SHANGHAI -- China’s main stock market index continued its freefall Wednesday, despite continuing government attempts to stabilize the market.

The main Shanghai Composite Index (SCI), which had dropped over 30 percent since June 12, fell a further 5.9 percent, with many investors apparently losing faith in official ability to shore up the market and looking for the exit. The smaller Shenzhen was also down by almost 3 percent though China’s high-tech board, ChiNext, rose by 0.5 percent, after losing half its value in recent weeks.

One reason for the continuing sell-off was the fact that 51 percent of companies listed on China’s two main boards had applied to suspend trading in their stocks by Wednesday morning, in an apparent attempt to avoid the rout. However, analysts said this had panicked investors to sell off shares in other listed companies, in case they too suspended trading. More than 1,000 of the companies that did carry on trading therefore fell by the daily limit of 10 percent.

Nervousness about the situation in China -- and in the eurozone -- also spread to Hong Kong, where the Hang Seng index fell more than 5.8 percent -- its biggest one-day loss since the height of the world financial crisis in October 2008.

Some analysts have said that a fall on mainland China’s markets was inevitable, after the market rose by 150 percent in the year to June 12, as officials talked up the need to invest in the stock market to help raise funds for modernizing China’s economy.

Yet China’s market regulator and central bank on Wednesday continued with what the official Xinhua news agency described as the “country’s concerted efforts to stem the massive sell-off.” Blaming the falls on “irrational selling” and a “panic among investors,” the China Securities Regulatory Commission (CSRC) announced that a government-funded body would begin buying the shares of small and medium-sized companies to stabilize the market. The move followed complaints that previous measures announced at the weekend had focused only on shoring up the shares of big “blue chip” stocks, such as banks (which saw their prices rise 7.7 percent on Tuesday as others fell).

CSRC spokesman Deng Ge said state-owned margin financing body China Securities Finance (CSF) would "continue to stabilize the share prices of blue chips, while increasing its buying of small and medium sized company stocks in a bid to calm the nervous market situation.” It would also support stock brokerages, many of which have loaned large sums to customers who are now unable to repay them, by “giving them sufficient liquidity,” Deng said.

And China’s central bank, the People’s Bank of China, also pledged to support CSF. And in a further attempt to boost the market, it also eased rules to allow insurance companies to invest more of their funds in blue-chip shares. 

Yet some analysts criticized the regulator for allowing so many listed companies to halt trading -- something normally only approved for technical reasons. By Wednesday, some 1,420 companies had asked for their trading to be suspended, thereby freezing shares worth $2.2 trillion (around 30 percent) of market capitalization. Li Daxiao, research director at Yingda Securities, told China's Global Times newspaper that many smaller companies were simply suspending trading in the hope of weathering the storm. But he said this would likely do little to stop their shares losing value when trading resumed, because “most stocks in Shenzhen (home to boards for SMEs and startups) still remain significantly overvalued.”

And some analysts criticized the government for stepping in to prop up the market again. A commentary published by Caixin Media, one of China’s more independently-minded financial media organizations, suggested that “the government had no reason to intervene in China’s stock market turbulence,” because, it said, the volatility was not jeopardizing the country’s financial stability. It said the country’s securities firms and banks could cope with the losses of borrowers to whom they had lent money to invest in the market. It said the regulator’s attempts to shore up the market were “clearly not market-driven” and “may amplify the risk it was trying to control” and “end up hurting more” ordinary investors, by encouraging them to remain in the market for longer.

The commentary was a divergence from the official line published in many state media this week -- and a reminder that Chinese authorities are finding it increasingly difficult to convince everyone that the market will stabilize soon.

Famously bearish analyst Andy Xie told International Business Times this week that a more natural level for China's main SCI index would be approximately 2,500 points -- or about 25 percent higher than the level at which it had languished for several years, before it began its spectacular boom last summer.