Believe it or not there seems to be concerns about inflation, earnings and other western market criteria behind this latest fall, which could show a maturing in the market, or merely the latest series of excuses.
While Wall Street was up just over 1% on Friday, which pushed the index up for the week, China's wobbles have gone unremarked upon: before the credit crunch, a week like last week would have Wall Street nervy and Europe wondering. Now both areas are far more focused on their own problems to worry about China's market.
China's main index fell below 3,000 for the first time since April 2007 last week after the country's central bank raised the amount banks have to hold in reserve to a record 17.5%. That was the fifth increase this year so far.
Chinese consumer inflation eased to an annual 7.7% last month, compared to 8.5% in April. But producer prices rose and inflation remains a big concern, especially with price controls and subsidies limiting the impact of soaring world oil prices on the Chinese economy.
The CSI 300 Index, which tracks Yuan-denominated A shares listed on China's two exchanges (Shanghai and Shenzhen), fell 3.4% on Friday to 2,979.12. That took the index's loss so far this year to 44%, the biggest fall for the world's major sharemarkets. Financial stocks including property developers fell sharply for most of last week as the rise in house prices slows a touch (9.2% last month versus 10.2% the month before).
The Shanghai Composite Index dropped 3% to 2,868.80, a fall of 14% last week and the largest fall in 11 and a half years; the smaller Shenzhen Composite Index dropped 4% on Friday.
Hong Kong stocks fell, echoing the weakness on the mainland. The Hang Seng index had its worst week in three months, as property groups were hit by the change in emphasis in the US inflation policy and the rise in the US dollar produced a rise in the Hong Kong dollar and worries about a possible local rate rise.
The Hang Seng Index fell 1.9% on Friday to be down more than 7% for the week. Unlike other markets, the importance of the market in China is not great: it's newer, smaller and even though there might be a reputed 100 million investors, many are small and not suddenly poor because of the result.
China's economic strength is not reflected in the performance of the market which more resembles a casino. The Chinese economy remains essentially robust, if troubled by persistently high inflation and the problems caused by the January storms and then the Sichuan earthquake.
But there are reasons why this solid domestic growth is not going to translate to boom times. The quake and storms have boosted local costs and cut margins, the price controls are inflicting pain on a host of producers of the things whose prices are under official edict: so oil companies with local operations (like Sinpoec) are going to feel the strain on earnings, unless the Government boosts subsidies to match the rise in world oil prices.
Exports are slowing; imports are rising faster, but costing more because of rising prices for commodities such as oil, foodstuffs and coal and iron ore, produced by countries like Australia.
China also controls the stockmarket and has already moved to stop one sharp drop in April by cutting a tax on share deals: its myriad banks and financial groups and funds can be 'encouraged' to buy shares if there's a further sharp drop in coming weeks. But many of these companies are already suffering losses from stockmarket plays when the market was surging last year.
US stocks closed higher on Friday, Lehman Brothers shares rose 14% as some short-sellers unwound their positions before the weekend and the bank acquired a new big shareholder, while Microsoft rose after finally ending all talks with Yahoo which has signed up with Google.
Consumer inflation figures for May were within reason (4.2% annual, 0.6% monthly and the core figure steady at 0.3%), so shares rose by just over 1%.
The Dow finished up 165.77 points, or 1.37%, at 12,307.35. The Standard & Poor's 500 Index rose 20.16 points, or 1.50%, at 1,360.03 and Nasdaq jumped 50.15 points, or 2.09%, to 2,454.50. The Dow gained 0.8% and the Nasdaq fell 0.8%. At the closing bell, the S&P was down just 0.1% for the week.
Lehman Brothers, which shook up its management ranks on Thursday as it replaced its chief financial officer and its chief operating officer, rose $3.11 to $25.81 on the New York Stock Exchange.
Analysts said some investors who took short positions, betting on a fall in Lehman's stock, were probably closing out their positions after the stock's recent slide.
The S&P index of financial shares gained 2.1%. Among big manufacturers, shares of Caterpillar Inc climbed 1.2% to $81.50 on the NYSE, a day after the company announced it would stop making diesel engines for the North American commercial vehicle market after 2009.
The government said the Consumer Price Index rose at its fastest pace in six months in May, with the "headline'' measure including runaway gasoline prices up 0.6%. But core CPI, which excludes volatile energy and food costs, rose 0.2%, matching expectations. The inflation data overshadowed a report that showed a weaker-than-expected reading of consumer sentiment in a Reuters/University of Michigan index, which hit a 28-year low in June.
Brokers said trading was light on the New York Exchange, with about 1.23 billion shares changing hands, well below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.11 billion shares traded, slightly below last year's daily average of 2.17 billion.
European shares fell for the second week in a row on worries about inflation and a possible interest rate rise next month. It was the first back-to-back decline since March.
Building, infrastructure and heavy engineering companies suffered: the giant ABB, the world's biggest power networks builder fell as did the continent's largest construction group, Vinci SA of France, while UK homebuilders were weak, led by a 39% fall by Barratt Developments. Luxury car giant, BMW was also down.
The Dow Jones Stoxx 600 Index eased 1.5% over the week, capping its worst two weeks since January. It's fallen 16% so far this year on speculation credit-related losses approaching $400 billion and rising oil prices will erode earnings.
National indexes retreated in all of the 18 western European markets except Spain. Germany's Dax fell 0.6%, France's CAC 40 shed 2.4%. London's FTSE 100 slipped 1.8% (but rose Thursday and Friday to lighten some of the gloom that gripped the London market during the week).
In Australia the overnight futures trading Friday suggested the market will open around 1% higher today, but worries over the fallout from the tottering Babcock and Brown empire will temper any enthusiasm.
The ASX200 index closed up 48.9 points at 5378.1 on Friday, but down more than 4% over the week, thanks to those fears about the health of BNB.
Friday's rise was due more to enthusiasm for yet another London report that BHP Billiton will lift the value of its Rio Tinto bid. Investors will consider the speech by Reserve Bank Governor, Glenn Stevens last Friday.
In his speech Mr Stevens noted the signs of slowing in the economy but also warned of the pressure from Australia's burgeoning terms of trade. And he also indicated interest rates would remain around current levels for some time.
