So, who is to blame for this week’s rout on the stock market? China or the US Federal Reserve Bank?

It’s not a flip question.

A researcher at the People’s Bank of China blamed the Fed’s much anticipated increase in US interest rates for the global market volatility, reported official news agency Xinhua on Tuesday.

Sure, it sounds silly, and it would be just like the PBOC to blame someone outside of China. So, let’s take another look at the past week.

Yes, global markets did plunge on Monday after an 8.5% dive on China’s stock market.

On the other hand, on Wednesday US stocks ended a six-day slide with the Dow Jones Industrial Average and the S&P 500 Index both surging nearly 4%. The Dow soared 619 points to 16,286; its third-biggest point gain of all time and its largest since Oct. 28, 2008, when it rocketed 889 points.

What sparked the Wednesday rally?

Comments from Dudley-Do-Right, Federal Reserve Bank of New York President William Dudley, saying that a rate increase “seems less compelling.”

It may not sound like much, but Dudley-Do-Right is the vice chair of the Federal Open Market Committee, the part of the Fed that makes policy pertaining to interest rates.

It seemed to also be the elixir to cure China’s ails. On Thursday, the first day after Dudley’s comments, the Shanghai Composite Index leapt 5.3% to 3,084, regaining the technically important 3000 mark. The mainland’s benchmark had lost 20% over the previous week. The Shenzhen Stock Exchange Composite Index recovered 3.3% of its recent losses to 1,752. The small-cap barometer, the Chinext Price Index, jumped 3.7% to 1,959. And the benchmark for Hong Kong’s H-shares, the Hang Seng Index, climbed 3.6% to 21, 838.

In a game of which came first, Dudley’s comments indicate that the Fed is worried that the slowdown in China’s economy could hurt global growth, which would seem to take away the reason for raising rates.

Asia Unhedged, as well as many other pundits, has been saying that rate hike fears have been driving markets lower all summer. As of Wednesday’s close, the Dow was down 11% from its all-time high in May. That’s correction territory folks, and that was AFTER the rally.

So, is China following the US, or the other way around? Sure, in a new variation of the Chinese water torture, we’ve been subjected to the drip, drip, drip of deteriorating economic data all summer. On the other hand, is the Chinese economy slowing down in anticipation of what looms with a US rate hike?

Chicken or egg? And even if China is slowing down, how worried should we be?

Our new friend, Wang Jianlin, the chairman of property and investment firm Dalian Wanda, has something to say about that. Last week, Wang was named the richest person in China. This week, he experienced the largest loss of wealth in the recent correction. On Thursday, Wang used his newfound fame to say China should give up the “fantasy” of 7% to 8% economic growth and accept a slower rate that was “sustainable and safe.”

If it’s good enough for Wang, it’s good enough for Asia Unhedged.

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