China experienced its biggest share market rout in eight years on Monday despite the lack of a clear trigger for the extensive sell-off.

Shanghai Composite equities lost 8.5 per cent as more than 1600 stocks fell to government-imposed 10 per cent limits in the final hour of trading on Monday in the worst loss since 2007.

The tremors sent global equity markets and commodity prices lower, while analysts attempt to identify what triggered the sell-off.

This is the second sharp fall endured by Chinese equities since the market's peak in June. While shares have lost 30 per cent of their value since then, the market remains up 15 per cent for the year.

Investors "are concerned and lost," Hong Kong-based Ample Capital asset manager Alex Wong told Bloomberg. "China's market is distorted, so you can't sell short very confidently and you can't buy up very confidently either."

Here are three factors that helped Chinese markets take such a dramatic dive: 

1. Global pressures worry Chinese investors

A Chinese woman stands behind a glass panel near stock prices displayed on a board at a brokerage house in Shanghai, China. Photo: Chinatopix Via AP

Chinese media is attributing the sell-off to range of factors including heightened expectations of an incoming US Federal Reserve interest rate hike and reports the International Monetary Fund is leaning on Chinese authorities to back out of propping up its financial markets.

The US Federal Reserve is tipped to raise rates this year possibly even as early as September, which will lower the US dollar and cause knock-on effects throughout the globe, including to commodities, many of which are denominated in US dollars.

Chinese media have been particularly focused on the IMF's request China steps back from intervening in local markets, a request that carries particular weight as Chinese leaders will need the IMF's support to have its equities included in the MSCI and other world categories.

"The markets in China now are not really markets," Evercore ISI's head of China research Donald Straszheim told Bloomberg. "They are government operations."

2. Confidence crisis with unpredictable government intervention

Chinese Premier Li Keqiang prepares to deliver the government work report during the opening of the annual full session of the National People's Congress in Beijing in March  REUTERS

This interference makes predicting how the central authorities in Beijing will step into the market a factor in investor sentiment.

As more stocks came back into trading on Monday after being frozen during the last rout, the risk of a sell-off rose, particularly as investors exited shares boosted by the previous government bailout.

"Clearly the Chinese markets are unable to support themselves," IG analyst Evan Lucas said.

"The mountain of leverage and the risks of margin calls are hitting market stability. Interestingly, the CSRC has threatened jail time again for those conducting short selling."

In an attempt to recover from the last rout, Beijing banned short selling and relaxed rules around insider trading. However during the sell-off on Monday, the China Securities Regulatory Commission announced it will be monitoring the market as shareholders of nine companies are under investigation for illegally selling stocks.

"Margin calls, and for some stocks, trading halts only damage already brittle sentiment at a time when Chinese growth sentiment is under a cloud," National Australia Bank analyst David de Garis said.

The South China Morning Post's George Chen said the government's decision not intervene in the early selloff of major companies Sinopec and PetroChina may have spurred selling.

Kaiiyuan Securities strategist Yang Hai told Bloomberg the recent rebound after the earlier dive had been "swift and strong", creating the need for a technical correction.

3. Fears of slowing growth

An employee works at the production line of an automobile factory in Dalian, Liaoning province. REUTERS

Another factor that may have spurred selling was the release of data that showed China's growth may be slowing faster than previously anticipated.

Data on Monday showed profit at China's industrial firms dropped 0.3 per cent in June from a year earlier, reversing a 0.6 per cent rise in May.

This adds to pressure on an economy that is struggling to regain momentum, after data on Friday showed that China's factory sector contracted the most in 15 months in July as shrinking orders depressed output.

"The PMI (manufacturing data) came as a big surprise for the market, which was expecting an increase," Credit Agricole senior economist Dariusz Kowalczyk told CNBC.

"I believe the reading reflects the negative impact of the stock market crash, the weaker outlook for consumption and the worsening of availability of funding for investment."

Authorities pledge support

Will the rout continue? Beijing said on Monday it was prepared to buy shares to stabilise the stock market and avert "systemic risks".

The securities regulator also said market authorities would deal severely with anyone engaged in the "malicious shorting of stocks", in Beijing's latest attempt to stave off a full-blown market crash.

Some saw the government-induced recovery in share prices in recent weeks as itself contributing to the crash.

"After two weeks of steady rebound, both foreign investors and domestic institutions are gradually taking profits, increasing selling pressure," said Yu Jun, strategist at Bosera Asset Management.

"In addition, investor confidence hasn't fully recovered. There has been no obvious increase in outstanding margin loans, while the amount of fresh capital inflows is much lower than the average level in May and June. With not enough money taking up the baton, a renewed, sharp correction is inevitable."

with Reuters