Despite extraordinary measures by the Chinese government over recent days to stop prices falling, the Shanghai Composite Index was down 5.9 per cent, while the Shenzhen Composite was off 2.9 per cent. The Shanghai market has fallen 32 per cent from its high of 5166 points on June 12.

In Hong Kong, the Hang Seng Index fell 5.8 per cent towards the close, erasing most of its gains for 2015.

Lower interest rates in China would cut borrowing costs for companies and individuals, potentially providing a boost to investment and consumption.

They could increase demand for steel, which would likely flow through to iron ore.

Mr Liu said the falling stockmarket would accelerate the roll-out of infrastructure projects across China, which had been slow this year. "In the second half of the year, China's infrastructure spending will be much faster," he said. "That should support the iron ore price but I don't think it will lead to a significant pickup."

The iron ore price remained below $US50 a tonne on Wednesday, and the futures market in Dalian fell by 8 per cent due to increased supply and tepid steel demand out of China.

Some 1323 companies were suspended on Wednesday and a further 710 halted after falling by their daily limit of 10 per cent.


In announcing extra support for the market a spokesman for the China Securities Regulatory Commission said: "The stock markets are now full of panic and the amount of irrational selling has been increasing".

The Securities Regulatory Commission said the funds provided by the central bank would be channelled to brokers to provide margin lending, which could then be used to buy stocks.

The regulator encouraged executives and director of listed companies to buy shares.

In its statement the PBOC said it would support the regulator by providing 260 billion yuan in funds to China Securities Finance, a state entity which provides margin loans to brokers.

"The PBOC will closely monitor the market and will continue to use various methods to support China Securities Finance to maintain the stability of the stock market and defend the market from any systemic risks," the central bank said.

The China Insurance regulatory Commission said it would allow "qualified insurers" to own up to 10 per cent of a company from 5 per cent previously. It also increased to 40 per cent the amount of equities an insurer could hold in its portfolio from 30 per cent previously. "This will promote the long term, healthy and stable development of capital markets," the insurance regulator said in a statement.

The State-owned Assets Supervision and Administrative Commission, which manages China's government owned companies, ordered its companies not to sell any stocks during this "period of share market volatility".

On Monday the National Social Security Fund also ordered its fund managers "not to sell a single share".


In a sign that the stock market fall remains a politically sensitive topic in China, The Australian Financial Review was asked to leave two public trading rooms on Wednesday in the remote Chinese city of Hohot, the capital of Inner Mongolia.

At one trading room the manager said: ""People don't want to talk … they have been quite upset recently."

Before this one investor in her 60s, who did not want to be identified said simply: "The market is bad. I have lost a lot of money. Any profit I made in the rally, I have now lost and I still have money in the market."

She started investing in November last year just as China's bull market was taking off and she used margin finance to extend her positions.

The stock market turbulence has prompted the government to roll out a series of unprecedented measures to support the market including the halting of 28 initial public offerings, allowing the country's sovereign wealth fund to buy local shares, and forcing the country's largest stock brokers to create a 120 billion yuan market stabilisation fund.