Chinese shares plunged more than 6 percent to 14-month lows on Tuesday after oil prices dropped again, reviving concerns about global growth and prompting a sell-off in the world's equity markets.
After a rebound on Friday and early Monday, crude prices fell back below $30 a barrel, not far from last week's 12-year lows, ending a couple of days of gains for Wall Street stocks.
China's fickle stock markets have now slumped about 22 percent so far this year on concerns about the slowing economy and confusion over the central bank's foreign exchange policy.
China's outstanding margin loans — money investors borrow to buy stocks — declined for 16 consecutive sessions to Jan. 22, the longest losing streak on record, with 209 billion yuan ($32 billion) worth of leveraged bets unwound during the period.
In a move that could help ease market strains, Japan and China, Asia's two largest economies, said on Tuesday they were working to create a new framework to discuss economic policy coordination, such as steps to stabilize the yuan, the Nikkei newspaper said.
China's central bank has jolted global financial markets twice in six months by allowing sharp, sudden slides in the currency, only to step in aggressively to stabilize it.
Chinese state media also weighed in on Tuesday to warn billionaire investor George Soros against betting on falls in the yuan or the Hong Kong dollar.
Soros, dubbed “the man who broke the Bank of England” when he made more than $1 billion from shorting sterling in 1992, has said he is betting against the S&P 500, commodity-producing countries and Asian currencies, though he has not specifically mentioned the yuan or Hong Kong dollar.
The central bank has also been making plenty of liquidity available to the banking system to avoid any cash squeeze ahead of long Lunar New Year celebrations beginning in early February. Traders said on Tuesday that the bank would inject 440 billion yuan into the money markets, the biggest daily injection in three years.
The decline in the yuan and concerns about the country's growth prospects have fuelled a flight of capital out of the world's second-largest economy which policymakers are struggling to contain.
January has already seen a slew of weak economic data, and on Tuesday the nation's top economic planner said rail freight, a barometer of industrial activity, fell 11.9 percent by volume last year.