While international attention has been focused on the drama surrounding Greece’s future in Europe, China is experiencing its most serious economic crisis in decades. The country’s stock markets have been in a perilous decline. Government action has thus far proven unable to halt the downward spiral. Coming amid a more general slowdown, there is great concern in China and abroad about the impact of this plunge and whether it will become a political challenge to the government in Beijing.

Share prices on the exchanges in Shanghai and Shenzen have fallen about 30 percent since June 12, the sharpest decline in over two decades. It is reckoned that the combined losses in value have reached $3 trillion. By midweek, more than 900 companies, more than a third of the firms listed on the two exchanges, representing about $1.5 billion in value, had suspended trading in their shares.

The government has tried various measures to stem the slide. Taking a page from Hong Kong’s response to the 1997-98 Asian financial crisis, the Securities Association of China announced that 21 of the country’s biggest brokerage firms would launch a 120 billion RMB fund ($19.3 billion) to buy shares in the largest companies and would stop selling shares from their own portfolios. The Asset Management Association of China, another government-backed institution, announced that 25 of the country’s largest mutual funds would speed up the issuance of funds to invest in stocks.

The government has reportedly pushed state-owned enterprises and other large companies that it has influence over to buy shares and help provide a floor to the market. Regulators have announced a crackdown on short selling and market manipulation, and pledged tighter scrutiny and enforcement of laws relating to sales practices. At the same time, they have loosened restrictions on margin calls — so that declining prices would not force investors to sell stocks — and reduced interest rates.

For their part, the two exchanges announced that they would suspend initial public offerings (IPOs) until further notice, a move that would encourage investors to hold the stocks they have, rather then sell them in search of more profitable companies. That is a blow — likely temporary — to Chinese ambitions to turn their country into a financial powerhouse. In the first six months of 2015, the Shanghai stock market led the world in IPOs: 78 companies issued shares and raised $16.6 billion, just surpassing Hong Kong. Given that there was a similar suspension of IPOs in 2012, the evidence suggests the Chinese market will recover from this.

Observers worry that the measures are not enough. The 120 billion RMB fund is less than 20 percent of the daily market turnover. The security association’s emphasis is on big blue-chip stocks. Those companies represent only about one-third of the total value of the Shanghai stock market.

The companies hardest hit by the summer free fall are small- and medium-size companies. That is because they soared highest as the Chinese markets exploded over the last year, gaining nearly 150 percent in value. (By contrast, a Hong Kong index of 100 large mainland Chinese companies rose just 24 percent during the same time.) Most of the money behind those skyrocketing valuations came from equally small investors, who invested savings and, in many cases, borrowed money at exorbitant rates to get a piece of the action. According to government statistics, loans to investors for stock purchases increased 900 percent over the last two years. If, as is often the case, loans are backed by real estate holdings, then an individual investor’s home is at risk.

The ripples are spreading. The price of copper fell 8.4 percent in London earlier this week, reaching the lowest level since 2009. That fall is attributed to the problems in China. While the market remains well in positive territory despite the fall — 30 percent correction after a 140 percent climb looks like the pricking of a bubble — a look at the bigger picture is troubling. As China’s economy slows — second quarter growth, which should be announced next week, is expected to drop below the 7 percent target — a stumbling stock market creates yet more drag. There are fears that slowdown could impact economies beyond China’s shores.

The government is rattled. China’s top leadership has made clear its preference for a larger role of the private sector in the overall economy. The market gyrations expose both the potential dangers of such a policy and the lack of progress that has been made: The government has been quick to intervene, even if well behind the scenes.

There is a danger that ordinary Chinese will lose their savings and the assets they have pledged as collateral to play the market. This is a risk that comes with buying stocks, but the Chinese public has never before faced the prospect of significant personal financial losses. No one knows how they will react if that occurs. This prospect also has profound consequences for the Chinese Communist Party. Since 1992, when it shed its ideologic veneer in the name of efficiency, the legitimacy of the party has rested on its ability to improve the lives of ordinary Chinese. That image, that credibility and that legitimacy are now at risk. Beijing is right to be concerned.

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