Shanghai Municipal Government : China shares plunge below key mark over weak growth fears

China shares yesterday tumbled below the key 3,000-point level amid concerns over a weak economy.

The Shanghai Composite Index dropped 2.42 percent to 2,949.6 points at close - the lowest level since August - faltering in the last hour of trading and erasing gains of 0.59 percent in the morning session. The Shanghai gauge posted 17 percent loss in 2016, making it the worst performing index in the global market so far.

The Shenzhen Component Index dived 3.06 percent to 9,978.82 yesterday, falling below the 10,000-point level.

Industrial and telecom stocks led the loss. China Shipbuilding Industry Co dropped 4.13 percent to 7.90 yuan (US$1.20), and ZTE Corp declined 2.25 percent to 15.22 yuan.

'Investors' confidence did not improve despite the better-than-expected trade data in December,' said Zhang Qi, an analyst with Haitong Securities Co.

'They still worry about large corporate shareholders taking advantage of rallies to sell equities in coming weeks as they haven't recovered from a 10 percent plunge last week.'

The central government said last week that it was considering new measures to regulate the sale of shares by major shareholders of listed companies. While exports improved in December, producer prices extended falls to a record 46 months and the manufacturing gauge touched a near three-year low - the world's second-largest economy's worst performance in nearly 25 years.

'The market is going through a see-saw battle between 2,800 points to 3,000 points,' said Steven Sun, head of China equity research at HSBC. 'Once it drops below that level, we will worry about a new wave of margin calls that could trigger another massive sell-off in A shares.'

The Shanghai gauge fell below 3,000 points during the market sell-off in August when US$5 trillion was wiped out during a selling wave.

After the government took measures to prop up equities, stocks rebounded in the fourth quarter. But since the start of 2016, the sell-off resumed again.

Sun said that it would take time for the A shares to get back to normal, as some of the small and medium firms were still expensive in China's startup board.

'Regulators pushed forward a series of polices for the short term but the key issue here is to put more efforts on investor's communication and education in order to guide the market in a smooth way,' Sun added.