The index gained a massive 150 per cent in the year to June 12, but has retreated more than 20 per cent since then, meaning China has entered bear market territory.
Monetary easing and a downturn in China's property market had been pushing Chinese investors towards shares, while margin trading - borrowing some of the cash required for a transaction from a broker - also helped fuel the market frenzy.
Friday's share sell off prompted China's central bank to cut interest rates over the weekend in the hope of bolstering investor confidence, but it failed to have the desired effect.
Meanwhile, Chinese economic growth has slowed to its lowest rate decades and the country's export output plunged 15 per cent in April.
ANZ chief economist Cameron Bagrie said he wasn't overly concerned about the situation in Greece, where banks are shut this week in an effort to stave off a run on deposits.
The country is heading for a default on its debts and could potentially exit the eurozone.
"When push comes to shove in Greece I think that story will be contained because the European Central Bank has got the firepower to contain it," Bagrie said. "I'm watching China a lot more than Greece."
New Zealand's economic fortunes are intertwined with China, which was this country's biggest export market last year.
"What is more relevant for the New Zealand economy today and over the next 12 to 24 months is going to be the twists and turns in the Chinese economy," Bagrie said. "And what we've seen in China over the last few days is developments moving at a very rapid clip."
He said the Chinese share sell-off could be seen as a "natural correction after moving through the stratosphere".
"What goes up can come back down."
Zhang Gang, a strategist at Central China Securities in Shanghai, told Bloomberg that the recent losses were the result of "panic selling".
The sell-off was likely to continue as margin investors were forced to liquidate their holdings, Zhang said.
Mark Lister, head of private wealth research at Craigs Investment Partners, said the sharp fall in Chinese equity values was partly a reflection of the pronounced rally that took place before the sell-off.
"Did the Chinese sharemarket deserve to double in a year? Of course it didn't," Lister said. "The fact that the heat has come out of it is probably a good thing."
Harbour Asset Management analyst Shane Solly said the Chinese sell-off highlighted the "extremes" that were presently taking place in capital markets.
"The Greek situation is the one that has the more immediate impact for capital markets," he said. "The continued slowdown in economic activity [in China] is something we need to keep an eye on."
