system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: The current financial situation in China.

Can anyone explain in layman's terms what's happening with their stock market, how the "circuit breaker" works and what the implications for other countries are?
gpt
China is still moving to a more capitalist economy, and part of what they're trying to do is encourage investment instead of families just keeping oodles of money in the bank.  To do this they encouraged the creation of their stock market and let people invest their money.

There are a lot of problems with China's stock market.  The biggest of this is that China is basically in a recession right now - the rate of growth they've achieved over the past few decades is something that cannot be maintained, and it's finally catching up with them.  You wouldn't know it from reading the official reports, but it's basically an open secret that the official reports are highly misleading because the people writing them (various high level bureaucrats) know that a bad report will basically end their career.  Regardless, China's economic bubble is deflating rapidly and it's becoming increasingly hard to hide that fact to people.

Because of this and the untested nature of China's financial regulatory structure, China's stock market has become incredibly volatile.  It wasn't that long ago when bankers in China were advising people to take out loans to have money to invest in the stock market, and so many investors are heavily exposed to risk.  Because of this exposure, when the market trends downward investors are far more likely to panic than in other countries where stock markets are established entities with reliable rules governing their operation.  Basically, a slight downward twitch can lead to a catastrophic collapse of the stock market through panicking investors.

As such, China's government has been very meddlesome in trying to prevent stock market plunges, as such plunges can wipe out the savings of people and cause discontent among the population.  One of the things they've done is to create a system (the circuit breaker) to shut down trading if the market starts going downward too fast.   Unfortunately, this circuit breaker seems to be having the effect of panicking investors even more whenever it trips, which is why people are saying that it is malfunctioning.

The implications for other countries are fairly minimal.  Because of the crazy nature of the Chinese economy, there isn't much foreign investment into China.  Thus when the Chinese stock market collapses, the negative effects and wealth losses are primarily affecting Chinese individuals.  What has yet to be determined is what the political ramifications of a large Chinese recession will be internally in China, as we've never actually seen one since China started moving towards a capitalist economy and the government is extremely sensitive to discontent.  One of the common things you see in such circumstances is for politicians to try to point citizen anger towards an outside group to lower anger focused internally at their government, which is why it is quite feasible that you would see tensions between Japan and China ratchet up a bit.