Beijing is trying to manoeuvre the world's second-largest economy into a "new normal" of slower expansion, but alarms have sounded over whether the transition will hit global growth as a Chinese stock collapse reverberates across markets.

After decades of double-digit expansion that have utterly transformed China, the vision that Communist authorities hold out for the future is one of more sustainable growth, fuelled by domestic consumer spending rather than exports and investment.

But the shift is suffering from birth pains.

China devalued its currency nearly two percent on August 11, a shock move it described as a market reform but which was widely seen as an effort to boost exports, raising questions over the health of national finances.

Economic indicators are weak, including a more than six-year low in a manufacturing index for August.

And on Tuesday, the central bank cut its benchmark interest rates and the amount of cash banks must keep on hand, the latest attempt to stoke economic activity by increasing the amount of money institutions can lend.

"China is in the late stage of an investment-driven growth miracle," Michael Pettis, a finance professor at Peking University, told AFP.

"The problem is that... means that the adjustment is going to be much more painful than you expected. And basically that's where we are in China."

Investors are running for cover against a background of a 40 percent fall in its main stock market from its mid-June peak -- which Beijing's interventions have not halted.

"I look at it very much as a crisis of confidence, or examples of lack of leadership," Fraser Howie, an independent analyst and co-author of "Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise", told AFP.

"What a change that is from economic mandarins who could walk on water," he said.

- 'Misconceived, poorly executed' -

During the 1997-1998 Asian financial crisis, China earned praise as a rock of stability for resisting a competitive devaluation even as currencies tumbled around the region.

In 2008, when the global financial crisis struck, Beijing unveiled a 4.0 trillion yuan (now $625 billion) stimulus package, which was widely credited with lessening the impact of the worldwide meltdown.

But this time China's market-saving measures are being branded a failure.

After stocks plummeted in mid-June, the government intervened with an extraordinary rescue package which included setting up a "national team" to buy on its behalf and barring big shareholders from selling.

At first the indices rose. But the benchmark Shanghai Composite fell 8.49 percent on Monday, its biggest daily slump since February 2007, wiping out the year's gains and sending shockwaves through world markets.

That was followed by a 7.63 percent slump on Tuesday that left it below the symbolic 3,000 mark.

"I think it was misconceived to begin with," Howie said of the initial rescue package. "It was poorly executed. It's clearly not showing to have any significant follow-through."

China needs a functioning stock exchange to help raise funds for companies as it seeks to have market forces play a greater economic role, especially private firms which face difficulties getting loans from state-owned banks.

Some analysts believe the domestic market rout has little connection to China's real economy, which was already slowing even as stocks rose 150 percent over the 12 months to mid-June, encouraged by the authorities.

"A combination of poor data and policy inaction in China may have triggered (Monday's) market falls," Capital Economics Chief Asia Economist Mark Williams said in a research note.

"But the bigger picture is that we are witnessing the inevitable implosion of an equity market bubble."

- 'Whatever it takes' -

China represents more than 13 percent of the world economy and is its biggest trader in goods. As a giant resources buyer and a huge consumer market in its own right, it is a key driver of world growth, and its troubles risk rebounding more widely.

The shock devaluation of the yuan has hit other emerging market economies, from Turkey to Brazil, whose exports are now comparatively more expensive, and there are fears of a "currency war" of copycat depreciations.

Most analysts are forecasting China's economic growth for 2015 will come in below the government's full-year target of 7.0 percent, weaker than last year's 7.4 percent expansion -- already the slowest since 1990.

But scepticism abounds over recent official growth data which came in bang on target, renewing accusations that the government massages economic figures during times of slowdown.

"The economy has seen new signs of weakness from disappointing exports and wobbling infrastructure investment," said head of China economic research for UBS, Wang Tao, who is forecasting 6.8 percent growth this year.

The government could still engineer a soft landing and has tools to arrest slowing growth, including more interest rates following five cuts since November and further trimming the reserve requirement ratio for banks, the proportion of funds they must put aside.

"The government will do whatever it takes to stabilise growth at 6.5-7.0 percent," Wang said.