Six years ago according to an article in the Financial Times, Wu Jinlian, an economist with the State Council Development and Research Center, described the Chinese market as worse than a casino. Not much has changed. The lack of transparency, corporate governance, free press and property rights has divorced the Chinese market from any economic reality. As Cheng Siwei pointed out only 30 per cent of the more than 1,300 listed firms had investment value. In relationship based systems like China truthiness has been mistaken for the truth of a rule based market.

What has changed are the effects. In the past six years the Chinese economy has become a major factor in the world economy. When a bubble bursts in China, it will not stay in China. If the government decides to support the market, they fortunately they have the cash. Unfortunately, it is in US Treasury bills. If there is no intervention, the debris from a crash will unsettle a rising Chinese middle class and their political apathy.

Where Shanghai goes, Hong Kong is sure to follow. It is doubtful that investors will make a distinction between China and the rest of the emerging markets, so undoubtedly several more will fall. The problem in China is that the stock market is not the only bubble. Speculative bubbles also exist in property markets upon which much of Shanghai’s economy depends.

China’s irrational exuberance has also been driving commodity prices around the world. These markets will be tested along with much of the financial engineering involved in private equity, hedge funds and credit derivatives. Pensioners in the US may wake up to discover their interests are being determined by a retired Peoples Liberation Army Major in Beijing’s intermediate court number 2.

The collapse of the Chinese stock market is not a question of if, only when. The real question will be the how many dominos it will take with it.