What China Fears Most

The reason democracies are considered one of the most stable forms of government is that people have an outlet for discontent beyond a violent overthrow. As the economy was rising people in China ignored the technocrats and their suspect gains because everyone was getting wealthier (or at least the opportunities were abundant to do so). With the economy collapsing, people won't nearly be as forgiving.

While there has always been sporadic labour unrest at any number of private factories, strikes have become increasingly frequent and it would appear the legions of cabbies going on strike is just the beginning (WSJ). My guess is that the government will become increasingly desperate to respond - and if their fiscal stimulus proves to be insufficient (given their inability to change the structure of their economy fast enough), they will increasingly rely on scapegoating foreigners (China Law Blog) and seek populist measures (too bad they can't blame Canada (Metacafe)). More inconveniently, I worry they'll blame Japan and Taiwan (and unlike South Park, they may actually mean it). It's just beginning.