We are wondering if this is a government we can trust,'' says a Western banker in the southern city of Guangzhou. China has always been a tough place to do business. The threat this time is that investors will funnel their money to more lucrative, more easily managed markets just when China needs outside capital the most. China cannot afford to lose investors' favor. 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.