Whether it is falling investment and rising unemployment, debt crises, work stoppages, rapidly rising inventories, or any number of other problems, the transactions that make up the so-called market are always capable of generating social problems and sometimes very severe social problems. For many Chinese leaders, these problems are simply possible outcomes of normal market functioning. The Chinese leadership may very well make use of the market as a tool for the destruction of some "inefficient- state owned enterprises (that have acted as a drain on the government's revenues)--leaving the blame for any subsequent rise in unemployment to the impersonal market mechanism, rather than to conscious government policy. Restructuring the state owned enterprises is essential to the health of the Chinese economy, the success of the government and the status of the Communist Party.
In this conception, releasing a market economy from regulation always runs the risk of unleashing the chaotic (and potentially catastrophic) elements of this process. For example, rather than controlling the number of state-owned enterprises destroyed by market economy implementations, a complete release of such enterprises from any government support or authority might result in a massive collapse of the industrial sector and wide scale unemployment. There have already been large-scale demonstrations against the closing down of state-owned enterprises. The Chinese leadership would not want to see this process become too generalized. In other words, given their theoretical understanding of markets, the Chinese leadership is behaving in a manner consistent with risk aversion. They are being careful in how far they go in deregulating markets. .
The Party's most urgent challenge currently lies in the sweeping up of the tens of millions presently unemployed. As the Communist Party prizes nothing else above social stability, this could potentially be the country's most explosive social challenge.
