The benchmark Shanghai Composite index nose-dived 6.4 percent at the start of trade, following a jaw-dropping 8.5 percent plunge on Monday, the biggest one-day percentage loss since 2007. The market, which had climbed almost 60 percent between January and mid-June, has now erased gains for 2015, down over 6 percent year-to-date.
"The surge in prices that started a year ago was speculative, rather than driven by any improvement in fundamentals. A combination of poor data and policy inaction in China may have triggered today's market falls but the bigger picture is that we are witnessing the inevitable implosion of an equity market bubble," Williams said.
"Similarly, falling equity prices in China shouldn't be a cause of trouble in the wider economy or abroad," he added.
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Recent economic data from China have been mixed rather than unrelentingly negative as many recent headlines suggest, Williams said.
While the latest selloff was largely triggered by the disappointing flash Caixin manufacturing purchasing managers' index (PMI) reading for August, he said the data point should be viewed with caution.
"For one thing, the manufacturing PMI has become a less useful guide to conditions in the industrial sector over the past year or so. For another, other parts of the economy appear to be doing much better," he said, citing the Caixin China services PMI, which hit an 11-month high in July.
"To some extent, the recent pattern of weakness in property construction and heavy industry set against strength in services is a positive sign that rebalancing towards a more sustainable growth model is underway," he said.