Beijing's efforts to engineer a strong stock rally and the recent Shanghai market collapse have had quite limited effects on western markets, but going forward the fallout from Chinese market meddling will likely be less benign.

Unlike western corporations, Chinese businesses are much more dependent on bank financing than selling stock to raise capital. And ordinary Chinese workers have more of their savings in banks and less in equities than Americans.

Chinese banks are predominantly state owned, and funding for projects too often reflects the goals of the State Council—a political body, analog to a western government's cabinet, that also sets broad monetary, fiscal and industrial policy goals.

Hence, a lot Chinese savings are badly invested. For example, the hundreds of billions of yuan financing joint ventures between Chinese and western automakers—yet, indigenous Chinese manufacturers still have not learned how to produce a vehicle reliable enough to export and compete in global markets.

To expand the pool of equity capital and wean businesses from bank financing, Beijing initiated a big push to get Chinese savers to buy stocks, including with borrowed money—what we call margin trading.

The Shanghai stock market soared 60 percent the first half of this year. In June, authorities, worried things had gone too far, tried to deflate the bubble a bit by tightening credit but the market collapsed.

Now regulators have thrown in the kitchen sink to reflate the market—for example, massive loans to large brokerages and letting ordinary folks pledge real estate to maintain stock positions—and have had some success. Stock prices are still up 17 percent since December 31.

If the State Council chooses, the Peoples Bank of China can push up prices again by simply printing enough money and facilitating state bank and brokerage house purchases of enough stocks—importantly, the Shanghai exchange is still up 70 percent from a year ago.