Monday, the first trading day of 2016, turned out to be disastrous for China, with trading halted on the Shanghai and Shenzhen stock markets at about 1:30 pm following a 7% plunge that triggered the new "circuit breaker" mechanism, the first time in the history of China's stock markets.

The system gets triggered if the Hushen 300 Index, which reflects the performance of stocks traded on the two stock exchanges, rallies or corrects by 5%, resulting in a 15-minute suspension in trading. If the fall in the Hushen 300 Index is more than 7%, trading is halted for the day.

The fall on Monday was linked to poor manufacturing activity in December in China and a sharp decline in the yuan exchange rate.

Xinhua reported that the Caixin General China Manufacturing Purchasing Managers' Index (PMI), which was released Monday, dropped to 48.2 in December 2015 from 48.6 in November.

Earlier in the morning, when trading began, shares tumbled over 4%. 

The ChiNext Index, China's version of NASDAQ, plunged 5.5%, Xinhua added.

The fall had an impact on the Indian stock markets as well, with both Sensex and Nifty trading in the red on Monday.

The fall in the Chinese stock exchanges also led to a fall in Japanese stock exchange, with the Nikkei share average falling to a two-and-a-half-month low, reported Reuters.