The stock markets are not an all-consuming force in China. Traded equities represent only a slice of finance in a Chinese economy still largely dependent on bank finance and wealth funds; the Shanghai and Shenzhen exchanges don’t have much relationship to the actual Chinese economy. Chinese stocks are largely closed to foreign traders. And, significantly, the pensions and retirement savings of Chinese are not invested in stocks -- in fact, a move to allow pension funds to buy shares this weekend was one of the events that triggered the sell-off.
So it would be a mistake to say that the world economy rises and falls on Chinese markets. As Stephen Roach, a former chairman of Morgan Stanley, put it on Monday: "China is the excuse, not the reason." But it suddenly is a very tangible excuse. On Monday, it was as if the world’s investors, all at once, took a look at China’s panicky duct-tape repair efforts and saw a dark reflection of themselves.
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