Chinese stocks continued to drop on Tuesday as investors remained concerned over liquidity.
The benchmark Shanghai Composite Index went down 0.49 percent to close at 3,102.88 points, and the smaller Shenzhen index closed 0.37 percent lower at 10,245.33 points.
Turnover on the two exchanges stood at 384.4 billion yuan (about 55 billion U.S. dollars), shrinking from 399.6 billion yuan the previous trading day.
The ChiNext Index, which tracks China's NASDAQ-style board of growth enterprises, gained 0.10 percent to close at 1,982.30 points.
China's central bank on Monday said it will tighten supervision of shadow banking by including wealth management products (WMPs) in its risk monitoring system next year.
China's fast expanding wealth management industry is considered a source of risk, as off-balance sheet WMPs channel deposits into risky investments without enough regulation.
The government will put more emphasis on controlling financial risks in 2017, according to the Central Economic Work Conference, a key economic meeting held last week, which also promised monetary policy in 2017 will be prudent and neutral.
The stance has fuelled concerns about liquidity tightening. Citic Securities expects the liquidity stress to last until the Spring Festival in late January.
In contrast to the downcast sentiment, shares related to state firm reforms rose on Tuesday. State-owned Linhai Group surged by 9.98 percent to end the day at 14.77 yuan per share.