Today's Major Market Move: China's Stock Market Drops 23% Since May

Let's go ahead and boil this down. The Chinese benchmark equity index, the Shanghai SE Composite, is down 23% since May 1. On the 'plus' side, 40% of global equity markets have fared worse, some like Greece and Cyprus have fared much worse. On the minus side, the Shanghai SE composite is plumbing the 2011 lows:

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and the China decoupling theory is being seriously tested:

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If anything China is decoupling the wrong way; for the year the S&P 500 is only down 3% and the FTSE down 9% whereas the Shanghai SE is down over 20%. This article from indiainfoline.com starts out by stating that debt crisis fears in Europe are driving Asian (including China of course) markets lower. However one would think that equity markets in countries closer to the epicenter of the crisis (e.g. Germany and the U.K.) would be more severely impacted than a country much further away like China. There must be something else going on directly in China to account for the relative poor performance of its equity market. The same article touches on the reason a few paragraphs later. The housing bubble in China has started to deflate.

Realty developers in China tumbled the most after the Centaline property agency reported that Housing sales in China's first- and second-tier cities saw marked declines this year after the government limited purchases, banned mortgage loans for third homes and raised lending rates to cool the once-hot property market.

The housing sales in first-tier cities like Beijing, Shanghai, Shenzhen and Guangzhou, declined 20% averagely in November. The main property developers reported that the monthly sales revenue declined at least 20%. The Shanghai-listed Poly Real Estate saw sales revenue decreased 27.86% while the China Overseas Property reported sales revenue plummeted 49% in November.

I've long been of the opinion that when comparing the current economic downturn (and I'm including all of 2008 until now) to the Great Depression, China (now) = U.S. (then) and U.S. (now) = U.K. (then). Bear in mind that although the U.S. had tremendous growth potential ahead of it in the 1930s, it suffered greatly during the downturn. China's current great growth story will eventually resume its upward trajectory, but not without a significant dip of indeterminate length and possible political upheaval in the meantime.