Chinese stocks drop sharply to 1-year low

The Shanghai Composite Index fell 4 percent, or 128.07 points, to 3,094.66, its lowest close since March 23, 2007. The Shenzhen Composite Index fell 4.2 percent to 930.63 points.

Market heavyweight PetroChina fell 5 percent to 16.02 yuan, dropping below its IPO offering price of 16.70 yuan for the first time since it began trading in October. "The main reason for the protracted decline is disappointment over market policy," said Gui Haoming, an analyst at Shenyin & Wanguo Securities. "Both retail and institutional investors are deeply worried about the economy and continued monetary tightening, and there haven't been any measures to break the markets fall," Gui said.

The sell-off follows the release earlier this week of data showing that China's economy grew a solid 10.6 percent in the first quarter of the year, while inflation moderated in March to 8.3 percent from a 12-year high of 8.7 percent the month before. All that sounds confidence-inspiring, but the government's continued pledges to maintain tight credit to help fight inflation have dampened buying sentiment, analysts say.

Meanwhile, the 41 percent drop in the Shanghai benchmark index since the beginning of the year has accentuated worries over the potential impact on company earnings.

Shares may rebound once they hit the psychological benchmark of 3,000, said Zhai Peng, a strategist at Guotai & Junan Securities. "But that won't happen until the China Securities Regulatory Commission releases some market-boosting policies," Zhai said.

Zhai said the CSRC had begun requesting analyses of the market from brokerages -- which he reads as a signal regulators might finally move to support the market. "I think boosting measures are on the way," he said.