A big reason for the stock market rally was that a lot more people started buying stocks with borrowed money. This practice, known as "trading on margin," used to be strictly regulated by the Chinese government. The new rules still included an important safeguard, though: a 2-to-1 margin requirement said that only half of invested funds could be borrowed. The investor needed to put up the rest of the funds herself. There were also restrictions on which stocks you could buy and how long the money could be borrowed — rules designed to prevent speculative mania from getting out of hand. So borrowed money flooded into the Chinese stock market between June 2014 and June 2015, helping to push stock prices up 150 percent.

1. 5 Reasons Why China
Market Crashed

2.  BofA-ML Warns of Risk of ‘Financial Crisis'
Around 30 per cent has been knocked off the value of Chinese shares since mid-
June, and for some global investors, the fear that China's market turmoil will
destabilize the real economy is now looming as a bigger risk than the euro zone
crisis.
"The ripple effect from the market correction has yet to show up," wrote a Bank
of America Merrill Lynch analysts in a note. "We expect slower growth, poorer
corporate earnings, and a higher risk of a financial crisis."
Source: Economic Times

3.  Higher Margin Requirement
The China Financial Futures exchange announced it would raise requirements
for short positions against CSI500 index futures, which would make it more
difficult to short that index, while the insurance regulator chimed in by
allowing insurers to buy more blue chip stocks.
Source: Economic Times

4.  Regulator flags 'panic sentiment'
Chinese stocks dived after the securities regulator said the tumbling stock
market in the world's second-biggest economy was in the grip of "panic
sentiment" as investors ignored a battery of support measures from
Beijing.
China's benchmark Shanghai stock index was down 8 per cent on
Wednesday morning as additional government moves failed to shore up
the tumbling market, dealers said.
Source: Economic Times

5.  Fall in Commodity Market
A continuous slide in Chinese stocks weighed on an already-ravaged global
commodity sector, with prices of copper, coal, natural gas and iron ore falling
towards their 2015 lows.
The two markets are interdependent, and weakness in one will invariably spread
to the other.
Brent crude is 13 cents lower at $56.72 a barrel, following an almost 6-per cent
drop between Monday and Tuesday.
Falling commodity demand in China has been a concern, with the Chinese
economy growing at its slowest pace in a generation. The country's ongoing stock
market turmoil - which has seen a 30 per cent plunge in the benchmark CSI300
index since mid-June - is now threatening to pull the entire commodity complex
into the red.
Source: Economic Times

6.  Concerns Over Economic Growth
There are now fears that the hammering in stock markets will hit the wider
economy, which is already struggling with slowing growth.
The government is due to release second-quarter gross domestic product data on
July 15 and many economists expect growth to dip below 7 per cent, which would
be the weakest performance since the global financial crisis.
Source: Economic Times

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