The prevailing image of China in the economic imagination is a place of ghost cities, empty highways and bridges to nowhere confected by unnecessary infrastructure spending after one of the most Keynesian of stimulus experiments kept the economy going in 2009. To some, the government-sponsored growth was a miracle that enhanced the lives of millions of people. To others it was an orgy of misallocated capital laid out by a centrally run economy—a Monopoly game of government stock price and currency manipulation doomed to fail.

But how accurate is the popular image and what would it mean for the rest of the emerging markets? This is complicated because in the short-term, the pain can become a self-fufilling prophecy. Exchange-traded funds have given hot money investors an unprecedented ability to make imaginary bears real. The Institute for International Finance reportedly pegged the emerging market capital flight for 2015 at $735 billion, seven times the previous year’s number. 

According to Riad Younes, portfolio manager at R Squared International Equity Fund, the recent turmoil is simply the global chickens coming home to roost. The U.S. housing bust was just Part 1 of the asset inflation problem caused by low interest rates. Part II is happening now—the end of the commodities supercycle. China has been a voracious consumer of this coal, oil and iron ore, but no more.

Furthermore, its stimulus required a lot of borrowing through state-owned enterprises. The bubble in China for fixed-investment assets was fueled with debt. Debt to GDP is still high, says Younes. (Loans for companies and households was a whopping 207% of GDP in June of 2015, says Bloomberg.) “This is very unsustainable,” he says. “All this debt was taken against investments that were worthless, so we’re going to see a lot of problems.”

China has also boasted a policy tool that other countries don’t have: It can tell investors to go into the stock market (making it about patriotism). But that push led to an equity bubble that caused the Shanghai Stock Exchange Composite Index to finally lose almost half its value between June of 2015 and January of 2016, notes Bill Mann, CIO of the Motley Fool Asset Management.

“On a dollar basis it has dropped even more,” says Mann. “One of the underreported stories of the Chinese growth model over the last decade has been that it’s been with a huge amount of debt, particularly to the state owned enterprises. So the Chinese government used its stock market as yet another arm of policy. ”

Fear eventually fed upon itself, he says, and people realized the market wasn’t really based on financial statements. Combine this with China’s meddling with its own currency. The government famously began depreciating its yuan last August, supposedly in a bid to help exporters. The global reaction was swift and merciless and speculators swooped in to take advantage of the differences between China’s onshore and offshore currencies. According to Younes and others, the problem is that China hasn’t had a freely floating currency, so the market doesn’t know what it’s really worth. 

Emerging Markets

To Bert Van Der Walt, portfolio manager at Mirae Asset Global Investments, these growing pains are necessary for China to switch from fixed asset investing to consumption growth and for the rest of the emerging market currencies to find their true legs now that the commodity cycle is over. It’s going to hurt, but he says the growth will be healthier in the future, and that consumption-driven economies will be easier for outside investors to tap into than fixed-asset/infrastructure economies. 

But as China moves out of its role as the chief engine of global economic growth, global commodity prices have tanked. Exporters of raw materials are experiencing their own painful adjustment. All suffered currency crises by last September. Brazil lost the most—almost half its value relative to the dollar by some reports.