Chinese stocks plunged on Wednesday after the country's
securities regulator warned investors were in the grip of "panic
sentiment" and the market showed signs of freezing up as firms scrambled
to escape the rout by having their shares suspended.
Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures to arrest the sell-off, and the People's Bank of China said it would step up support to brokerages enlisted to prop up shares.
With another round of margin calls forcing leveraged investors to dump whatever shares could find a buyer, blue chips that had been supported by stabilisation funds earlier in the week bore the brunt.
"I've never seen this kind of slump before. I don't think anyone has. Liquidity is totally depleted," said Du Changchun, an analyst at Northeast Securities.
"Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips."
The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 7.1 per cent, while the Shanghai Composite Index dropped 6.3 per cent.
Around 30 per cent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China's market turmoil will destabilise the real economy is now a bigger risk than the euro zone crisis.
"Also, the ripple effect from the market correction has yet to show up," wrote Bank of America Merrill Lynch analysts in a note. "We expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis."
More than 500 China-listed firms announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 - 45 per cent of the market - as companies scuttled to sit out the carnage.
With so many small-cap companies sheltering on the sidelines, the ChiNext growth board, which has seen some of the biggest swings in valuations, fell a relatively modest 1 per cent.
Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures to arrest the sell-off, and the People's Bank of China said it would step up support to brokerages enlisted to prop up shares.
With another round of margin calls forcing leveraged investors to dump whatever shares could find a buyer, blue chips that had been supported by stabilisation funds earlier in the week bore the brunt.
"I've never seen this kind of slump before. I don't think anyone has. Liquidity is totally depleted," said Du Changchun, an analyst at Northeast Securities.
"Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips."
The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 7.1 per cent, while the Shanghai Composite Index dropped 6.3 per cent.
Around 30 per cent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China's market turmoil will destabilise the real economy is now a bigger risk than the euro zone crisis.
"Also, the ripple effect from the market correction has yet to show up," wrote Bank of America Merrill Lynch analysts in a note. "We expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis."
More than 500 China-listed firms announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 - 45 per cent of the market - as companies scuttled to sit out the carnage.
With so many small-cap companies sheltering on the sidelines, the ChiNext growth board, which has seen some of the biggest swings in valuations, fell a relatively modest 1 per cent.
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