UPDATED at 2:10 p.m. EST on 2016-01-07
A seven-percent fall in share prices on Thursday triggered the ruling Chinese Communist Party's new circuit-breaker mechanism to halt trading for the day. The circuit breaker, which drew mixed reviews from analysts, was later suspended by authorities who said it wasn't working as intended.
Global shares fell sharply for a sixth day on Thursday, after China's stocks were suspended from all trade, triggered by a drop of more than seven percent in the CSI300 share index, prompting further falls in financial markets around the world.
The CSI300, the index that triggers the circuit breaker, fell by 7.21 percent. A rise or fall of five percent is enough to halt all trading for 15 minutes, while a seven percent change halts trading for the rest of the day.
The halt was the second this week, and came after share prices fell by more than 10 percent since the beginning of the year.
Reuters News Agency quoted the websites of regulators at the Shanghai and Shenzhen exchanges as saying China will suspend the circuit breaker as of Friday.
"The circuit breaker mechanism was not the main reason for the market slump. It just didn't work as anticipated based on actual situations," Deng Ge, a spokesman for the China Securities Regulatory Commission said in a statement cited by Reuters.
"The negative effect of the mechanism outweighed its positive effect."
Speaking before the announcement that the circuit breaker would be suspended, Beijing University of Science and Technology economics professor Hu Xingdou said there is still plenty of panic among China's army of individual investors, who rely on the markets in the absence of viable pension plans.
"Since Aug. 1, major shareholders have been reducing their [Chinese] holdings, which has terrified the majority of individual investors," Hu told RFA.
"When those big shareholders sell, they take the whole market down with them, and so the broad mass of individual investors sells too, because they are scared," he said.
But Priscilla Lau, former associate professor of accounting and finance at Hong Kong's Polytechnic University, said the automatic cut-off system should never have been brought in in the first place.
"They should just let people buy and sell freely ... This is an emerging market, and so fluctuations seem like a big deal," she said.
"But the imperfections in the market can't just be ironed out in a single stroke,” she said. “In my opinion, it's a waste of time and energy, using such methods to try to stabilize the market. They should put all their efforts into more long-term protective measures."
According to Lau, there is little widespread confidence in the cut-off mechanism.
"This means that more fluctuations will be hard to avoid, and the authorities should think about longer-term policies to improve investor confidence," she said.
But she added that the overall impact on China's economy would likely be minimal.
"Not that many people are in the market, and it doesn't take up much of a share of GDP; the mainland Chinese stock markets have relatively low capitalization, and they have a negligible effect on the rest of the economy and the financial system," Lau said.
“There isn't much overseas capital entering the markets, either,” she said. “It's all domestic funds flowing in and out of shares, so it shouldn't be too hard to stabilize."
Lack of genuine reforms
Meanwhile, Beijing political commentator Chen Yongmiao said that the government is now reaping the consequences of its lack of genuine reforms.
"They should have reformed the financial markets long ago, as well as the political system, which is seriously lagging behind, as well as corruption," Chen said.
"If truth be told, nobody who doesn't invest in the stock market will want to pick up the tab for those who do," he said.
"It's a tale of endless sorrow for anyone who depends on the Chinese Communist Party regime to make money, or anyone who hopes to," he said.
Some online commentators agreed. "In the U.S., they only use this mechanism once in seven years,” one user commented on social media. “Under our own dynasty, the domestic stock market uses it twice in a single day."
Others quoted late supreme leader Deng Xiaoping, who is credited with launching economic reforms in the 1980s, who is reputed to have said: "Socialism can have a go at stock markets too; if it doesn't go well, we can just shut 'em down again!"
Shanghai-based stock market analyst Chen Lebo disagreed, however, saying the cut-off mechanism should remain as the market transitions to greater maturity.
"The Chinese market is trying to transition from an immature market to a mature market, so there is going to be some pain along the way.
"We have already paid the price we need to pay in the short term; now we need to make sure we engineer a better long-term future for Chinese shares," he said.
"There is a still a way to go,” he said.
Chen also said Chinese markets needed more government regulation like markets in "western countries."
"Short-term stability is unattainable," he said. "It would be better in the long run if we didn't try to achieve it."
Reported by Wong Lok-to for RFA's Cantonese Service, and by Xin Lin for the Mandarin Service. Translated and written in English by Luisetta Mudie.