China’s stock market has lost 10 times the value of the Greek government’s debt

China's stock market is in free fall — and the government seems powerless to stop it. 

More than $3 trillion has been wiped off the value of the main Shanghai Composite Index in less than a month as tens of millions of retail investors — mostly moms, dads and grandparents — dump shares in a massive panic-driven sell-off.

The sudden downturn was triggered by a government clampdown on margin trading, which is when investors use borrowed money to buy stocks. The practice had kind of got out of hand in China, with margin debt reaching a record 2.3 trillion yuan on June 18. 

Since hitting its peak early last month, the Shanghai composite has fallen more than 30 percent. The Shenzhen index is down around 40 percent from its June high. 

It’s a remarkable change of fortunes for a market that had more than doubled in a year.

As everyone frets about the Greek debt crisis and the potential fallout from a "Grexit," some market observers believe we should be more worried about what’s happening in China, which is the world's second largest economy and a major engine of global growth. 

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Morgan Stanley Investment Management’s Ruchir Sharma explains why in the Wall Street Journal:

“The continuing crisis is viewed, locally and globally, as a test of China’s control over the economy. The ‘Beijing put’ — a perception that Chinese economy and markets are backstopped by the government — is under threat. That perception has underpinned the widespread belief that Chinese growth won’t fall much below seven percent, because that is the government’s desired target and Beijing is omnipotent.

“But if Beijing can’t stop the market’s tumble, there could be a sudden shift in the perception of exactly how far economic growth might fall under the weight of too much debt. If that floor crumbles and the Chinese economy spirals downward, it will make the drama surrounding Greece feel like a sideshow. China has been the largest contributor to global growth this decade; Greece’s economy is about the size as that of Bangladesh or Vietnam.”

The Chinese government, which stakes its legitimacy on ensuring a certain level of economic growth every year, is clearly aware of the broader political and economic risks of the stock market rout.

Authorities have responded quickly to try to stabilize the market and support share prices. Efforts have included talking up the market, relaxing trading rules, allowing insurers to buy more shares and freezing new listings.

But the measures aren't working and, some believe, could be making the situation even worse. 

“All this activity has supported a view that policy makers are in a state of panic,” said Mark Williams of Capital Economics in London. “But it is too late — and probably counter-productive — to intervene [now]. The damage was done when the bubble was allowed to inflate.” 

Here are four figures that help explain what’s been happening in the Chinese stock market. 

1. The Shanghai Composite Index has fallen by more than 30 percent

The main Shanghai composite peaked on June 12 and since then has tumbled more than 30 percent. That’s a massive drop — the worst since 1992 — even if the market is still up more than 70 percent from a year ago.

2. $3.2 trillion has been wiped off the value of Shanghai-listed stocks

The Greek government's debt of more than $330 billion doesn’t seem so bad when you compare it to the $3.2 trillion that has evaporated from the Shanghai stock market in less than a month. Some investors have lost much, if not all, of their life savings, which is why the Chinese government is so worried. There are few things Beijing fears more than social instability.

3. Up to 1,700 companies have halted trade

Up to half of the companies listed on the Shanghai and Shenzhen stock exchanges had placed their shares in a trading halt this week as they waited for the turmoil to subside. The idea is to stop the stocks from falling, but traders say they are simply kicking the can down the road, and that selling will resume once they start trading again. 

4. Around 90 million individual investors are affected

Around 80 percent of investors in Chinese stocks are individuals, rather than big investment banks or pension funds. Their investment decisions are often based on the views of their friends and families rather than sophisticated investors. Many of these so-called retail investors hold the government responsible for their losses.

"The government has been manipulating the stock market all this time," an unidentified investor told CNBC. "The authorities made us believe that we can make money from a bull market but actually we are falling into an abyss losing most of our life savings."