TAIPEI, Taiwan (TheStreet) -- Three decades of market reforms aside, China is still a Communist country with no serious congress and no voters.

The state doesn't hesitate to regulate, and it desperately wants share prices to quit falling.

Chinese authorities are on a mission to fix up their fickle, retail-driven stock exchanges as a way of capitalizing smaller, private firms. They hope the private sector will lead the embattled $10 trillion-plus economy away from shaky, unsustainable state investment.

As long as China sticks to that mission, expect years of government intervention in the stock market. The intervention will cause volatility that addles markets from New York to Taipei because the Chinese economy is linked to just about everyone else's. That's what happened this month and last year.

"This uncertainty and volatility spreads across markets, particularly because of the interconnectedness of markets and global nature of capital," said Kenneth Kavajecz, dean of Syracuse University's Martin Whitman School of Management. "I can certainly see the Chinese markets being a strong headwind for markets in the rest of the world."

China has intervened regularly since mid-2015, when the markets hurtled toward a 40% loss after a 150% gain over the previous year. It has tried a list of mostly stopgap measures, most of which work for just a few months, if not days.

As "A" share prices fell to their limit of 7% two days last week, China's new circuit breaker closed the market. Regulators designed that measure after "A" shares fell 40% in mid-2015 on margin trade selloffs.

But China lacks a mechanism to restore orderly trading after a panic, and when the circuit breaker was suspected of doing no good China suspended the tool itself.

"Anytime you interfere with the market system, you're bound to create other distortions, like in that whack-a-mole game," said Jack Perkowski, managing director of merchant bank JFP Holdings in Beijing. The 20-year China veteran anticipates years of market intervention before share prices steady for the long term.

The government has supported prices further this month by extending a ban on mass selloffs and pouring more than $30 billion into stocks.

Foreshadowing the urgency to boost private firms, Chinese Premier Li Keqiang said in 2014 the government would encourage "entrepreneurship and innovation among the people to build new engines for the economy."

The benchmark Shanghai Composite Index fell about 5.3% Monday and changed little Tuesday. It rose about 23% from its low in August through the end of the year.

China's volatility this month rippled quickly into other Asian markets and to Wall Street, where stocks fell about 5% last week.

In mid-2015, when the markets fell due to a deleveraging of margin loans, government companies answered the distress call by buying shares, authorizing a state pension fund to start investing and making more money available for loans. But the downturn lasted three months, hitting Taiwan, Vietnam and Wall Street, to name just a few offshore markets.

Their economies are tied to China's via trade or investment. Some institutions in Asia pull back on multiple high-risk, high-yield assets if a major one is losing money.

But state support in China sometimes means systemic change, not only stopgaps. That's where investors may find inspiration.

China's central bank liberalized the notoriously restricted currency in October as a way of attracting foreign portfolio investors -- the likes of BlackRock (BLK - Get Report) , Invesco (IVZ - Get Report) and exchange-traded funds such as the Market Vectors ChinaAMC A-Share ETF (PEK - Get Report) .

The Chinese yuan's fall of 0.5% against the U.S. dollar last week has prompted some of the selling this month as depreciation threatens to erase share price profits when converted to foreign currency. Is more liberalization on the way?

"China will direct focus back on the currency and economic fundamentals," forecast Carolineyu Maurer, head of greater China equities investment at BNP Paribas Investment. "Investors are becoming more nervous about the recent trend of the yuan, and will monitor closely how China handles the situation."

 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.