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Chinese Shares Tumble Again

Stocks in China, including shares of state-owned companies, plunged after several economic reports showed weakness.Credit...China Network/Reuters

HONG KONG — After several weeks of relative calm, tumult returned to China’s stock markets on Monday, casting doubt on the government’s measures to support share prices.

While the volatility follows a spate of weak economic data, it also reflects a broader uncertainty in the market. Investors, who borrowed heavily to buy shares during the boom, are now increasingly unsettled.

The situation is creating wild swings in both directions.

The main Shanghai share index plunged 8.5 percent on Monday, its steepest one-day drop in eight years. Shenzhen’s main index fell 7 percent. The volatility continued on Tuesday morning, with Shanghai stocks opening down 4.4 percent before recovering somewhat.

Even stocks that had been strong performers in the recent, government-backed rebound were hit hard.

State-owned PetroChina, the country’s biggest oil producer, fell 9.6 percent on Monday. Government-backed brokerage houses, which had in recent months raised billions of dollars by selling new shares, also suffered. Citic Securities and Haitong Securities fell by the limit of 10 percent.

“The return of debacle!” China’s official Xinhua news agency said on Monday on its verified Twitter account, noting that in the sell-off, about two-thirds of all mainland-listed stocks fell by the daily limit of 10 percent.

It is a turbulent time for the Chinese markets.

For more than a year, the country’s stock market soared as investors aggressively borrowed money to buy shares. The government helped fuel the boom, promoting the potential for the bull market and new companies in official news outlets, including The People’s Daily.

At their peak in June, the total market value of China’s publicly traded stocks briefly surpassed $10 trillion, second only to the United States. Tens of millions of ordinary Chinese opened new accounts to try to cash in.

The markets started to turn in late June as investors grew concerned about a potential bubble. Shares lost more than $3 trillion in a matter of weeks.

Worried about the fallout, the government moved aggressively to prop up stocks. Authorities suspended initial public offerings, introduced a $120 billion market stabilization fund backed by the central bank, and encouraged executives to buy company shares.

The moves helped restore confidence in the market. Shares, particularly in big state-backed companies, rebounded modestly.

But investors are increasingly sensitive. Monday’s drop came after the Chinese economy showed increased signs of weakness; industrial profits fell and the factory sector slipped.

Any sustained volatility in the market could create additional pressures to sell.

Investors in China borrowed heavily from brokerage firms in recent months to invest in stocks. With share prices now falling again, investors may be forced to unwind some of these so-called margin trades to repay what they borrowed, prompting further pain in the markets.

Analysts at the Australia and New Zealand Banking Group suggested that might be happening now, writing in a Monday evening research note that sales of shares to pay off such loans had led to the day’s heavy sell-off. “Since the securities regulator is still tightening up such activities, the stock market will continue to be very volatile despite the high-profile rescue package launched by the government in the past few weeks,” they added.

If the sell-off continues, it could also have broader ramifications for the economy. The bull market had helped offset the slowdown in China’s traditional industrial drivers of growth. The slump could also weigh on consumer confidence at a time when the economy is already slowing.

Should the decline persist, the government may be forced to act further to support prices. For example, Beijing could pump more money into the market, either directly or indirectly.

Officials have signaled their willingness to continue stabilization measures. On Monday, the China Securities Finance Corporation, a government agency that lends money to brokerage houses, said it would continue buying stocks to help prop up the market, according to the state news agency Xinhua. The China Securities Regulatory Commission is also investigating whether several listed companies sold shares counter to the government’s edict, Xinhua said.

Last week, the China Securities Regulatory Commission denied a report in Caijing, a respected Chinese financial news outlet, which had said the regulator was considering how to begin removing its supports for share prices.

In a July 20 statement, Zhang Xiaojun, a spokesman for the regulator, said: “The commission will continue to stabilize the market and provide reassurance, and will use all its resources working toward the goal of preventing systemic risk.”

Caijing promptly removed the article from its website.

A version of this article appears in print on  , Section B, Page 2 of the New York edition with the headline: Main Chinese Index Falls 8.5% in Worst Market Slide in 8 Years . Order Reprints | Today’s Paper | Subscribe

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