Chinese and Hong Kong shares plunged in opening deals on Monday, extending losses amid a global sell-off despite Beijing authorising the state pension fund to buy stocks, in its latest attempt to shore up prices.
Chinese shares have tumbled since peaking in mid-June and authorities have launched broad interventions to try to restrain the drops, but concerns over the wider economy and doubts about valuations continue to drag.
The surprise devaluation of the yuan on August 11 added to fears the world's second-largest economy is weaker than thought, sparking a global sell-off that has more than $5 trillion wiped off world equity markets.
The benchmark Shanghai Composite Index plummeted 7.40 percent, or 259.40 points, to 3248.34, by mid-morning, having fallen as much as 8.5 percent.
The Shenzhen Composite Index, which tracks stocks on China's second exchange, plunged 6.97 percent, or 142.21 points, to 1,897.19.
Hong Kong's benchmark Hang Seng Index dropped four percent, or 897.43 points, to 21,512.19.
"China's economy is pretty ugly and some sectors have bubbles," Wu Kan, a Shanghai-based fund manager at JK Life Insurance, told Bloomberg News.
"Selling pressure around global markets is also weighing on local sentiment. The Shanghai Composite may fall to around the 3,000-point level."
China's economy, a key driver of global growth, expanded at its weakest pace since 1990 last year and has slowed further this year, growing 7.0 percent in each of the first two quarters.
The yuan devaluation was widely seen as intended to give Chinese exporters -- a key sector of the economy -- a boost by making their products cheaper abroad.
Concerns growth is decelerating were fuelled on Friday when the preliminary figure for Caixin's purchasing managers' index for August, a key indicator of manufacturing activity, slumped to a 77-month low.
US and European equities tumbled after the data, with the Down Jones Industrial Average posting its worst single-day session in four years and all the benchmark indices on Wall Street losing over three percent.
"The market is going to drop further," Qian Qimin, an analyst from Shenwan Hongyuan, told AFP, referring to Shanghai equities. "It's normal as the markets across the whole world are falling."
- 'Still not cheap' -
Chinese shares have been extremely volatile in recent weeks, plunging almost a third from June, after having risen over 150 percent in the preceding 12 months.
Following the market collapse, Beijing intervened with a rescue package that included funding the China Securities Finance Corp. (CSF) to buy stocks on behalf of the government and barring major shareholders from selling their stakes.
In the latest move at the weekend, China said it will allow its huge state pension fund to invest up to 30 percent of its assets -- which totalled 3.5 trillion yuan at the end of 2014, according to the official news agency Xinhua -- in stocks.
The market regulator has also issued reassurances that the CSF will continue to soothe market volatility "for several years", but sentiment remains poor.
"The entry of the pension fund will take a long time to happen," said Qian. "And valuations are still not cheap."
Despite recent falls, stocks on the mainland trade at a median 61 times earnings, according to data compiled by Bloomberg, more than three times the multiple of 19 for companies in the S&P 500 index in the US.
Some analysts predicted more government intervention by the so-called "national team", a description for entities, including the CSF, that are trading on behalf of the government.
"The entry of pension fund was announced at this time partly to stabilise the market," Li Daxiao, chief economist of Yingda Securities, told AFP.
"If the market falls too much, the 'national team' will still step in."
But others warned that Beijing's support was ultimately futile. "Government intervention won't be able to stop the market correction in the long run," KGI Securities analyst Ken Chen, told Bloomberg News.