BEIJING -- Stocks trading in China fell Wednesday, with the Shanghai Composite Index declining 1% to 1641. Hong Kong markets were closed for a holiday.

On Tuesday, China shares were part of a broad selloff in New York, with

Tom Online

( TOMO) down 8.1% to $21.37, and


(SOHU) - Get Report

off 5.3% to $24.68.

Bucking the trend,


(NCTY) - Get Report

gained 7.7% to $28.01, helped by two analyst upgrades, and


(JOBS) - Get Report

rose 2.2% to $28.03.


managed to close up 0.8% to $6.05, despite news reports that


(IBM) - Get Report

will be able to sell its nearly 15% stake in the company six months earlier than the original date. IBM acquired the shares when it sold its PC assets to Lenovo in 2004.

Under a change of terms, IBM can now sell up to two thirds of its Lenovo shares, with the remainder available for sale in November 2007.

Meanwhile, for the first time, Chinese officials weighed in on the political wrangle involving the use of Lenovo computers in classified U.S. State Department work. Earlier this month (as discussed in a

previous column, U.S. political heavyweights raised a flap over the agency's purchase of 16,000 Lenovo PCs, saying they could pose a national security risk because Lenovo is partly owned by an arm of the Chinese government.

In response, the State Department agreed not to use the computers for secret work and said that it would make changes in procurement to reflect "changes of ownership of IT companies." That raised the prospect that in the future, it might cut back on technology buys from Chinese companies.

Now, annoyed Chinese officials have struck back, with the Chinese Ministry of Commerce complaining in a statement that the U.S. government agency's actions go against the principles of "fair competition" and "free trade."

Expect more diplomatic tit-for-tatting, especially in a U.S. election year.

A spokesperson for Lenovo in Beijing said the company had no comment.

Meanwhile, investment bank analysts gave a thumbs-up to yesterday's announcement from online gaming firm The9 that it will be licensing a new 3D game,

Hellgate: London

. Citigroup analyst Jason Brueschke said the move should help reduce the company's dependence on its flagship

World of Warcraft

game, though the commercial launch of


won't take place until next year.

Brueschke cited the new game among several factors in his decision to upgrade the stock to a buy rating on Wednesday, reversing a late April downgrade to a hold. He also likes The9's upbeat second quarter outlook and notes that consensus 2006 earnings have fallen to more reasonable levels.

Brueschke, who's leaving his estimates unchanged, says The9 has "the best online game portfolio in China."

Shares have sold off recently: On May 25 The9 closed at $23.72, down 22% from its May 1 close of 30.45. The stock has since traded up, closing in New York Tuesday at $28.01.

Deutsche's William Bao Bean likewise upgraded The9 shares to a buy, primarily because of its improved valuation, adding that he likes The9's licensing strategy and strong pipeline. "Though The9 still has to rely on WoW in the short run and commercialization of new games is still 2-3 quarters down the road, we think the risk-reward is getting attractive," he said in a note. The


deal has raised the bar for rival gaming companies looking to lock up major overseas titles, as there aren't many left, he adds.