Chinese stocks plunged yesterday 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.”

The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 7.1 per cent, while the Shanghai Composite Index dropped 6.3 per cent.

I’ve never seen this kind of slump before

Around 30 per cent 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 eurozone crisis.

More than 500 China-listed firms announced trading halts on the Shanghai and Shenzhen exchanges yesterday, taking total suspensions to about 1,300 – 45 per cent of the market – as companies scuttled to sit out the carnage.

Beijing’s interventionist response has 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 yesterday to provide sufficient liquidity.

Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85 per cent of China trade, which exacerbates volatility.