The financial woes of Greece have grabbed headlines in recent weeks. So much so the sharemarket crash in China has gone almost unnoticed.

‘What sharemarket crash?’ you ask.

Exactly.

In the last three week the equivalent of Aus $3.2 trillion has been wiped from the value of Chinese shares. The government has responded by warning the public of ‘monstrous’ disorder should shareholders lose their minds and panic-sell.

Australian commodity prices are expected to be hit as a consequence; most likely tipping off a period of recession-like conditions.

IG Makets wrote: “State-owned newspapers have used their strongest language yet, telling people ‘not to lose their minds’ and ‘not to bury themselves in horror and anxiety’. (Our) positive measures will take time to produce results.

“If China does not find support today, the disorder could be monstrous.”

The People’s Bank of China has taken the extraordinary step of lending money to investors so they may buy shares to prop up the unstable market.

The Wall Street Journal reports on ‘liquidity assistance’ being provided to regulators of China Securities Finance Corp, which lends money to brokerages – which in-turn lends to investors.

This is the first time the central bank has channeled funds anywhere other than at the country’s banks – and is a sure sign of the seriousness of the situation.

On the other side, Chinese authorities are stopping any new stock listings. The entry of new public listings may further destabilise an already volatile (read: plunging) market. Furthermore, all short-selling (gambling that the stockmarket will continue to fall) has been banned. Doing so is one measure to reassure investors and may actually serve to stop a self-fulfilling prophecy.

European markets are already staggering under the uncertainty posed by a Greek default on borrowing and the threat of an exit from the Eurozone. A full-blown crash in China could be disastrous for economies around the world.

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