Stocks continued to slide, with the benchmark Shanghai index edging below 4,000 mark for the first time since April, despite the securities watchdog's effort to boost the market with fee cuts and relaxed rules on margin trades.
The Shanghai Composite Index closed at 3,912.77 on Thursday, down 3.5 percent or 140.93 points, while the Shenzhen Component Index tumbled 5.3 percent to 12,924.19.
Nearly 1,500 stocks at the two markets dived to a daily halt, led by the rout among shipping, sports, real estate and utility sectors.
China National Petroleum Corp and Sinopec Group, the country's State-owned oil giant, surged 8.8 and 5.5 percent respectively against the odds. CITIC Bank jumped by the daily limit of 10 percent.
China Securities Regulatory Commission (CSRC) unleashed a string of supportive policies, including a 30-percent transaction fee cut and green light to bond issuance among brokerages, on Wednesday evening after the Shanghai gauge plunged 5.2 percent.
In addition, the CSRC signed off the amended rules on margin trading, allowing brokerages and margin investors to decide through discussion on when and how much percentage of additional guaranty should be put instead of forced sell-off.
The amendment, whose draft were scheduled to be on public consultation till July 11, was released on Wednesday evening "in haste for special circumstances", said the securities watchdog on its official microblog weibo.
"The new rules can facilitate a relatively more orderly exit of the small caps positions, compared with the havoc we experienced in the past two weeks", said Hong Hao, chief strategist at BOCOM International Holdings, in a note released on Thursday.
"Market should gradually calm down, with continued rotation to large blue chips with low valuation," said the strategist, while adding that the rules may plant seeds for longer-term crisis.
Such moves were last seen during the 2008 global financial crisis, when similar policies had only produced short-term technical reprieves before the market eventually bottomed at a price that had priced in all bad news, added Hong.
The Shanghai index jumped 32.2 percent in the first half of the year, while the Shenzhen index rallied 30.2 percent.
However, market volatility has increased over the past two weeks, consuming the Shanghai gauge by 24 percent from its June 12 high, as investors diverge on whether A-share's year-long bull was peaked.
