Ah, China. Always an interesting case study on government intervention in markets. Still not fully emerged from their communist past, the government has seemingly applied an ‘if some is good, more is better’ type approach to market regulation and stimulation, which in years past has provided some pretty impressive results. As anyone who follows the markets even casually will tell you, China usually posts a GDP growth rate of roughly 8% per year, every year. This seemingly-impossible statistic has been questioned in the past, with investors wondering how much of that was propped up by the government. But the data coming out of China, and the ways international markets responded to that information, have always seemed to fall in line with that 8% GDP growth number.

Until recently that is. Starting in early June, the Chinese stock markets have been in an unprecedented state of turmoil, something international markets have not seen before. Let’s take a look at some of the reasons why, and what some of the consequences of this instability may be.

China’s stock market is composed of two main indexes: the Shanghai and the Shenzhen. Since their high points in June the Shanghai is down 32%, and the Shenzhen is down 40%. To put this in terms that might be slightly more digestible to some of our readers, imagine the Nasdaq sliding 32% while the Dow beat even that slide at 40%. The Dow and Nasdaq are indeed both larger, but the comparison remains. It’s getting bad over there.

However, as noted by the WSJ, this slide essentially only mirrors the massive gains that the indexes had amassed over the 12 months, as Chinese equity markets turned incredibly hot over the past year, with both indexes breaching 150% value increases year-over-year. However, the market got so hot, that as more and more players got involved, people started buying equity on borrowed money; never an awesome idea, albeit a common one, eventually turning prices downward.

With state intervention, the markets seem to have stabilized a bit in the second half of this week, and government agents are now investigating reports of rampant short-selling that had been accumulating for months. Obviously though, this just may be short term relief. The roots of this crisis probably go back to the 2008 international one, where China lowered interest rates along with the rest of the world; although it appears here that investors turned their attention toward assets, and not property as was likely hoped.

In terms of what will happen next, or what the consequences of this recent instability will be, it is still undetermined. Analysts at Credit Suisse predict increasingly drastic action out of Beijing until something seems to click, but other commentators, such as Michael Pettis, a financial commentator and professor based in Asia, believes this is all part of a long-predicted slow down of the Chinese economy; from 8% annual growth, to around 3%. An action he believes, would cut asset prices almost in half. We’ll see how the indexes themselves respond to all this uncertainty in a few hours.