China stocks fell another 1.6 percent Tuesday, a day after tanking more than 8 percent, and many analysts have been quick to point out how Chinese consumers are unlikely to take a hit. But experts who spoke to CNBC say that this time, it could be different.
Stocks account for only about 9 percent of household wealth in China, and major market indices are still higher on the year, so relatively few regular Chinese were severely burned by Monday's move. Still, the fallout from July's downturn—and the unsuccessful government interventions that followed—could damage Beijing's credibility when it comes to exerting control over markets. And that's a threat to China's real economy.
"Normally we would say that the Chinese stock market is not that connected to its real economy, as firms don't use it to raise that much money, and it's a small percentage of household wealth," said David Dollar, a senior fellow at the Brookings Institution's Thornton China Center. "By coming in with all these measures, the central authorities on the one hand seemed a little panicky ... and the real worry is that this undermines Chinese people's confidence in the real economy and the government's ability to make policy."
Beijing instituted several measures to prop up equity prices, and they temporarily stymied stocks' fall. But that strategy appeared to break down on Monday. Local, state-controlled media and regulators both suggested that Chinese markets may be under attack by malicious (possibly foreign) sellers.
"The idea that the government will support asset prices or prevent losses or prevent negative outcomes is not unique to the stock market ... it is pervasive" in the Chinese economy, said Patrick Chovanec, managing director and chief strategist at Silvercrest Asset Management, who listed real estate, shadow banking and a host of other industries among the areas where Beijing's support is considered a given.
"Any kind of crack in that edifice of confidence that the government can fix economic outcomes the way it wants to may inject thoughts or doubts into a whole host of things," he added.
Still, for now, the vast majority of China's small, retail investors are fine after Monday's carnage. "For a lot of people, it was paper gains and paper losses," Chovanec said.
"For the Chinese consumer, I actually think it's a relatively small event," Donald Straszheim, Evercore ISI's head of China research told CNBC, adding that equities are only a small percentage of household wealth compared with real estate and other assets.
Reports broadly suggest that more Chinese investors entered the market over the past year, encouraged in part by positive coverage from state-owned media and even statements from the country's top regulator suggesting that the market was posed for a run higher. But the real reason behind the move into equities could have less to do with the government, and more to do with slowdowns elsewhere.
"Beijing was talking up the market, but it wasn't for the first time," Chovanec said, posing the question of why the recent bull market was so successful. "It does have something to do with the poor performance of the property market: Shadow banking instruments were looking for a better investment, promising high returns ... with the availability of margin lending—boom—it took off."
Despite the squeeze that may come from Chinese margin calls—demands from lenders that they get their money back from investors—the economy should be able to easily weather the direct impact of the stock crash, experts said. But if the real economy begins to see more signs of weakness, the shaken confidence from this month's drop could come back to haunt Beijing.
"One reason to be relatively sanguine is that household income, wages and consumption are going up at a healthy rate," Dollar said. "It's hard to buy into the more scary stories, but those things can change quickly."