Would-Be Capitalists Riot in China : Protests: Thousands run amok in southern city, charging stock-sale corruption.

Thousands of would-be speculators clamoring to buy stocks in the southern city of Shenzhen abandoned unruly lines and rampaged through the city Monday to protest alleged corruption in stock sales.

Police used small arms fire and tear gas to control the crowds, which had lined up at 302 banks and brokerage houses over the weekend to buy stock-purchase applications. The English-language Hong Kong Standard said one of its photographers saw a man fall bleeding after police fired into a crowd.

Protesters chanting “Down with corruption!” attacked plainclothes police, overturned vehicles and set a van on fire after alleging that police and other officials had unfairly used their power and connections to get application forms.

The violence, the most serious disturbance in China since the 1989 crackdown on pro-democracy demonstrators in Beijing, may affect the direction of economic reforms.

Reformers have argued vehemently in recent months that China can achieve the economic growth needed for political stability only by using new capitalist-style reforms.

Hard-liners now may point to the rioting as a sign that reforms carry the threat of domestic unrest.

Reformers could counter, however, that the incident shows the need to satisfy a public desire for faster reforms, including new stock issues to satisfy market demand.

China’s limited issues of new stocks are seen by many here as sure-fire investments.

Shenzhen authorities have sought to bring order to the market by requiring would-be investors to first buy stock-purchase applications at 100 yuan ($18) each. Applications give investors the right to participate in a lottery for rights to buy new stock issues. Only those who buy applications and then win in the lottery are allowed to buy stocks. Authorities had announced that 10% of the forms would be selected in the drawing, with each entry carrying the right to buy 1,000 shares.

Investors are now apparently focusing their attention on how to participate in the share buying rather than dealing in questions of specific stocks to buy. One result of this system is that the applications themselves have a black-market resale value greater than the initial purchase price.

“We’re angry,” declared a protester quoted by the British news agency Reuters. “Police used their power to get their relatives into the best places in the lines.”

Reuters reported that at least six vehicles, including one police car, were overturned by rioters and that police fired at least 10 tear-gas shells in one part of the city.

Many analysts in Hong Kong believe the problem is not China’s issuance of stocks, but the incompetent and sometimes corrupt manner in which the sales have been managed.

“It is a matter of the system, and not the issuing of shares itself,” said Rose Lee, a China analyst at Hong Kong Bank. “The distribution system was not properly handled.”

Times staff writer Holley reported from Beijing and special correspondent Courtney from Hong Kong.