China stocks drop 8.5% in massive rout

Shanghai, July-27 China's Shanghai Composite shed 8.5% on Monday, a bone-rattling decline that raises questions over the efficacy of the dramatic stock market rescue that Beijing executed in late June and early July.

Losses on both the benchmark Shanghai index and the Shenzhen Composite accelerated into the close. The smaller Shenzhen index, which is heavy on tech stocks, closed down 7%.

The sharp declines come amid increased concerns over the health of China's economy.

Industrial profit data released Monday indicates that factories in the world's second-largest economy are losing momentum. Profits dropped 0.3% in June, compared to the same period last year, the government said.

On Friday, an early measure of China's manufacturing activity for the month of July came in below analyst expectations. At 48.2, the flash reading was the lowest in 15 months.

China's stock markets have been extremely volatile in recent months.

The first signs of trouble came in mid-June, after the Shanghai Composite peaked at more than 5,100 points, a gain of roughly 150% over the previous calendar year. When the bubble burst, the index lost 32% of its value in just 18 trading sessions.

Beijing reacted forcefully. The People's Bank of China cut interest rates to a record low, regulators announced a de-facto suspension of new IPOs, and threatened to throw short sellers in jail.

The country's market regulator, the China Securities Regulatory Commission, organized the purchase of shares using cash supplied by the central bank. Companies were allowed to suspend their own shares — at one point 50% of all listed stocks were frozen.

The measures appeared to work, and before Monday, markets had enjoyed two weeks of relative calm.

Source:CNN