Greece's financial misery is getting the world's attention, but what's happening in China may have far greater consequences, writes Ruchir Sharma in the Wall Street Journal. The stock market there is in a free fall, down by more than 25% since mid-June, and there's no end in sight. Sharma lays out four telltale signs of a bubble—"prices disconnected from underlying economic fundamentals, high levels of debt for stock purchases, overtrading by retail investors, and exorbitant valuations"—and says that China's stock market is in the rare position of being "at the extreme end on all four."
Ordinary investors, many of whom joined the nation's investing frenzy with little or no experience, are going broke, and people are losing confidence that Beijing's government can use its authoritarian power to right the ship. "The continuing crisis is viewed, locally and globally, as a test of China's control over the economy," writes Sharma, and things don't look promising. Consider the size of China's economy compared with that of Greece. If the "floor crumbles and the Chinese economy spirals downward, it will make the drama surrounding Greece feel like a sideshow," he writes. Click for his full column.