Even the New York Stock Exchange was severely affected, suffering its worst losses in point terms since the terrorist attacks of September 2001. Outside China, the sell-off has continued, with stock markets in Asia and Europe opening lower today.
The drops in stock prices around the world indicate basically two things: just how globalized the world economy is, and how China is now a key player in that economy.
The scare started in China on February 27, when the Shanghai exchange plunged 9 percent on word that the Chinese government -- fearing a bubble -- might try to dampen the recent rise in stock prices.
That kicked off falls among Asian stock markets, and the mood rapidly spread across the Pacific. Even the mighty New York Stock Exchange tumbled, with the Dow Jones Industrial Average experiencing its worst losses in point terms since the September 11, 2001, terror attacks. The main European markets were also affected, dropping an average of 3 percent.
Asian markets on reopening on February 28 were still in trouble. Australia, Japan, Hong Kong, and South Korea all opened sharply lower.
As the day continued, the European markets continued their descent. But there were also important signs of a rally, led by the Shanghai market itself.
The next key moment was expected when the New York exchange opened later in the day. If stocks continue to fall, the situation could become more serious for the world economy.
Art Hogan, the chief marketing strategist for New York financial analysts Jefferies and Company, explained the background to what happened in China.
"China is a market which has recently opened up to worldwide investors over the last, say, 24 months, and has realized about a 100 percent gain on a year-over-year basis," Hogan said. "So we are talking about a stock market that was up some 13 percent over the past couple of weeks and sold off about 10 percent overnight."
Hogan said this sudden, unexpected sell-off in Shanghai -- China's most important market -- set off a wave of share selling around the world as investors tried to avoid losses -- thereby ironically precipitating the losses.
Despite the nervousness of the investors, the experts are optimistic.
"I don't necessarily think that you can have the kind of cycles that we have had without having any retracements of your moves, and that's exactly what we're witnessing today," Hogan said. "In the course of events, you have pullbacks, you don't move in one direction forever. And trees certainly don't grow to the sky, so I think this is a healthy retracement that a lot of investors have been on the sidelines waiting for."
Chinese investors appear to be taking things in their stride.
Here's a Mr. Lin, speaking to Reuters television: "I will not lose confidence in the stock market. The Chinese economy is doing well; and if the stock market plunges, this is the time to go in and buy stocks. As the stock market plunges, the market will be clearly washed out; and when it rises again, it will have better fundamentals. If the stock market keeps on rising, this is not good for all of us investors. An adequate correction is a good thing for us."