The steep losses led another sell-off across Asia following a painful week for global markets with the virus death toll topping 360 people and more than 17,000 infected, and governments around the world banning flights to and from China.
Analysts have warned the outbreak could slash global growth this year, throwing a spanner in the works just as economies were showing signs of stabilising after more than a year of slowing.
Observers said that with China being a crucial part of the global trade infrastructure, other countries would also be badly hit, while major corporate names have frozen or scaled back their Chinese operations, threatening the global supply chain.
The World Health Organisation invoked a global health emergency last week but stopped short of recommending trade and travel restrictions that could have had a bruising effect on China.
"The situation is terrible and China's economy will be dealt a bad blow," said Stephen Innes at AxiCorp.
"As will Asean (Association of Southeast Asian Nations) countries that have built significant trade ties with China, even more so those countries that are tourist destination spots and service providers to Chinese tourists. They will be dealt the nastiest blow of all."
Shanghai plunged almost nine percent at the open on the first day back after the Chinese New Year break as traders played catch-up with last week's global retreat.
The market had been due to reopen on Friday but authorities extended the holiday to buy time in the fight against the virus.
Monday's losses were the biggest since the 2015 market rout, though the composite index managed to pare some of the losses, helped by the central bank's decision to pump 1.2 trillion yuan (US$173bil) into the economy. The yuan fell about 1.5% against the dollar.
Firms linked to tourism and travel were among the worst hit, with energy, telecoms and tech companies also well down. More than 2,600 stocks fell by their daily 10 percent limit, while the main iron ore contract fell by its maximum allowed eight percent. Copper, crude and palm oil also sank by their limit.
"The near-term impact on Chinese GDP growth is likely to be large," Oxford Economics said in a research note.
"Considering the affected areas account for just over 50 percent of total Chinese output, we think this could lead China's annual GDP growth to slow to just four percent in (the first quarter)," it added -- down from a previous forecast of six percent growth.
Still, JP Morgan Asset Management strategist Tai Hui remained relatively upbeat about the future.
"As the number of infections is still likely to rise in the weeks ahead, we would expect the Chinese onshore equity market to come under pressure," he said in a note.
"That said, we still believe that economic activities should recover swiftly once the number of new cases comes under control, and subsequently market sentiment should also improve. This could take time to play out, but this underpins our long-term optimism in the A-share market despite a challenging time ahead."
There was red on the boards elsewhere in Asia. Tokyo was one percent lower, while Sydney, Singapore, Wellington and Taipei all shed more than one percent. Jakarta lost 0.6%, Bangkok dropped 0.8%, Manila shed 0.9% percent and Seoul was flat.
However, Hong Kong edged up after losing almost six per cent in three days last week, while Mumbai also rose slightly.
The flight out of riskier assets hit high-yielding currencies with the South Korean won down 0.4% and the Indonesian rupiah losing 0.5%.
Separately, the pound edged down after rallying Friday on the day Britain left the European Union after months of uncertainty.
Expectations that demand for oil will fall off in China is keeping pressure on the price of the commodity.
Both main contracts were down on Monday and have lost almost a quarter of their value since hitting four-month highs in January.
The losses come as producers continue to boost output, while the cancellation of hundreds of flights in and out of China is also having a major impact, analysts said. - AFP
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