Stocks tumbled in the last 30 minutes of trading on Thursday amid the biggest price swings since 1997.
The benchmark Shanghai Composite Index slumped 2.1 percent to close at 3,086.60, wiping out an earlier gain of as much as 1.6 percent, while the Shenzhen Component Index retreated 1.5 percent to 9,739.89.
Volatility has surged to the highest in 18 years with diminished turnover, as investors concern over the economic slowdown is deepening. According to Bloomberg, trading volumes in Shanghai were 17 percent below the 30-day average.
The official manufacturing Purchasing Managers Index dropped to 49.7 in August, marking a three-year low, according to the National Bureau of Statistics.
The contraction after five successive months of expansion indicated that China's economy will face more downward risks in the third quarter of the year, said experts.
Zhang Yujun, the assistant chairman of the China Securities Regulatory Commission, is being investigated for "serious violations of laws and disciplines", announced the nation's top anti-graft body on Wednesday evening.
The CSI 300 Index slid 2.2 percent to 3,237 at the close.
