Stocks in China plunged Thursday amid heightened worries about market liquidity, just as leaders of the world’s largest economies are preparing to meet in Shanghai.

The Shanghai Composite Index SHCOMP, +2.06% tumbled throughout the trading session to finish down 6.4% at 2,741.25. That was the worst percentage drop for China’s leading benchmark since Jan. 26 and took the benchmark down to a 47% loss since last summer.

The sudden selloff appeared to be due to several reasons, from worries about tighter liquidity in the market to withdrawal of money by investors who have been hammered by months of volatile trading in China.

It comes at an awkward moment for the Chinese government, which is hosting the world’s leading central bankers and finance ministers starting Friday. China has been expected to use the G-20 meeting to address global anxiety about its economy and financial markets. Worries about China’s economic slowdown and the volatility of its markets have weighed on investment decisions around the world.

Read:Everyone’s on the hot seat as G-20 comes to Shanghai

Thursday’s selloff, which started in the morning, was abrupt and came as a surprise to many investors. Some had hoped authorities would soon release plans to improve state-owned enterprises, and such expectations have boosted Chinese shares at times recently.

Liquidity injections by China’s central bank in recent weeks had helped the benchmark stabilize since late January.

By the close, the Shenzhen Composite Index 399106, +1.50% had dropped 7.3%, and China’s Nasdaq-style ChiNext board was down 7.6%. More than 1,300 stocks in Shanghai and Shenzhen fell by 10% — the maximum level that Chinese authorities allow an individual stock to fall in one day.

Elsewhere in the region, shares were mixed. The Hang Seng Index HSI, +0.47% finished down 1.5%, but Australia’s S&P/ASX 200 XJO, -0.31% was up 0.1% and Japan’s Nikkei Stock Average NIK, +0.17% gained 1.4%. South Korea’s Kospi 180721, +0.25% was up 0.3%. Thursday was a stark contrast from the beginning of the year when selling in China spread across the region — and even the world.

Traders said Chinese shares sold off as the rate at which commercial banks lend to each other rose. The overnight rate jumped to 2.004%, the highest since late January. That compares to 1.956% on Wednesday.

“ “Investors are increasingly wary of risks associated with funds from banks and insurance firms.” ” — Li Lifeng, an analyst at Sinolink

A total of 960 billion yuan of reverse repurchase agreements — a kind of short-term loan to commercial banks by China’s central bank — are due to mature this week, squeezing liquidity in the market. The People’s Bank of China withdrew 455.5 billion yuan of short-term loans from the financial system last week, the highest weekly net withdrawal level in three years.

Analysts also pointed to an announcement by China’s banking regulator early Thursday afternoon that it had banned Zhongrong Life Insurance from adding stock investment due to solvency risks.

“Investors are increasingly wary of risks associated with funds from banks and insurance firms,” said Li Lifeng, an analyst at Sinolink.

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The losses took place against the backdrop of an already weak equity market: The Shanghai Composite Index is down 23% year to date, making it one of the worst performing stock indices globally.

Chinese “retail investors haven’t recovered from the stock market disaster early this year while institutions are incentivized to take profits once market recovers a bit,” said Zhang Xin, an analyst at Guotai Junan Securities.

Trading volumes in Shanghai and Shenzhen totaled 664.8 billion yuan on Thursday, up from 579.6 billion on Wednesday. But volumes have fallen dramatically from more than 2 trillion yuan on days last year, before the summer meltdown.