When news spread on Thursday that brokers tightened margin trading requirements and that Chinese government's investment fund, Central Huijin, decreased holdings in two state-owned banks, the Shanghai Composite Index .SSEC slumped 6.5 percent.
The abrupt drop sent shudders through a market that had rocketed 140 percent since mid-2014 to hit its highest level since the global financial crisis struck in 2008.
The index flitted in and out of positive territory on Friday as investors were still wondering whether this was simply a correction caused by policymakers quietly tugging on the reins, or whether it spelt the end of a bull run that was always hard to justify given China's slowing economy and unimpressive corporate profits.
It was a familiar situation for a market where retail investors base decisions on reading between lines of policy statements, and pore over speeches and commentaries in media run by the ruling Communist Party.
"You must listen to the Party if you 'stir-fry' stocks," said a veteran retail investor in Shanghai, using a colloquial term for taking speculative positions.
In December, for example, the index slumped 5.4 percent in a single day following rumors that regulators were probing excessive stock margin trading, but rebounded once state media explained on behalf of regulators that the checks were routine.
Sometimes market reactions, like those linked to curbs on margin trading, can appear liquidity driven, though given China's huge household deposits of 54 trillion yuan ($8.7 trillion) the market hardly lacks a supply of funds.
And while outstanding margin borrowing has reached a record high of 2 trillion yuan, it accounts for only 5 percent of market capitalization.
What the market does lack, at times, is confidence in what policymakers and regulators, might decide next.
Though the Shanghai and Shenzhen stock exchanges were established a quarter century ago, investors still perceive officials of harboring socialist suspicions of "capitalist mechanisms."
Whereas sophisticated investors study companies' financial statements, and monitor and analyze economic indicators to make informed investment choices, retail investors - who account for around 80 percent of share market turnover - think what matters most is what comes out of Beijing.
"They believe official attitudes are crucial to the market's existence and direction, and that it's safe to follow the tide," said Xiao Shijun, analyst at Guodu Securities in Beijing.
Although sentiment can spin on a word from an official, policymakers have scant influence over what stocks retail investors pick, as they tend to go for small caps, even loss-making firms, rather than blue chips.
"Trading reflects the long-running game between the government and the market," said Ren Chengde, senior analyst at Galaxy Securities in Shanghai. "The government has much less influence in what stock investors would like to trade."
When the central bank's monetary easing pumped adrenaline into China's moribund markets in the second half of 2014, blue chip stocks only enjoyed a short-lived rally, whereas the bull run in small, even tiny, counters ran and ran.
This year, China's Nasdaq-style ChiNext market .CHINEXTP for start-ups has surged 155 percent, more than tripling the growth in the blue-chip CSI300 index .CSI300.
The average price-earnings (PE) ratio of the ChiNext market has now surpassed 100 times of 12-month forward-looking earnings, compared with 19.44 times for components of the CSI300 index.
"The ChiNext board showcases how investors have ridden on what the government says, but refused to trade what it wants," said a manager at a hedge fund in Shanghai, who declined to be quoted by name as Chinese fund managers are not authorized to talk to media.
(Reporting by Shanghai Newsroom; Editing by Simon Cameron-Moore)