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Why China is shaking global markets ... again

In a new year for world markets, the same old story in China has traders on edge.

Investors are worried that China — the world's second-largest economy — is slowing at a faster-than-expected pace. If the narrative sounds familiar, it is. The same fears about a Chinese slowdown riled global markets last summer.

A Monday sell-off in China triggered a drop in equities around the globe.

Here are the three reasons why China is again moving markets in a big way:

1. Front running ... kind of

A man looks at an electronic board showing stock information at a brokerage house in Beijing, China, on Jan. 4, 2016.
Kim Kyung-Hoon | Reuters
A man looks at an electronic board showing stock information at a brokerage house in Beijing, China, on Jan. 4, 2016.

For nearly six months, large institutional stock holders in China have been banned from selling their positions. The restriction is slated to end this week.

Some traders who can still sell may be doing so ahead of anticipated selling by restricted stock holders.

2. Circuit breakers

China instituted a marketwide system of trading halts for the first time Monday to reduce volatility. But the action may have added fuel to the fire.

The first trading curb took place after a 5 percent market drop. Markets were then shut down for the day after a 7 percent plunge.

The halts in China may have frightened many.

3. The Chinese economy

Data from the Chinese economy has not proved robust.

The latest reads on manufacturing and industrial activity suggest a continued slowing trend. Add to that increasing tensions in the Middle East, and investors face serious headwinds.