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In China, a fear of social instability has long constrained government efforts toward economic and structural reform. After three decades of nearly unrestrained and uncoordinated growth, China's leaders are now facing a moment in which change is no longer simply desirable; it is a necessity. The global economic system is rebalancing, economic power is becoming more diffuse, and China's export- and investment-driven economy has, as its regional predecessors, largely run its course.

Beijing talks of a shift to an internal consumption-based economy - one less susceptible to the vagaries of international trade and overall more self-sustaining. But that is not a simple change, particularly in a country where the government is dictating that the transition take place over a very short span of time. Decades of redundancies and inefficiencies in the economy, significant overcapacity in some sectors and undercapacity in others, and a pervasive culture of local self-interest and corruption further complicate the desired transition.

Any change will of necessity lead to higher unemployment, to pockets of significant economic downturns, to changes in the overall balance of power among the Party elite. Moreover, the Party is no longer able to rely on its tool of social cohesiveness - the promise that all will get rich, even if some get rich sooner - and is instead emphasizing the economic "new normal" of lower and slower growth rates. Constraints on internal migration, expanding gaps between the interests of central and local government officials, and a middle class that is both comfortably established and focusing its attention on the next layer of social rights, particularly environmental issues, leave China prone to the very social instability that has thus far curtailed significant economic reforms.

Social Stability and Centralized Power

By many accounts, up to 500 protests occur in China each day, and anecdotal reports suggest the number is rising. Labor disputes, complaints against the actions of local law enforcement, accusations of corruption and mistreatment at the hands of local government officials, perennial issues of ethnic and religious rights, and environmental and "NIMBY" (Not In My Back Yard) issues drive many of the protests, which range in size from a handful to well over 10,000 participants. Managing public unrest presents a further challenge where local and central interests diverge. Often, economic reform dictates from Beijing are only tepidly enforced at the local level, or contravened entirely, because they could trigger local employment crises. At other times, local officials may prove too heavy-handed for Beijing's overall interests as the central government tries to reform the image of the Communist Party. But social unrest, despite its rise in China, has not grown beyond the state's ability to manage it.

The consolidation of power under President and Party General Secretary Xi Jinping is in part a move to overcome the legacy of institutional inertia left by the consensus-based politics that Deng Xiaoping established to mitigate the vagaries of a Mao Zedong-type leadership. Consensus eliminated the ability of even the paramount leader, Deng, to take a route that led China too far off the rails. Consensus rule worked well in times of economic growth and prosperity, but it has not worked so well when tough decisions need to be made and rapid actions need to be taken.

The overall tendency of the consensus-based leadership was to avoid social instability - to ease off on any reforms or initiatives that were triggering a social backlash. The "one step forward, two steps back" sort of economic reform of the late 1990s and early 2000s was a case in point. China's leaders have long known of the need to significantly change the country's internal economic structures but have been reticent to do so, kicking the can of reform down the road or producing minimally effective reforms that pleased no one and created unforeseen socio-economic consequences. Although some leaders' personal economic self-interests played some role in this, so did a concern that reforms would lead to unemployment and social dislocation - something best avoided.