Katie Lance
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Katie Lance in Economics & Politics,

Beijing calls stock bubble over, markets disagree

China stocks continued their selloff Monday despite assurances from Beijing that the crisis was nearing an end.

The Shanghai Composite closed down 2.5% amid choppy trading as investors returned from a four-day holiday. The smaller Shenzhen Composite was flat.

Zhou Xiaochuan, the governor of the People's Bank of China, told G-20 central bankers and finance ministers on Saturday that the "corrective process" in China's stock market was nearly complete.

"Market leverage has fallen sharply since the correction, but this has not incurred any notable impact on the real economy," Zhou said, adding that a more stable financial market is expected going forward.

The remarks were the first public statements from the central bank chief since the benchmark Shanghai index started its recent crash. The index has lost roughly 40% of its value since mid-June, leading regulators to step in with a bailout package.

The China Securities Regulatory Commission acknowledged Sunday that a bubble had formed, making subsequent "plunges and adjustments" inevitable. The regulator said that Shanghai's average price-to-earnings ratio, which measures how much investors are getting for their money, had declined from 25 to 15.6 after recent losses.