SHANGHAI (Reuters) - As he watched China's stock markets descending into freefall on July 2, Zhao Liguo, vice-president of Siasun Robot & Automation Co Ltd (>> Siasun Robot&Automation Co Ltd), decided it was time to start buying the company's shares.

Zhao was among hundreds of companies and executives that answered the call from Beijing to do their patriotic duty and signal confidence by buying back their own stock, which regulators hoped would entice other investors back to trade.

"This had nothing to do with our judgment as to the direction share prices would go," Zhao explained to Reuters.

"At the time, senior managers of nearly every Chinese listed company were increasing holdings ... We needed to show confidence in the long-term growth of our company."

Zhao bought 4 million yuan (404.989 pounds) worth of its shares, at 81.6 yuan apiece. Chinese indexes plunged again in August, and shares in Siasun, one of China's largest industrial automation firms, are trading around 53.10 yuan per share, down about 35 percent from the price he paid.

Around 40 companies announced buybacks, some of them massive, and listed brokerages and mutual funds also piled in, buying both their own shares and shares in other Chinese firms. According to a Reuters analysis, firms that announced buybacks have seen their shares lose an average of roughly 40 percent in the last three months.

So far, the most obvious result of Beijing's intervention has been the losses these key stakeholders have taken, not only failing to inspire a market turnaround, but also damaging policymakers' relationship with business leaders.

The wider risk is that Chinese stock markets will repeat the pattern seen after the last sharp crash in 2010; a long, slow stagger downwards that lasts for years. ((GRAPHIC: http://link.reuters.com/paf65w))

Indeed, while the market stabilised briefly last week as Beijing implemented an emergency break to stop sharp index declines, trading volumes sank dramatically at the same time.

ALL STICK, NO CARROT

Beijing has also moved to investigate finance industry executives - in particular executives at major brokerage CITIC Securities - for suspected illegal behaviour.

Executives speak of an environment of anxiety and intimidation as authorities try to force companies to buy more shares, while at the same time cutting off access to hedging tools that could limit the downside.

Thus, after the China Securities Regulatory Commission (CSRC) repeated the appeal for buybacks earlier this month, only three firms heeded the call.

Haitong Securities (>> Haitong International Securities Grp Ltd) (>> HAITONG Securities Company Limited), one of the country's largest brokerages, originally said it would buy back some 21.6 billion yuan of its shares, but has held back since. A Haitong Securities investor relations official told Reuters that the shareholders had not yet approved the buyback.

Dongguan Eontech Co Ltd (>> Dongguan Eontec Co Ltd), on the other hand, bought 358.3 thousand shares at around 33 yuan apiece on Aug. 21. Eontech shares have fallen nearly 40 percent since then to around 20 yuan per share.

"We received notice from CSRC, demanding our senior executives increase holdings, no matter how high the prices were at the time," said an executive at Eontech.

"Listed companies can do little to change market trends. Our senior executives bought shares at around 30 yuan. They certainly didn't wish the price to fall to the current level, but what could they do?"

STILL BULLISH

Guo Guangchang, the high-profile board chairman of Hong Kong-listed Fosun International Ltd (>> Fosun International Limited), encouraged his employees and others to buy shares in an internal memo in early July, a message he stands by.

"If you are greedy in a bull market, its very hard to be brave in a bear market," Guo said in a version of the memo shown to Reuters by company representatives.

Guo put his money where his mouth was. Disclosures on the Hong Kong stock exchange website show that Guo, along with majority stakeholder Fosun International Holdings, bought multiple tranches of Fosun shares at an average price of around HK$16.

Fosun shares now trade around HK$14.10 per share, implying a net paper loss of at least HK$16.5 billion (1 billion pounds) for the buyers, according to Reuters calculations.

Fosun did not comment directly on the losses, but noted that the stock was still up so far this year.

"Fosun is still bullish on the long-term economic growth of China going forward," said Guo in an email to Reuters.

However, China's stock market has rarely reflected the country's economic growth, and that's the problem. If serious money can't be enticed back into stocks, it will leave the Chinese financial system back where it started: overdependent on bank loans and shadow financing while stock exchanges remain the playpens of casual speculators.

"The government should not use its power to influence investors' investment decisions," said Sam Chi Yung, analyst at Delta Asia Financial Group.

"Urging shareholders to buy shares is a practice with Chinese characteristics, but it's not an ideal practice on China's road towards internationalisation."

(Reporting by Pete Sweeney and Samuel Shen; Editing by Alex Richardson)

By Pete Sweeney and Samuel Shen