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.