Chinese markets have been volatile this year

China's central bank governor said key interest rates may have to rise further to curb rising prices and excess liquidity in the economy.

Shanghai's main share index has more than doubled in value over the past year but fell 3% on Monday after a similar decline on Friday.

The Shanghai Composite Index fell 162 points to close at 3,929.

It was also affected on Monday by a sharp fall in the value of Sinopec shares after the oil giant's chairman resigned.

Foreign capital

Aside from concerns about inflation, investors were unnerved by new proposals to be make all foreign takeovers of Chinese firms subject to scrutiny on national security grounds.

The measure, which is being considered by legislators, would be the first time that specific national security vetting requirements would be enshrined in law.

One analyst said this reflected a "big change" in China's attitude towards foreign investment, which totalled $60bn (�35bn) last year.

"It will be more and more difficult for foreign capital to enter into China," said Andy Xie, an independent economist.