Think Greece's economy is the one in trouble? It's CHINA that's facing financial meltdown and the biggest stock market crash since the Great Depression

  • Nearly $3trillion wiped off Chinese stock markets in just the last few weeks
  • Government and investors launched campaign to prop up tumbling shares
  • Booming stock markets had more than doubled in the year to mid-June
  • Experts draw parallels with the credit booms that led up to the 1929 crash
  • Analyst: 'I've never seen this kind of slump before. Don't think anyone has' 

China's tumbling stock markets plunged even further today, intensifying fears the country was tail-spinning towards the biggest financial disaster since the 1929 Wall Street crash.

Almost $3trillion (£2trn) – more than the entire economic output of Brazil – has been wiped out since markets went into reverse just a few weeks ago, posing a bigger headache for many global investors than even the Greek debt crisis.

China's government, regulators and financial institutions are now waging a concerted campaign to prop up the nation's stock markets – a move that failed spectacularly in the 1929 crash that triggered the Great Depression.

The plunge in its previously booming stock markets, which had more than doubled in the year to mid-June, is a major problem for President Xi Jinping and China's top leaders, who are already grappling with slowing growth in the world's second largest economy and another bursting bubble.

Scroll down for video 

Hard to watch: An investor studies an electronic board showing stock information at a brokerage office in Beijing, China. Shares continued to tumbled Wednesday, intensifying fears the world's second largest economy was heading towards the biggest financial disaster since the 1929 Wall Street crash

Hard to watch: An investor studies an electronic board showing stock information at a brokerage office in Beijing, China. Shares continued to tumbled Wednesday, intensifying fears the world's second largest economy was heading towards the biggest financial disaster since the 1929 Wall Street crash

'The parallels with 1929 are, on the face of it, uncanny,' wrote Jeremy Warner, economics commentator and assistant editor of The Daily Telegraph

'After more than a decade of frantic growth, extraordinary wealth creation and excess, both economies – America in 1929 and China today – are at roughly similar stages of economic development. 

'Indeed, China's credit boom dwarfs that of even the "roaring Twenties".'

Beijing intensified efforts at the weekend to pull China's stock markets out of a nose-dive, with top brokerages pledging to buy massive amounts of shares and a report that the government has set up a market stabilisation fund.

Beijing has also suspended new share offers in an attempt to take pressure off the market after a 30 per cent plunge in three weeks.

The reported suspension of initial public offers (IPOs) came a few hours after extraordinary announcements by major brokers and fund managers, which collectively pledged to invest at least $19billion of their own money into stocks.

Mr Warner said: 'The firebreaks that China put in place over the weekend to mitigate the panic are, in practice, not much different from those applied during the Great Crash of 1929, only this time it's public rather than private money that promises to quell the fire. 

'This time around, they've thrown the kitchen sink at the problem, but so far it has produced only a mild, and wholly unconvincing, rebound. The fire still smoulders, threatening to break out anew.' 

Chinese stocks plunged today 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.

Time to wake up: Investors sit in front of screens showing stock market movements at a brokerage house in Shanghai.  With the stock markets falling more than 30 per cent in less than a month, wiping out $3.2 trillion, Chinese government officials have cobbled together rescue measures aimed at propping up the market

Time to wake up: Investors sit in front of screens showing stock market movements at a brokerage house in Shanghai. With the stock markets falling more than 30 per cent in less than a month, wiping out $3.2 trillion, Chinese government officials have cobbled together rescue measures aimed at propping up the market

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.

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.

A security guard stands in front of a panel displaying stock indexes of Asian markets at Hong Kong Exchanges in Hong Kong. Losses on the mainland weighed heavily on Hong Kong shares, with the Hang Seng Index down 3.3 percent and shares of Chinese companies listed in the city falling 4.2 per cent

A security guard stands in front of a panel displaying stock indexes of Asian markets at Hong Kong Exchanges in Hong Kong. Losses on the mainland weighed heavily on Hong Kong shares, with the Hang Seng Index down 3.3 percent and shares of Chinese companies listed in the city falling 4.2 per cent

'Also, the ripple effect from the market correction has yet to show up,' wrote Bank of America Merrill Lynch analysts in a note. 

'We expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis.'

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

With so many small-cap companies sheltering on the sidelines, the ChiNext growth board, which has seen some of the biggest swings in valuations, fell a relatively modest 1 per cent. 

Beijing's interventionist response has also 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 on Wednesday to provide sufficient liquidity.

The securities regulator said the Securities Finance Corp had provided 260 billion yuan ($41.8 billion) to 21 brokerages. 

Tensions are high: People line up at the main gate of the National bank of Greece in central Athens this morning as they wait to withdraw a maximum of €120 euros  for the week

Tensions are high: People line up at the main gate of the National bank of Greece in central Athens this morning as they wait to withdraw a maximum of €120 euros for the week

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.

'It's uncommon to see so many shares posting consecutive daily limit falls, and the index futures swinging so wildly,' said Wang Feng, CEO and founder of hedge fund firm Alpha Squared Capital Co and a former Wall Street trader.

'It's a stampede. And the problem of the market is that all the players move in the same direction, and are too emotional.'

A surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other 'stability measures' have done little to calm investors.

The barrage of official commentary and new support measures continued on Wednesday.

Deng Ge, a spokesman for the China Securities Regulatory Commission, said in remarks posted on its official channel on Weibo, China's version of Twitter, that there had been a big increase in 'irrational selling' of stocks.  

The state asset administrator told central-government-owned firms they should not sell shares in their own listed companies and should buy more stock in companies they controlled to stabilise prices.

And China's insurance regulator said 'qualified' insurers could increase their ratio of equity assets to 40 pct from 30 pct by buying blue-chip stocks. 

Crush: Elderly Greeks push and shove as they argue to be allowed into the bank to withdraw their money

Crush: Elderly Greeks push and shove as they argue to be allowed into the bank to withdraw their money

But the market sell-off has extended beyond the mainland, with Chinese stocks on U.S. exchanges falling as much as 6.1 per cent on Tuesday, according to the Bank of New York Mellon index of such securities.

Hong Kong's Hang Seng Index fell 5.9 per cent, with shares of Chinese brokerages taking a pounding.

The impact was also felt in credit markets, where the spread on bonds from securities houses widened by 18-20 basis points.

'Investors are extremely unimpressed with their sudden conscription into national service, and you can see that in their share prices,' said Matthew Smith, a strategist who covers the China financials sector for Macquarie. 

Despite the grave predictions for the world economy in the event of a Chinese crash, it is the Greek debt crisis that has dominated headlines in recent weeks.

Today, the head of France's central bank warned of the dire consequences facing Greece if it fails to strike a bailout deal this week, adding that he fears the country will descend into 'riots and chaos'.

Warning that the Greek economy 'is on the edge of catastrophe', Christian Noyer said he was concerned that major civil unrest could break out if a deal isn't struck by the weekend.

Greek Prime Minister Alexis Tsipras will address the European Parliament today after European leaders gave his debt-stricken country a final deadline to reach a new bailout deal and avoid crashing out of the euro.

The comments below have not been moderated.

The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.

By posting your comment you agree to our house rules.

Who is this week's top commenter? Find out now