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."
A man speaks in front of monitors showing market movements at the Taiwan Stock Exchange in Taipei on July 8, 2015.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 7.1 percent, while the Shanghai Composite Index dropped 6.3 percent.
Around 30 percent 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 percent 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 percent.
SOURING BOOM
The plunge in China's previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China's top leaders, who are already grappling with slowing growth in the world's second largest economy.
Beijing's interventionist response has also raised questions about its ability to enact the market liberalisation steps that are a centrepiece of its economic reform agenda.
China has orchestrated brokerages and fund managers to promise to buy billions of dollars' worth of stocks, helped by a state-backed margin finance company which the central bank pledged on Wednesday to provide sufficient liquidity.
The securities regulator said the Securities Finance Corp had provided 260 billion yuan ($41.8 billion) to 21 brokerages.
Investors sit in front of a screen showing market movements in a stock firm in Hangzhou, eastern China's Zhejiang province on July 8, 2015.
Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85 percent of China trade, which exacerbates volatility.
"It's uncommon to see so many shares posting consecutive daily limit falls, and the index futures swinging so wildly," said Wang Feng, CEO and founder of hedge fund firm Alpha Squared Capital Co and a former Wall Street trader.
"It's a stampede. And the problem of the market is that all the players move in the same direction, and are too emotional."
A surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other "stability measures" have done little to calm investors.
The barrage of official commentary and new support measures continued on Wednesday.
Deng Ge, a spokesman for the China Securities Regulatory Commission, said in remarks posted on its official channel on Weibo, China's version of Twitter, that there had been a big increase in "irrational selling" of stocks.
The state asset administrator told central-government-owned firms they should not sell shares in their own listed companies and should buy more stock in companies they controlled to stabilise prices.
And China's insurance regulator said "qualified" insurers could increase their ratio of equity assets to 40 pct from 30 pct by buying blue-chip stocks.
But the market sell-off has extended beyond the mainland, with Chinese stocks on U.S. exchanges falling as much as 6.1 percent on Tuesday, according to the Bank of New York Mellon index of such securities.
Hong Kong's Hang Seng Index fell 5.9 percent, with shares of Chinese brokerages taking a pounding.
The impact was also felt in credit markets, where the spread on bonds from securities houses widened by 18-20 basis points.
"Investors are extremely unimpressed with their sudden conscription into national service, and you can see that in their share prices," said Matthew Smith, a strategist who covers the China financials sector for Macquarie.
($1 = 6.2086 Chinese yuan renminbi)
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