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However, if, as is the case with a huge number of Chinese investors, he actually borrowed $80 to buy the shares not only does he not have $40 he is actually negative $40 to some money lender. That is not a pleasant position to be in.

Although the Chinese are notorious gamblers, they are also savers. So, you'll have to pony up citations for that "huge number."

Second, you imply that the investor will simply shrug his shoulders, thank his lucky stars he still has $40 and look around for some place else to invest his cash, maybe Argentinian railway bonds, Nigerian oil minister’s widows or pork belly futures. But he won’t will he?

You have to put it somewhere and that has a beneficial effect for somebody. I seriously doubt many Chinese investors are enamored with mattresses. Most of the money isn't small investors.

Third just like the nervous investor the companies themselves that see their stock price drop by 60% will suddenly start cancelling all those plans for expansion and laying off workers by the thousand. Furthermore the banks that lent them money for previous expansion will be making phone calls asking about how they plan to repay that money.

So? When a crash happens, the serious money doesn't evaporate; it moves and fast.

If even in a country where the government threatens you with the midnight knock on the door if you sell stocks, half the shares on the board have delisted themselves and the directors of the remaining companies have been ordered to buy their own stock the bourse slumps 8.5% in one day then I think you can safely say you have a major problem whether you want to quibble over whether or not it is technically a crash.

From the article:

After pledging, investing and otherwise guaranteeing the Chinese stock market to the tune of 10% of GDP, and intervening on at least 40 different occasions in the past month ever since China's stock bubble burst in late June, with the subsequent crash nearly taking the Shanghai Composite red for the year,... By comparison to what happened to the US in 2008, this is a lark. Considering how far the Chinese market has risen in the last few years, I wouldn't bet that heavily on its immediate demise. They have big problems all right, but I don't see India taking their productive share so fast that it portends disaster for China.

"Although the Chinese are notorious gamblers, they are also savers. So, you'll have to pony up citations for that "huge number." " This link: https://uk.finance.yahoo.com/news/china-losing-control-stocks-crash-201139528.html " Many investors are effectively trapped with margin debt used to buy the stocks. These liabilities cannot be covered without selling the stocks. The longer the market remains partially frozen, the more likely it will lead to extreme stress. David Cui, from Bank of America (Swiss: BAC.SW - news) , said $1.2 trillion of stock holdings are being carried on margin debt. This is 34pc of the free float of the Shanghai and Shenzhen stock markets. “When the market ultimately settles at a level that can be sustained on fundamental reasons, we expect that the financial system may wobble, due to high contagion risk,” he said. “Most leveraged positions may suffer from losses ultimately, likely in trillions (of yuan). The risk is that the unwinding of the leverage will be disorderly: due to implicit guarantees behind most shadow banking products, investors could easily panic,” he said. Mr Cui said the brokers and trusts have barely 1.6 trillion yuan ($260bn) to absorb losses and may be overrun. “Given the particularly thin front line of the financial institutions, we suspect that it’s a matter of time before banks may have to face the music,” he said. " 34% of the market is a sizable chunk in my book. But let's just wait and see, come back in twelve months and see if this was just a minor blip on China's inexorable rise, the first nation ever to abolish financial bubbles, or something rather closer to the crash that I believe it to be.