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Cramer: Here’s our problem with the China selloff

As Chinese stocks sink in free fall, CNBC's Jim Cramer said Wednesday that U.S. investors could face several challenges in the near future.

"The problem is that this [Chinese] market is a little bit bigger than we thought," Cramer said on "Squawk on the Street."

Overnight, the Shanghai Composite index fell 5.91 percent and has now fallen over 30 percent since hitting its peak in June. Japan's Nikkei 225 dropped 3.14 percent.

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"[The Chinese] market has get to where it has to go. There's still a lot of margin debt," Cramer added.

The region's downward spiral also weighed on U.S. equities, as the major indexes opened sharply lower, led by the Nasdaq composite shedding 1 percent.