How does this happen in the world's second largest stock market? Chinese firms halt trading in their shares to stop the price declines.

Chinese companies have found a way to keep their stock prices from declining: Halting trading in their shares.  Roughly 1000 Chinese firms have now halted trading in their shares as of Tuesday's market close, a third of the market according to Bloomberg.  

Corporations can use any number of reasons to request a halt on trading: Restructuring, planned share placements, or a pending release of a "significant matter", for example.  Most firms have recently cited "significant issues" as the reason to halt trading.  According to regulatory rules, companies can suspend trading for up to three months.

Firms that halt trading without good cause will face fines.  But, companies that have removed shares from trading must have found the fines favorable to potential double-digit declines in market values.

Many mainland retail investors are viewing the share trading suspensions positively.  Some trading halts would potentially stabilize the market, but I can't help but think that a third of the market removed from trading will dramatically reduce confidence.  The Shanghai exchange opened with an 8% drop, but as of this posting the losses had moderated to 4%.