SHANGHAI -- China's ambitious experiment with open financial markets over the past five years is facing significant problems, including continual government interference and rampant speculation, but there's no turning back now, analysts said.


The Shanghai stock market, which has its fifth birthday Tuesday, is in a serious slump, with most foreign currency shares quoted at below their issue value. Domestic stocks are also sickly.


On the futures markets, the government has cracked down hard following a series of booms and busts as speculative "hot money" chases round from plywood to rice to red beans looking for quick profits.


At the heart of the problem is the question -- what do China's communist leaders really think of the financial markets? Are they really comfortable about giving markets the freedom to operate on their own?


The answer is still not clear, analysts say. "China's great achievement is to push forward with financial reforms that have never been done before in any communist country," said Richard Graham, head of Barings in Shanghai.


"But the problem with that is that there is an inherent contradiction between the type of control over the economy that their constitution and their political system requires, and the way in which the capital markets operate," he said.


Analysts say the Chinese leadership is used to dealing with problems by taking administrative measures and is uncomfortable with the idea of just letting the financial markets find their own level within the framework of basic rules.


"They are interfering too much," said an analyst with another foreign brokerage in Shanghai.


"There is a strong mentality among the Chinese decision-makers to manipulate the market by major decisions and policy announcements. They need to correct that mentality if they are determined to push forward with this experiment," she added.


Official reports still sometimes refer to both the Shanghai and Shenzhen stock markets as "experimental," and it is widely believed that economic tsar Vice-Premier Zhu Rongji would like to close down the futures markets if he could.


Foreign investors have deserted the Shanghai and Shenzhen stock markets in droves in recent months, pushing the Shanghai foreign currency B-share index down to a record low, making for a rather gloomy fifth anniversary.


"B shares have not been a success because the regulators and the people being regulated don't want to stick to the rules," said Allan Ng, an analyst with SBC Warburg. "Many of the companies have no intention to follow international filing rules, accounting and auditing practices."