The stability in China's stock market this year is showing signs of cracking.

In the past three full trading days the Shanghai Composite Index has fallen 2.4 per cent, the steepest such decline since mid-December. The psychologically key 3,200 level has been breached for the first time in two months, while a measure of volatility is climbing. On Wednesday morning, it opened another 0.5 per cent lower to extend the losses.

Chinese shares are on a losing streak. Credit:Getty Images

As is typical in a $US7 trillion ($9.3 trillion) market dominated by individual investors, pinpointing the reasons for the sudden loss of confidence is hard. Traders have cited the securities regulator's increased scrutiny on irregularities in the market, tensions on the Korean peninsula and fears that a strengthening economy will prompt more tightening by the central bank. The ChiNext gauge of small-cap shares, historically a barometer for the availability of speculative liquidity, has slumped to within a few per centage points of a two-year low.

The recent declines represent a swift reversal. Just a week ago the Shanghai Composite was at heights not seen for 15 months, while volatility was near the lowest level in at least a decade.