The true danger of China's crash

CHINA'S spectacular stock crash poses three questions. First, what caused it? Next, will it harm the "real" economy of spending and hiring, inside China and beyond? And, finally, how will it affect China's Communist Party and its economic strategy?

If you haven't paid attention, here are some basics about the crash. The Shanghai market hit its peak on June 12. By July 8, prices had dropped about a third. The smaller Shenzhen market, with more high-tech companies (it is often likened to America's Nasdaq), suffered steeper losses. Altogether, about US$3.5 trillion of paper wealth vanished.

The dramatic declines defied frantic efforts by Chinese officials to stop the sell-off. These included: pumping money into the market to prop up prices; preventing some big investors from selling shares; halting all stock IPOs - "initial public offerings" that drain funds from existing shares; allowing more than a thousand companies to suspend trading in their shares rather than record big declines. (Since July 8, prices have recovered somewhat. But the significance is unclear, because so much of the market is frozen.)