Beijing policymakers are deeply worried. Deflation becomes unstoppable, and the consumer economy grinds to a halt. To get at least some growth, the authorities are forced to devalue the yuan. Meanwhile, social unrest could pose a serious threat. This year marks the 10th anniversary of the bloody night at Tiananmen Square, as well as the 50th anniversary of the founding of the People's Republic.
Celebrants can easily turn into demonstrators if they're angry enough and poor enough.
With these threats looming, Zhu has quietly set aside much of his politically destabilizing reform plan. He is also engineering a crackdown on the provinces, shutting down heavily indebted, corrupt investment trusts and sealing the exits for any Chinese company that wants to ship money out of the country. But the moves show Zhu is as much a Party cadre intent on control as he is a reformer. And while Zhu in the past used the levers of state power to curb inflation and promote growth, this time his policies seem likely to lead to even more stagnation. Somehow, Zhu and his advisers were supposed to avoid this mess.