, said the people. They declined to be identified because they aren't authorized to speak publicly on the matter.

Regulators rejected Great Wall Motor Co.'s planned share sale last month, and about a third of IPO applications were turned down, compared with 8.3 percent when stocks peaked in October, based on data from the watchdog's Web site. CSRC Chairman Shang Fulin is trying to cushion a market that plunged 52 percent from the record, making the CSI 300 Index the worst performer among the 20 biggest benchmarks this year.

``Controlling share sales is an important tool for CSRC, and it's effective in the short term,'' said Leo Gao, who helps manage the equivalent of $2.3 billion at APS Asset Management Ltd. in Shanghai. ``More stock sales in a bear market is bad news'' for investors.

There were 91 billion yuan ($13.3 billion) of IPOs in China in the first half, a 26 percent drop from the same period a year earlier, according to data compiled by Bloomberg. The CSI 300 closed 1.3 percent higher today.

Great Wall, China's largest maker of sport-utility vehicles, had its application for a secondary sale in Shanghai rejected by regulators on July 14.

Olympic Jitters

Olympic jitters may have added to the urgency of supporting the stock market, said Leslie Phang, Singapore-based head of investment at the private-client unit of Schroders Plc, which oversees about $260 billion globally.

``The CSRC is trying to stabilize the market ahead of its hosting of the Olympics this summer for reasons of face,'' Phang said. ``But these measures can only provide a short-term boost and it's fundamentals, such as higher oil prices and production costs, that will affect China's stock market.''

The Olympics, China's $70 billion coming-out party, kick off on Aug. 8 with the opening ceremony. The run-up to the games has been marked by complaints about air pollution and restrictions on press freedom.

Shang's Vows

Shang vowed July 30, during the regulator's semiannual supervision working meeting, to make the market more stable. He said in June that he will ``rationally balance supply and demand in the capital market and adjust the pace of financing in an orderly way,'' without elaborating.

A CSRC spokesman, who declined to be identified, said he had no comment.

Stock markets around the world have been falling as global growth faltered, a 60 percent gain in the price of crude oil in the past year fanned inflation, and the subprime crisis led to about $470 billion in losses and writedowns at financial firms.

The Chinese government has implemented measures to curb inflation and rein in liquidity. The government capped the amount banks are allowed to lend this year, and the central bank raised the proportion of deposits banks must set aside in reserve five times in 2008 to a record 17.5 percent.

There is a queue of companies waiting for written approval documents from the CSRC's general office before they can proceed with share sales, and no timetable for giving them the go-ahead, said the people. The watchdog applies these internal controls based on its perception of market performance and the outlook.

Still, the CSRC is open to letting smaller share sales proceed, one of the people said.

Tepid Demand

On top of delays to the final approvals process, the CSRC has also stepped up scrutiny of share sale clearance given by the Public Offering Review Committee, one step before the final document that allows the sale to go ahead is issued.

CSRC's listing panel on April 14 rejected the IPO application of Jincheng Blue Flame Coal Industry Co., according to a statement posted on the regulator's Web site. China's second-largest anthracite coal producer by 2006 output had planned to sell shares to help fund 9.5 billion yuan of investments.

China State Construction Engineering Corp. has yet to obtain the green light to start its Shanghai IPO after gaining the CSRC listing panel's approval June 5.

Sales that were approved have met flagging demand. Haitong Securities Co. ended up the biggest shareholder of Shanghai Pudong Road & Bridge Construction Co. last month after failing to sell three-quarters of a stock offering it underwrote.

Citic Securities Co., China's second-biggest brokerage by market value, had to buy 407.4 million yuan of shares in Shanxi Taigang Stainless Steel Co. this week that it couldn't sell in an additional stock offering.

To contact the reporter on this story: Zhao Yidi in Beijing at at yzhao7@bloomberg.net

Last Updated: August 1, 2008 06:36 EDT