On February 27, 2007, the Chinese stock market suffered a correction, causing choppy markets all over the world. The Shanghai Stock Exchange (SSE) lost 9% of its value and uncertainty caused the Dow Jones Industrial Average (DJIA) to dip 416 points.

China's move toward capitalism started in the 1970s. However, it didn't achieve critical mass until the 1990s, when the country began to see rapid growth in both production and consumption, as citizens of the world's most populous country benefited from an improved standard of living. The Chinese economy continued to heat up in early 2000 as more large players, like mutual funds, poured money into the business sector. With so much money flooding into China, there was increased incentive for companies to go public. Companies already trading in the Chinese market were doing so at many times their earnings, as investors rushed in to join the action. On top of the global interest, the number of Chinese investors buying into the market drove prices steadily upward.

The Chinese government began to worry that the country's economy was heating up too fast and that inflation was becoming harmful. Although no solid action was taken, rumors of a government clamp down on the increasingly loose economic policies shook investor confidence. The SSE composite index shed 9% of its value and a sell-off ensued. The number may seem small, but 9% represented hundreds of billions of dollars that vanished in a single trading day.

The integrated global economy meant that market correction in China impacted the rest of the world. The DJIA and other major indixes all fell with the SSE. Although the market correction leveled out before a panic or mini-crash could occur, its global impact served as foreshadowing of the more severe global impacts that would follow the subprime loan crisis later in the year.

Check out our related articles: Investing In China and Why Country Funds Are So Risky.

This question was answered by Andrew Beattie.

  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Why would a company decide to utilize H-shares over A-shares in its IPO?

    A company would decide to utilize H shares over A shares in its initial public offering (IPO) if that company believes it ... Read Full Answer >>
  3. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
  4. What is the difference between disposable and discretionary income?

    According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
  5. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>
  6. What are the similarities and differences between the savings and loan (S&L) crisis ...

    The savings and loan crisis and the subprime mortgage crisis both began with banks creating new profit centers following ... Read Full Answer >>
Related Articles
  1. Economics

    Surpassing the World's Toughest Border: China's Great Firewall

    Learn how Baidu and CloudFlare's agreement to work together has tackled China's digital firewall, and how the partnership improves Internet access in China.
  2. Economics

    Virtual Joint Venture: A New Model For US Businesses to Enter China?

    Learn about virtual joint ventures and how these agreements may promote the entrance of American companies into China's vast markets.
  3. Investing

    How to Spot Secular Bull Markets vs. Secular Bear Markets

    A guide to identifying secular bull and bear markets.
  4. Economics

    Understanding Donald Trump's Stance on China

    Find out why China bothers Donald Trump so much, and why the 2016 Republican presidential candidate argues for a return to protectionist trade policies.
  5. Economics

    What China's New Policy Means for Business

    Now that China has eliminated its one-child policy, how will the new policy impact businesses?
  6. Forex Fundamentals

    How to Buy Chinese Yuan

    Discover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
  7. Financial Advisors

    Bull vs. Bear Markets: How to Be Prepared for Both

    Bull and Bear Markets are a reality that every investor must be prepared for. Here are a few tips.
  8. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  9. Investing Basics

    4 Iconic Financial Companies That No Longer Exist

    Learn how poor management, frauds, scandals or mergers wiped out some of the most recognizable brands in the finance industry in the United States.
  10. Mutual Funds & ETFs

    Going Long China with Leveraged ETFs (YINN, YANG)

    Leveraged ETFs, especially those related to the China story, present significant opportunities and substantial risk. Here's how YINN and YANG add up.
  1. Contagion

    The spread of market changes or disturbances from one region ...
  2. Stock Market Crash

    A rapid and often unanticipated drop in stock prices.
  3. Benchmark

    A standard against which the performance of a security, mutual ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China ...
  5. Regional Asset Liquidation Agreement (RALA)

    An agreement between an asset manager and the Federal Deposit ...
  6. The New Deal

    A series of domestic programs designed to help the United States ...

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center