The world financial system is at a dangerous juncture. Markets no longer believe that China's Communist leaders are in full control of the country's economy.
This sudden loss of confidence has struck before the West is fully back on its feet. Interest rates are still zero in most developed markets. Fiscal deficits are still at unsafe levels. Debt is 30 percentage points of GDP higher than in 2008. The safety buffers are largely exhausted.
"This could be the early stage of a very serious situation," said Larry Summers, the former US treasury secretary. He compared it to the two spasms of the Asian crisis in August 1997 and again in August 1998.
Ominously, he also compared it to the "heart attack" of August 2007 when credit markets seized up on both sides of the Atlantic.
Full-blown contagion is now ripping through the international system. Once equity indexes in Europe and the US sliced through key levels of technical support, they were vulnerable to any bad news. This came in the form of yet more grim manufacturing data from China last Friday. It turned into a global rout after the Shanghai composite index crashed 8.5pc on China's "Black Monday", pulverising its July lows after the central bank - oddly passive - refused to come to the rescue with fresh stimulus.
Beijing's botched efforts to prop up the country's stock markets have collapsed. An estimated $300bn of state-orchestrated buying achieved nothing, overwhelmed by an avalanche of selling from investors forced to cover margin loans.
Professor Christopher Balding of Peking University wrote on FT Alphaville that China is lurching from one incoherent policy to another, shedding its aura of omnipotence at every stage.
The question now is whether China's economy can confound the predictions of economic meltdown. There are signs that growth is poised to pick up after a deep slump in the first half of the year, caused by a combined monetary and fiscal crunch.
The Shanghai equity collapse has been spectacular, but the number of shares in private hands amounts to just 30pc of GDP; the wealth effects are limited. "Only one in thirty Chinese own equities," said Mark Williams, chief Asia strategist for Capital Economics.
Yet what began two weeks ago as a technical move by the PBOC to end China's dollar exchange peg and switch to a managed float has set off a global crisis with a life of its own that cannot easily be reeled in. China is burning through reserves at a blistering pace to stabilise the yuan and offset capital flight estimated at $35bn a week. This is automatically tightening monetary policy, squeezing liquidity and risks holding back the very recovery in China needed to quell doubts.
Whether or not China's economy is as weak as feared, the crisis is feeding a global chain-reaction through the entire nexus of emerging markets, which now comprise half the global economy and therefore pose a greater threat than in the previous developing world crises of the early 1980s and the late 1990s.
"This crisis has the potential to become worse than the Asian currency crisis 1997-98 as it is spreading globally," said Bernd Berg from Societe Generale. The 1998 Asia crisis did not lead to a global recession. The US and European economies brushed it off in the end. That is the most likely template for the current squall.
Yet it felt deeply threatening at the time. The Russian default triggered the collapse of the US hedge fund Long Term Capital Management, forcing the New York Fed to intervene to avert a meltdown; the US slashed interest rates. The Fed cannot cut rates this time, but it can issue a clear signal that it plans to delay rate rises. The futures markets are already pricing this is in.
The violent moves over recent days may prove to be no more than an August squall. "The consensus trades are getting blown up and we are seeing an unwinding of carry trades as people get stopped out of positions," said Marc Ostwald from ADM. "But credit stress is not that high by historical standards." The economies in Europe and the US are lacklustre but recovering gradually. China may in reality be on the cusp of another upward mini-cycle, the latest in a string of stop-go episodes.
What is clear is that the world is no longer willing to give the economic benefit of the doubt to Chinese leaders. The pretensions of Leninist capitalism have been shattered by one policy blunder after another in the last year.
Global markets have swung almost overnight from a mystical faith in the competence of the Communist Party to doubting everything until proven. At best, Beijing is on probation.