Shanghai's decline – the index is down 16 per cent since January – has caught many investors by surprise, since China is widely seen as the beacon of growth in a world that is still reeling from the financial crisis.
Having fallen to a eight-month low yesterday, the Shanghai Composite is this year's worst performing index in Asia.
“A lot of people have been caught offside,” says the head of trading at a global investment bank in Hong Kong.
The irony is that China's eye-catching economic growth – gross domestic product surged 11.9 per cent in the first quarter – is part of the reason why Shanghai stocks are sliding.
Worried that the economy is overheating, the government has started taking steps to prevent inflation getting out of control and to head off a bubble in the property market.
This tightening – and the prospect of more to come – is what has given investors the jitters.
Since late last year, as the global economy has revved up, Beijing has sought to rein in the amount of money sloshing through the economy and spilling into property and equity markets.
But in recent weeks policymakers have become much more aggressive. Beijing has clamped down hard on the property market, fearing excessive price rises could fuel social unrest.