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By stock market performance this week, mainland China has had the most issues to deal with among major world economies.
The Shanghai composite has fallen 7.6 percent over the last five trading days, making it the worst performer of the closely followed global indexes. While retail-investor-dominated mainland Chinese markets cannot be taken as a direct gauge on economic conditions, the volatility is important for global investors to consider as Beijing makes financial market reform a major policy objective.
Concerns about a slowing domestic economy — as Beijing tries to reduce reliance on debt-fueled growth — have hit investor sentiment on Chinese stocks, despite announcements of fiscal and monetary stimulus. Rising tensions with the U.S., the country's largest trade partner, and a weakening currency have also added to worries about growth.
"From a macroeconomic perspective, China's deleveraging efforts have not yet ended, and even though after the Politburo's mid-year meeting, macroeconomic policy focused on maintaining steady growth, the actual results have not yet been felt," Yongyuan Yao, researcher at Nanhua Futures, said in an email Friday, according to a CNBC translation.
"August macroeconomic data and also September sentiment indicators continued to decline. Without a clear response in the economy, it's difficult for the stock market to turn around and it has a greater tendency towards downside volatility," Yao said.
Worries about the economic impact from rising trade tensions between the world's two largest economies hit U.S. stocks last week while Chinese markets were closed for the "National Day" holiday. When the Shanghai composite reopened on Monday, it fell 3.7 percent.
The index steadied for two days but plunged 5.2 percent Thursday to a near four-year low. The decline followed the S&P 500's 3 percent drop as technology stocks fell and investors worried about rising rates. The U.S. benchmark fell another 2 percent in New York trading Thursday, bringing five-day losses to nearly 6 percent.
From a longer-term perspective, the mainland Chinese stocks have underperformed significantly. The is within 8 percent of its record, while the Shanghai composite is nearly 28 percent below its all-time high and is the third-worst performing global index compared to its most recent high. The worst by that metric is also China's — the Shenzhen A Share Index — followed by the Greece ATHEX Composite.
Market participants generally expect the sharp declines indicate mainland Chinese stocks have hit a bottom, or could recover, Nanhua's Yao said.
But the volatility in mainland Chinese stocks indicates how the local financial environment is still developing.
The Chinese stock market should offer price discovery of businesses, financing through capital markets and profit dissemination, but so far the market hasn't exhibited those three characteristics that well, Zheng Xinli, executive chairman of the China Policy Science Research Association and vice chairman of the China International Economic Exchange Center, said during a presentation at Renmin University on Thursday.
Zheng noted one of the ways for China to address its debt issues could be by turning more to capital markets.
In contrast to the U.S., where institutions play a prominent role in trading, the mainland Chinese market is dominated by retail investors, who can be more emotional with their trades.
"The stock market still needs a lot of structural reform," Ning Zhu, professor of finance at Tsinghua University and deputy director of the National Institute of Financial Research, said in a phone interview Friday. "The most important thing is the regulators shouldn't create this false sense of security, especially for retail investors. This can be taken as a good chance for further investor education. They wouldn't be convinced unless investors faced real losses."
The China Securities Regulatory Commission could not immediately be reached for comment by phone on Friday.
The Shanghai composite rose 0.9 percent Friday, but its plunge this week is striking when considering the index's historical tendency to rise following the National Day holiday, a week-long commemoration of the founding of the People's Republic of China on Oct. 1.
In the last decade, the only declines in the five trading days following the end of the holiday were a 0.19 percent fall in 2014 and a 12.78 percent drop in 2008, according to data provider Wind Info. On the eight other instances, including the last three years, the Shanghai composite has gained nearly 1 percent or more, the analysis showed. This year broke that trend.
— CNBC's Chris Hayes contributed to this report.