Chinese stocks slid further on Tuesday amid a global rout.
The benchmark Shanghai Composite Index fell 4.33 percent to close at 3,071.06 points by midday, following the 8.49-percent loss on Monday in its biggest daily slump since February 2007, reported Xinhua.
The Shenzhen Component Index lost 5.68 percent to close at 10,346.85 points. The ChiNext Index, which tracks China's NASDAQ-style board of growth enterprises, fell 6.5 percent to close at 2,012.73.
Overnight, the Dow Jones Industrial Average tumbled 3.58 percent to 15,871.28. The S&P 500 lost 3.94 percent and The Nasdaq Composite Index sank 3.82 percent.
European equities also dived on Monday following the previous session's steep decline, as the Stoxx Europe 600 was down over 6 percent and Germany's DAX fell 4 percent.
The losing streak in the Chinese market came despite the government's decision on Sunday to allow pension funds to invest in the stock market. The move came earlier than expected and with the obvious purpose of shoring up investors' confidence and stabilizing the market.
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Under the new guidelines, up to 30 percent of the pension fund's net assets can be invested in stocks and equities. The fund has assets of around 2 trillion yuan ($326.8 billion) that could be invested, meaning up to 600 billion yuan could theoretically go into the stock markets.
That would be equivalent to around 1 percent of the total market value of Chinese shares currently.
"The scale of the funds is limited and they will enter the stock market gradually, so their short-term impact will be quite small," said Ren Zeping, an analyst with Guotai Junan Securities.
Weak economic data dealt another blow to investor confidence. The Caixin flash China general manufacturing PMI, the earliest available indicator of manufacturing sector conditions in China, retreated to 47.1 in August, the lowest reading since March 2009.
The continuous fall in the index in recent months indicates the economy is still bottoming out, said Dr. He Fan, chief economist at Caixin Insight Group.
Other Asian markets fell at the opening on Tuesday but Tokyo, Sydney and Hong Kong had rebounded to positive territory by noon. On Monday, Japan's Nikkei 225 Index fell 4.61 percent while the Hong Kong Hang Seng Index lost more than 5 percent.