Since June 2015, The Chinese-stock market has lost nearly 40 percent. As of Monday, China’s benchmark Shanghai Composite index plunged 8 percent, capping two months of stock market declines.

When you think of the stock market crash in China, it is probably easy for you to go back and compare it to the US stock market crash. However, the effects from the market crash are quite different between the two countries and here’s why.

• China’s financial industry is completely different than that of the US

Unlike America, where roughly 50% of the population owns stocks, whether it be individually or through retirement plans, pension funds, and mutual funds, China compares at a mere 10% of their population. Instead, the people there build their wealth through old-fashioned savings accounts and real estate because their financial industry is not as developed as the US. (Think mutual funds, retirement plans, etc.) 

• Banks, Factories, and Businesses are Government-Owned

That’s right. The biggest banks, factories, and businesses are not owned by individuals, but instead the Chinese government. This means that events there are monitored and decided by the Government and because of this, Chinese authorities actually launched an effort in late 2014 to encourage the people to invest in the stock market.

After participating in their government’s push to invest in stocks, the market took off. What followed after was margin-buying, which lead to many going into debt to buy stocks. By then the growth bubble popped. 

At this point, most Americans are wondering will this crash affect the US? Probably not, and the reason I say this is because of the close restriction the Chinese government has on foreign stock ownership. Chinese individuals own more than 80% of all Chinese stocks which leaves a measly percentage of 2% for foreigners. 

Furthermore, the stock market plays a very teeny tiny role in the economy and well being of China. Less than 15% of household financial assets are invested in the stock market, compared to around 50% in the USA. Just as increasing shares did little to boost consumption, crashing prices will do little to hurt it.

The bigger picture here is: Will the drop in the Chinese-stock market be the beginning of an economy recession and if so, How will it affect America? Stay tuned to find out.