New Delhi: An unprecedented collapse in Chinese shares sent tremors through financial markets on Monday, triggering the ugliest day of global trading since the depths of the financial crisis eight years ago. Billions were wiped off indices across the world in a day of frenetic selling which saw the Shanghai composite suffer an 8.5% decline, its worst one-day performance since 2007. The mass panic, dubbed “Black Monday" by China’s official state news agency, was driven by investors’ dashed hopes that Beijing would inject a fresh round of stimulus into its economy at the weekend. China’s benchmark index has now lost all of its yearly gains after a relentless ascent that saw its valuation rise to record levels earlier this year.

What happened on Monday upended the conventional logic of the world economy. Suddenly, the way China finances its enterprises—previously considered a rather opaque mystery but one that was best left to China’s self-contained economy—became the whole world’s business. A sudden loss in confidence in Beijing’s ability to rescue its collapsing stock market and restore confidence in its currency became, overnight, a worldwide event. It wasn’t just that Western stock markets plummeted as a result of a Chinese policy decision; worse, it triggered a truly global crash: throughout Monday, markets cratered in India, Saudi Arabia, Vietnam, Poland, the Philippines, Brazil, not to mention New York, London and Toronto. It may not have been the biggest or longest-lasting downturn, but it was a truly worldwide one, born in Beijing.

Investors wondered how much government officials can and will do to insulate the global economy from the turmoil. The upheaval in the markets began with another rout in China that drew comparisons to the 1987 crash in the US known as “Black Monday". Concerns about China’s ability to be a powerful engine of global economic growth have added to worries about the potential impact of higher interest rates in the US, driving stocks sharply lower in Asia and Europe on Monday.

If China stabilizes, US markets will breathe a sigh of relief. “Because the US is the only major economy that shows some major level of growth, if the contagion in Asia is somewhat limited it will not hurt the US economy," said Dan Veru, chief investment officer at Palisade Capital Management. “I can’t come up with a scenario where our dollar is not pointed to as a safe-haven currency."

For the Federal Reserve, the aftershocks threaten to set back its path to interest-rate normality yet again—and the delay could be longer than investors suspect. For US stocks, that likely means further turmoil is in store, but that a calamity isn’t at hand. In fact, some sectors may be poised to benefit. Thankfully, a US recession led by China doesn’t look to be in the cards. While China is far bigger than it used to be, it doesn’t consume enough in the way of made-in-America output to put much of a dent in US growth.

However, the real concern for those outside China is an economic slowdown and wider impact from a fluctuating stock market. Fears of a downturn in China have already hammered the price of commodities like iron ore and copper this week. Countries like Australia and Brazil are hurting as China’s demand for raw materials slumps.

One of the fears is whether this is a repeat of the 2008 global financial crisis. Some of the falls on stock markets are certainly reminiscent of the swings seen around the time of the collapse of the US bank Lehman Brothers. The FTSEurofirst 300, a pan-European share index, suffered its biggest one-day drop since late 2008, losing 5.4%. For Shanghai’s composite index, Monday’s 8.5% slump was the biggest since February 2007. But some economists say the parallels stop there. They see limited risk to China’s real economy from the stock market turmoil and little to be worried about beyond China.

The importance of China for the global economy cannot be over-stated. First there is sheer size. China is the second largest economy in the world and a significant importer of commodities such as copper and oil. Second, the world has come to expect Chinese economic growth rates of 10-12%, growth rates that have helped bolster the world economy especially during turbulent times in Europe and the US But now Chinese growth is slowing, and there are significant concerns about the health of the Chinese financial system.

The proximate cause for all this is a chain of events that began with the surprise devaluation of the yuan on 11 August, reports The Economist. More than $5 trillion has been wiped off on global stock prices since then. Today’s Chinese-market meltdown seems to have been driven by disappointing data on Friday, which suggested that China’s industrial activity is slowing sharply, and by the failure of the Chinese government to unveil bold new market interventions today to prop up equity prices.

A weakening outlook for Chinese growth, and a slip in China’s currency, have combined to put pressure on other emerging economies—and especially those whose growth model depends on Chinese demand for industrial and other commodities. Emerging markets have also been squeezed by the Fed, which has been preparing the world economy to expect the first interest rate rise in nearly a decade in September. Tighter monetary conditions in America have led to reduced capital flows to big emerging economies, to a rising dollar, and to more difficult conditions for firms and governments with dollar-denominated loans to repay.

The global economy is right in the middle of a significant transition, in other words, as rich economies try to normalise policy while China tries to rebalance. That transition is proving a difficult one for policymakers to manage, and markets are wobbling under the strain, said the Economist report.

So what’s the problem with China?

The concern is the slowing of the real Chinese economy. China is a huge economy, second only in size to the US. And as an emerging economy, it contributes a huge amount to global growth. Indeed it is forecast by the International Monetary Fund (IMF) to be the biggest single national contributor to global growth over the coming five years. If China slows down, that inevitably impacts on the entire global economy. Anyone who exports to China will take a hit. We already knew China was slowing. Growth in 2014 was 7.4%—the slowest since 1990. And the IMF expects growth to dip to just 6% in 2017.