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China is the scariest threat to stocks since 2009. Here's why

America's stock market is in the midst of one of the longest bull markets in history -- despite recent steep losses recently.

It's a bull market that has gone through many panic attacks. The European debt crisis, the downgrade of America's AAA rating, Greek drama, and the fiscal cliff all inflicted big wounds. But each time, U.S. stocks emerged victorious despite nursing some bad bruises.

In the last two weeks the U.S. stock market is once again churning. This time, on fears that China's economic upheaval could knock the world into recession.

But will the current market freak out be different for the bull market? China, after all, is not only the world's second largest economy, but it touches businesses and countries around the world. And U.S. companies are vulnerable to that, which is why a severe Chinese slowdown looks like the biggest risk to U.S. stocks since 2009.

"This is a real threat. A hard landing in China is the biggest threat to the global economic recovery since the financial crisis," said David Joy, chief market strategist at Ameriprise Financial.

The broader question is: Does China represent the same kind of systemic risk that the financial crisis did? Or are there reasons to believe China has the ability and willingness to avoid the worst-case scenario?

Chinese ripple effect is spooking investors

Concerns about China have knocked U.S. stocks into their first correction since the 2011 downgrade of America's perfect credit rating.

"An economic slowdown in China is as large of a catalyst in investors' minds as anything we've seen going back to the financial crisis," said Art Hogan, chief market strategist at Wunderlich Securities.

China matters so much because its explosive growth fueled the rest of the world. A huge appetite for goods and raw materials lifted economies in Europe, Asia, Latin America, Australia and elsewhere.

So China's slowdown has a huge ripple effect around the globe. Just look at how South Korea on Tuesday revealed a 15% plunge in August exports because of weaker demand from China.

"If China gets a cold, the rest of Asia gets the flu," said Peter Kenny, chief market strategist at The Clear Pool Group, a financial technology firm.

Fed may not come to the rescue

Concerns about China's economy are amplified by the fact it remains a bit of a black box to investors. Few trust the accuracy of Beijing's economic stats and many believe actual growth is a lot lower than the government reports.

It's also important to put the China scare in context. Previous market scares occurred during times when the Fed was either aggressively flooding the financial markets with cash and buying bonds or promising low rates.

But now the Fed has stopped buying bonds and mortgages and is preparing to raise rates for the first time in nearly a decade. So that safety net may not be around anymore.

Wilbur Ross: Chinese government panicked over markets

Stocks are not cheap

At the same time, it's become tougher to find bargains in the stock market, especially given the energy-driven slowdown in earnings growth. Many experts believed the U.S. stock market looked close to fully valued, if not downright expensive before the recent retreat in prices.

"Stock prices got way far ahead of reality. They're having a big valuation adjustment now," said Peter Boockvar, chief market analyst at The Lindsey Group.

As broad as the China scare is, it isn't yet on the same level of the Lehman crisis of 2008. At that time, the global financial system appeared on the verge of a meltdown.

"That was an existential crisis. There was a real possibility it could have turned into a depression," said Joy.

But given China's pivotal role in driving global growth, this episode is clearly unnerving investors more than some of the other panic attacks since then.

China attempts to stabilize growth

Is the market reaction justified or overdone? It's too early to tell at this point.

It's worth remembering that China's economy is still growing, just at a slower pace. Few are calling for an outright recession there.

"It's not as if the Chinese economy has fallen off the face of a cliff," said Kenny.

And it's not as if Beijing is asleep at the wheel. The Chinese government has unveiled a series of moves to stimulate growth, including several interest rate cuts and a surprise currency devaluation to boost exports.

It's in the best interest of China's leaders to pull out all the stops to stabilize growth.

"I believe that China has both the willingness and financial wherewithal to avert a hard landing," said Joy.

CNNMoney (New York)