ONLY a month after the Shanghai Securities Exchange opened as communist China's first stock market, exchange officials detected a problem:"Every day prices kept going up," shrugs Shen Ruixing, spokesman for the exchange. Officials nervous over the enthusiasm of Shanghai's novice investors decided to impose a strict, 1 percent limit on price fluctuations. Half a year later, the curb remains in place. Rising share prices might not set off alarm bells at most of the world's stock exchanges. But in Shanghai, fears that a market boom might go bust was enough to drive officials to clamp down. "The government is very careful about price fluctuations," says Mr. Shen in a viewing room overlooking the trading floor, the refurbished ballroom of an elegant, 19th century hotel. "China is a big country with a large population. So if there is disorder [created by a volatile market], no one can help us." Shanghai's predicament illustrates how political sensitivities easily eclipse economic logic where the fledgling stock market is concerned. Communist Party ideologues charge that the market is socially risky, erodes state ownership, and encourages a short-term, profit mentality by firms. They prefer the use of state-controlled banks to channel public funds toward development projects chosen by the government. Bowing to conservative pressure, the government is sharply restricting the stock experiment even while acclaiming it as a means to boost lagging enterprise efficiency and raise badly needed capital. In Shanghai, authorities have so far approved only eight firms for listing on the new exchange, which formally opened for trading last Dec. 19. Of all shares issued by those firms, the government owns roughly 70 percent. Only the remaining 30 percent of nongovernment-owned shares are available for trading on the exchange. Shen hopes that as many as 12 additional firms will be permitted to list on the exchange by next year. But public demand for shares is likely to continue to outstrip supply, especially given three recent bank interest rate cuts and a lack of alternative investment opportunities in China. The government also bars a wide range of officials from owning shares, saying this is necessary to forestall corruption. Ironically, however, the shortage of shares for trading makes it difficult for Chinese without special pull or privileges to obtain shares listed on the exchange. Largely as a result of controls on stocks, the vast majority of securities traded on the Shanghai exchange are fixed-interest government and corporate bonds.