Chinese stocks tumble as growth slows

China's financial markets crumbled Tuesday as the government tightened lending regulations and investors braced for slower economic growth.

China's Shanghai Composite Index fell 5.4%, the worst since 2009, while bond prices rose and the yuan recorded its worst two-day fall in history.

Behind the fall: China's frothy credit markets. The Chinese government put new restrictions on collateral used in short-term loans called repurchase agreements. The new rules say that only very highly rated bonds could be used as collateral -- causing a meltdown in prices -- and a spike in yields -- of lower-quality bonds.

The problems in the bond market quickly ran to the stock market as interest rates rose. The selloff in Chinese stocks and bonds spilled over into the currency market, pushing down the value of the yuan.

Chinese policymakers at a meeting in Beijing this week are widely expected to lower growth targets for 2015, according to the Wall Street Journal.

Shares of iShares FTSE China 25 Index Fund (FXI), the largest China exchange-traded fund, fell 3.81% in early morning trading. iShares MSCI China Index Fund (MCHI) tumbled 3.43%. Traditional open-ended mutual funds that invest in China won't price their shares until 4:00 p.m.

The Chinese meltdown took other markets with it. Japan's Nikkei 225 stock index fell 0.68% and Hong Kong's Hang Seng index fell 2.34%. Australia's ASX 200 index fell 1.68%.