Take A Nap. Read A Book. It's The Shanghai Bourse

When the Chinese government ordered Shanghai's go-go stock exchange to suspend new listings of "A shares" last July, even loyal investors applauded. A flood of new issues and collapsing interest in emerging markets had sent the Shanghai A-share index crashing by two-thirds since January, 1994. The index has since regained about half of its loss. But Shanghai is still waiting for Beijing's green light for new issues. Volume is so limp that bored brokers sleep or read newspapers.

Their lethargy reflects the policy gridlock that has stalled many of China's once-ambitious financial reforms. As the Communist Party braces for transition after the death of Deng Xiaoping, leaders worry that dramatic economic actions might fuel social instability or inflation, now raging at 24%. Such measures as selling or closing money-losing enterprises and setting up modern securities regulation are stuck on Beijing's back burner. And no action is expected soon. Says Carl E. Walter, the director of CS First Boston's Beijing office: "In terms of deals, the next six months are dead."

NO TRADE COPS. Chinese technocrats concede that the drive to establish a modern market economy has gotten sidetracked by politics and bureaucratic turf battles. Many of the financial reforms launched so far, such as the new stock market and the first attempts at a modern banking system, remain incomplete or badly flawed. And because most of China's financial problems are intertwined with its state-owned industries, which Beijing stubbornly refuses to privatize, planners now say it may take decades rather than years before China will have an efficient market economy.

Many Asian countries have a long way to go before their financial markets are as open as Western investors would like. But the price of half-baked reform has been painfully visible in China. Take the bond market. Last year, the treasury placed $12 billion in bonds--triple the 1993 level. This year, it plans to raise nearly $18 billion. Beijing has even allowed futures trading in the bonds but hasn't set up a system to police such trading.

So in a massive price-rigging scheme gone awry, China's largest brokerage, Shanghai International Securities, became technically insolvent on Feb. 23 when it lost more than $100 million speculating in bond futures. Proposals to strengthen supervision of bond trading remain bogged down in the bureaucracy.

The poor oversight is even more glaring in the stock market. Even though 291 companies' shares are traded on exchanges in Shanghai and Shenzhen, Beijing has dragged its feet in passing a securities law, first drafted in 1992. More than a dozen different government bodies, each fighting for control, have a hand in supervising different aspects of the market. The fledgling China Securities Regulatory Commission is charged with policing such practices as insider trading, misuse of stockholder funds, and false disclosure. But, says a top CSRC official, "everyone knows we are a tiger without teeth." The reason: Local governments still have enough political clout to block actions against companies in their cities.

UNPAID LOANS. The recent case of Tsingdao Brewery Co. has underscored the regulatory weaknesses. Billed as one of China's best-managed "red chips," the beermaker raised $200 million in 1993 rights issues in China and Hong Kong. Rather than spend it all on a new brewery, as promised in its prospectus, Tsingdao recently disclosed that it lent $71 million of the proceeds to other mainland companies. Now the company claims it needs $180 million more to complete the brewery. Tsingdao insists the loans will be repaid, and other than briefly suspending trading in its shares, neither Hong Kong nor Beijing will punish the brewer.

Such misuses of money reinforce Beijing's fear that private capital markets undermine its fight against inflation. With its crude monetary system, the only way China can cool the economy is to clamp down on credit from the state-owned banks. The government is reluctant to liberalize capital markets because it loses control over how companies and financial institutions raise money. And with weak supervision, companies tend to pump the proceeds of stock issues into property speculation and other dubious investments. Rather than improve the markets' behavior by regulating them, Beijing's solution was to halt new stock flotations and corporate debt issues.

But closing off access to private money markets means 100,000 state enterprises, half of which lose money, remain dependent on the banks. And the bad debts are piling up. Despite years of management reforms and massive capital injections, the amount of "triangular debt"--money that state enterprises owe to each other--is larger than ever, estimated at up to $60 billion. Concedes Chinese Academy of Social Sciences economist Wang Guogang: "We haven't been able to solve the basic problem: The enterprises aren't profitable."

The debt burden is threatening another pillar of China's market reforms: turning four state-owned banks into commercial institutions. If the banks wrote off their delinquent loans, they would be insolvent. In addition, they must keep the state enterprises afloat with fresh funds. For the future, "banks still will have to make loans they know they will never get back," admits Feng Bing, deputy secretary-general of the State Commission for Restructuring the Economic System.

With no painless way to fix the state industrial sector, which employs 100 million, China's reform effort seems to have hit a dead end. But some analysts think Beijing will be forced to take drastic action within three to five years. "Privatization will be the only option after all the other strategies have failed," says one mainland economist. That will have to wait until the post-Deng leadership is securely in place. Until then, brokers at the Shanghai bourse may as well make sure they have comfortable seats and lots of reading material.