The Shanghai Stock Exchange has been in a virtual free fall since the beginning of the year and almost since the beginning of 2001. I’m guessing the weakness can be attributed to the fact that even Chinese companies can’t make much money manufacturing PCs, Digital Cameras, Toys and Furniture. There’s a reason US companies are outsourcing their manufacturing to China…I think many Chinese manufacturing companies probably lose money on every widget they produce and and try to make it up with volume. It might also explain why the Chinese banking system is still on wobbly legs. 
Minyanville.com mentioned this NY Times article in which the paper claims the Chinese government (I’m a bit skeptical…how would they figure out what the Chinese govt is planning?) is considering the creation of a $15 billion fund to buy stocks and restore confidence in the public capital markets. This smacks of efforts by Japanese Finance Ministry to buy stocks in the early 1990s to help "restore confidence" in the Nikkie. Its usually money thrown out the window since the stocks will eventually get to fair value anyway.
That said, the Shanghai Index has underperformed the S&P 500 for four years now and is back to levels that have lead to a turnaround. In my opinion its too late to short Chinese stocks but unless Chinese companies become fundamentally better managed, it will be difficult for the stocks to do much better over the long term.
