I will have much to say about the Chinese economy and political system in the coming weeks. In light of the events of the last few days, however, the following observations are pertinent:
1. Any government that was foolish enough to tie its credibility to ever-rising share prices would be extremely embarrassed by the market crash. The correction is uniquely troublesome for the Chinese government, however, because its ideology directs it to exercise arbitrary power over everyone and everything in the country. The notion that the collective decisionmaking power of private investors can prevail over the expressed will of the government is logically inconsistent with the fundamental principles of the political system itself, and could lead to conflict in the future.
2. The Maoists within the Communist Party, in whose view capitalism and corruption are essentially the same phenomenon, have to be going nuts over this.
3. Fortunately for the government, it has plenty of fiscal firepower (and the will to use it) to deal with the crisis, so in the long run, this is likely to be a blip on the screen, not a catastrophe. The lasting implications are likely to be more political than economic.