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 Chinese markets were down more than 9 percent during the day and
had only slightly recovered by the close of trade, the worst daily
performance since 2007 and a hair's breadth from the worst day since
1996, with traders blaming regulators' failure to act over the
weekend after markets lost 11 percent last week.
The downside was limited mostly by rules preventing any given stock
from losing more than 10 percent a day, and by the fact that many
company shares are still under trading halts.
As much as 80 percent of China's tradable stocks hit the downside
limit during the day, and ominously all index futures contracts, for
the CSI300, CSI500 and SSE50 indexes were down the maximum 10
percent.
After a year of heady gains, Chinese markets have been buffeted by
increasing signs that economic growth is faltering, and central
government's efforts to reassure and backstop stock investors have
been sunk by a succession of weakening indicators.
 Exchanges not only gave up all the gains made from Beijing's
unprecedented stock market rescue in July, in which hundreds of
billions of state dollars were ordered into the market, but have
also now for the first time entered negative territory for the year.
The CSI300 index <.CSI300> of the largest listed companies in
Shanghai and Shenzhen fell 8.8 percent to 3,275.53 points and is now
down over 7 percent for the year, while the Shanghai Composite Index
<.SSEC> lost 8.5 percent to 3,209.91 points, its lowest level since
March and down less than a percentage point for the year.
The Hang Seng index <.HSI> fell 5.2 percent to 21,251.57, and other
major Asian markets slumped as global investors grow increasingly
concerned at signs that Beijing's policymaking has grown not only
more erratic but less effective.
"Policymakers look lost," wrote Oliver Barron, analyst at investment
bank NSBO in Beijing in a research note, noting that confusion about
intentions and approaches extended from stocks into monetary and
exchange rate policy.
"But the market needs bigger things: growth, reform, easing.
Piecemeal support is not enough anymore."
CENTRAL BANK INACTION
Domestic analysts said investors had hoped for central bank action
over the weekend, seen as justified both by a surprisingly weak
preliminary reading of manufacturing activity in August, and by last
week's stock market slide.
At the beginning of the stock market crash the central bank cut
rates and explicitly said it was supporting the stock market.
Beijing has invested much capital, both financial and political, in
propping up markets, and many assumed it would be forced to continue
to buy up shares to maintain its credibility.
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But no easing came at the weekend, and in the past two weeks the
"national team" of brokerages, mutual funds and other state-owned
institutional investors have stood aside while markets fell.
While the national team originally said it would keep buying shares
until the SSEC returned to 4,500 points, two weeks ago the CSRC said
it would let market forces play a greater role in the stock market,
which investors took to imply that government was backing off on its
attempt to restore a bull market through brute force, contributing
heavily to last week's selloff.
If that implication is correct, Beijing is kissing goodbye to the
900 billion yuan ($141 billion) Goldman Sachs estimated it has spent
trying to prop up the market so far.
On Monday, there was no evidence of any attempt to buy into the
market by state-connected funds, leaving some domestic investors to
speculate that regulators were letting markets dive further to
provide a lower entry point for domestic pension funds, which will
now be allowed to add more stocks to their portfolios.
Many retail investors had been encouraged to return to the market
after the crash in June, with company executives leading employees
to buy back company stocks, and others being encouraged by patriotic
appeals to buy shares to "defend the stock market" against a shadowy
cohort of investors "maliciously" shorting the market.
Persuading them to do so again will be a much harder task.
"I regret not having fled the market last week," said a retail
investor who identified herself only by her surname, Zhang.
"With the market falling like this, there's no hope at all. It's
already a bear market and the government is responsible," she said.
(Additional reporting by Nathaniel Taplin, Michelle Chen and Samuel
Shen; Editing by Will Waterman)
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