China’s stocks turned into a bear market on Monday, as frenzied selling continued in the country’s bourses despite the Beijing central bank slashing interest rates at the weekend in order to calm investor nerves.

On Saturday the People’s Bank of China cut its one-year lending rate by 25 basis points and lowered its reserve requirements for some commercial banks by 50 basis points in order to boost lending in the wake of heavy falls in equity markets last week.

But the easing seemed to have little impact as the Shanghai composite index closed down a further 3.3 per cent on Monday. That took the benchmark index a fifth lower than its peak on 12 June, fulfilling a common definition of a bear market. At one stage stocks were trading down 7.6 per cent. The Shenzhen stock market also fell 6.1 per cent, while the ChiNext index of small firms lost 7.9 per cent. In the past fortnight Chinese stocks traded in Shanghai and Shenzhen have lost around 16trn yuan (£1.6trn) of paper value – almost as much as the current value of the entire FTSE 100.

“Nobody knows when the market will bottom,” said Paul Chan of Invesco in Hong Kong, reflecting the sense of rising panic among investors.

The timing of the equities rout came as an embarrassment for Beijing, as it coincided with the high-profile official launch of its Asia Infrastructure Bank in the Chinese capital. President Xi Jinping welcomed representatives from 57 founder-member countries, including Britain, in the Great Hall of the People. George Osborne put America’s nose out of joint earlier this year when he ignored US objections and allied the UK to the Chinese bank, which is seen as a potential rival to existing multilateral institutions such as the IMF and World Bank.

The Shanghai index was worth 2,056 points in June 2014 and roared up to 5,166 earlier this month, a stunning 150 per cent gain in under a year, something analysts had attributed to a host of small investors speculating on price gains with borrowed money.

The equally rapid falls in prices since early June are ascribed to overleveraged traders being forced to unwind their positions.

The Shanghai index fell 7.4 per cent last Friday, which spurred Saturday’s rate cut and also attempts by the state media to talk up the markets. The China Securities Journal argued that stocks will enjoy a three-decade “golden age” in a front-page commentary.

Some analysts warned the Chinese equity market collapse could have dangerous broader implications for the world’s second largest economy. “If the slide continues, we expect policymakers to focus on managing the risks for the wider economy,” said Mark Williams of Capital Economics. “The biggest danger is that losses suffered by highly leveraged investors lead to problems in credit markets.”

Chinese regulators are reportedly considering suspending flotations in order to avoid roiling febrile markets.