From what I understood, the biggest problem is that lots unsophisticated investors (families) invested when the prices were already up, as it usually happens with bubbles, and now they are in deep trouble. This in turn could create big troubles in the "real economy".
That was intentional on the part of the Chinese government. They haven't been subtle about it.
Chinese households are the only sector with a healthy balance sheet. Their corporations are carrying epic amounts of debt in relation to GDP. The premise was to transfer wealth from households to corporations, to improve the corporate balance sheets (via share issuance).
