Chinese stocks plummeted more than 5 per cent in early trading on Monday, with the index heading for its biggest monthly loss in the past ten months.

China's leading steel manufacturer, Baoshan Steel, slipped 4.4 per cent, while China Southern was lower by 3.9 per cent. China Merchants Bank Co. dropped 5.8 per cent. PetroChina dropped 5.25 per cent to 13.00 Yuan.

The benchmark Shanghai Composite Index dropped around 150.05 points to settle at 2,710.64 by 11 a. m.

Last week, investors were selling heavily on concerns that bank would trim down lavish lending that helped push shares up.

It may be noted here that Chinese govt. had spent 4 trillion Yuan to stimulate economy during the first 6-month period of 2008.

Deputy Chief of research at Shenyin & Wanguo Securities, Qian Qimin, said, "Although July data showed China's economic recovery may not be as quick as the market had once expected, it is still on track."

However, many economists are of the view that slowdown in lending would slash flow of liquidity into stocks, but it should have no major impact on the Chinese economy.