It has been a dismal start to the year for world markets. After trading on the Chinese stock market was suspended twice last week when a collapse in share prices tripped an ill-conceived automatic “circuit breaker”, the resultant investor panic knocked more than $2.3 trillion off stocks worldwide — marking the worst start to a financial year on record.

But while China’s stock market turmoil has grabbed all the attention and dominated headlines across the globe, the real threat to the world economy lies not in the country’s speculative stock exchange but in its “real” economy: more specifically, in its slowing growth, in its collapsing credit bubble, in the extreme devaluation pressures on the yuan, and in the dramatic fall in oil and commodity prices this is contributing to.

This year China is set to post its lowest growth rates in nearly three decades, while the offshore renminbi has just fallen to its lowest level against the dollar since its establishment in 2010. Oil prices are already down 20 percent in the first two weeks of the year amid investor concerns over dwindling Chinese demand. Some now believe the oil price could fall as low as $10 per barrel.

Seen in this light, China’s stock market meltdown is but a symptom of much deeper problems in the world’s second largest economy — and possibly a troubling sign of what’s to come.

Arriving on the heels of another major bout of market volatility last summer, the current financial unrest provides further evidence that China’s epic triple credit bubble — which had already fed massive booms in construction and corporate bonds, and which then contributed to an idiosyncratic 146 percent jump in the Shanghai Composite Index between mid-2014 and mid-2015 — is now in various stages of collapse. The only thing analysts still seem to disagree on is whether the landing will be a hard or a soft one.

The People’s Bank of China and the Communist Party will undoubtedly do their utmost to try and make the landing as smooth as possible, defending the value of the renminbi against speculative pressures while continuing to prop up the increasingly untenable credit bubble. But while the Chinese authorities do have considerable financial firepower at their disposal, they can ultimately do little more than buy time, piling bad debt onto more bad debt in a desperate bid to stave off the inevitable moment of reckoning.

Some analysts now believe that Chinese banks may need up to $7.1 trillion in new capital and funding in the next three years to compensate for the collapse of stock valuations and the rising rate of domestic defaults. These bailouts could in turn send the government debt to GDP ratio soaring from 22 to 122 percent — a staggering increase even for a fast-growing economic behemoth like China.

The consequent sovereign debt problem would come on top of a vast increase in private non-financial debt, which shot up from 100 percent to 250 percent of GDP in the wake of the 2008-’09 stimulus program, after the Chinese government encouraged the growth of the country’s shadow banking sector in an attempt to offset the recessionary pressures emanating from North America and Europe. Total debt nearly quadrupled between 2007 and 2015.

All of this has gone hand in hand with capital flight, which is gradually eroding China’s (still sizable) currency reserves. Outflows are estimated to have reached $1 trillion in 2015, leading to a $512 billion fall in reserves. In December alone the central bank lost some $120 billion as it desperately intervened in the foreign exchange market to fend off devaluation pressures in the face of intensifying capital flight and mounting currency speculation.

Ambrose Evans-Pritchard of The Telegraph now estimates that “China is perilously close to a devaluation crisis as the yuan threatens to break through the floor of its currency basket, despite massive intervention by the central bank to defend the exchange rate.”

All of this is producing an increasingly grim mood among investors overseas. In a note to its clients, the Royal Bank of Scotland just warned of a “cataclysmic year” for the world economy, predicting a global stock market collapse of up to 20 percent and urging investors to “sell everything except high quality bonds,” noting that “in a crowded hall, exit doors are small.” The bank’s credit chief added that “China has set off a major correction and it is going to snowball.”

First in the line of fire will be the emerging markets that have been drawn into the orbit of the Chinese-fueled international commodity boom in the last decade. China’s sudden slowdown has triggered a sharp drop in commodity prices and a cascading series of recessions across the developing world.

But while the trouble will undoubtedly be centered on emerging markets, the US and Europe will not be spared from the fallout. The City of London is particularly vulnerable as its financial sector carries significant exposures to China, while Wall Street is already being confronted by a homemade crisis of its own in corporate junk bonds, mostly of energy companies that are now going bust as a result of falling oil prices.

In short, all the conditions are now in place for another major international crisis. The doomsday scenario was recently given added weight by the World Bank’s Global Economic Prospects report for 2016, which warned of a “perfect storm” of slowing growth in emerging markets conspiring with renewed stress in global financial markets.

Both dynamics are bound to be intensified by the US Federal Reserve’s decision to unwind its monetary stimulus program and start increasing interest rates for the first time in almost a decade. The end of cheap credit will push borrowing costs up across the developed and developing world, sending a ripple effect through the world economy and creating further volatility in the markets for corporate and emerging market bonds.

Could these then be the early tremors of a long-awaited earthquake? The answer is anyone’s guess at this point, but if the negative trends of the past two weeks continue at their current pace the world economy may be for a very bumpy ride indeed. With some bad luck and further policy mistakes, the first weeks of 2016 may well be remembered as the warning shots for a dramatic third phase in the global financial crisis.