The Chinese stock exchange fell nearly 8.5%, or 345.35 points, the biggest one-day stock crash since February 2007.
The crash comes after the Chinese government engaged in extensive economic intervention this month to save the stock-market. The government lent out $42 billion to investors in the hopes they would buy more stocks and stop the bleeding.
Paying investors to buy stocks is just one of a series of drastic measures the government has taken.
The government has invested $40 billion into the economy, frozen some stocks, prevented major shareholders from selling withing six months and devaluing the yuan.
The IMF has warned the Chinese to scale-back government intervention, as it will create ongoing uncertainty.
“Investors are afraid the Chinese government will withdraw supporting measures from the market,” said Sam Chi Yung, a strategist at Delta Asia Securities Ltd. in Hong Kong. “Once those disappear, the market cannot support itself.”
The Chinese economy is the second largest in the world behind the United States, and Chinese economic weakness has raised fears that a collapse there could spread.
Chinese economic growth is at its lowest rate since 2009.
“We need all the growth we can get. A slowdown in China wouldn’t help,” said David Joy, chief market strategist at Ameriprise Financial.
The Chinese stock markets, the Shanghai Composite and the Shenzen Index, have lost 32 percent and 41 percent respectively since June 12.[Bloomberg][CNN Money][Financial Post]