A self-fulfilling avalanche.

When discussing liberalizing economies, we often think of two paths: the rip the band-aid off, shock-and-awe approach that some praise of Poland or the measured, step-by-step approach that some praise of China. The problem is that the world is not linear; everything naturally happens in exponents.

This is less relevant in the Poland example because change happens very quickly and then it's just adaptation to the change. But in China, we think economic liberalization can happen linearly. It can't. Exponent curves look linear when they begin, but once they hit the tipping point, you know you're not on a line anymore. 

This year has been a crazy ride for the Chinese stock market. In it's gradualist liberalization, the Communist Party connected it to the Hong Kong exchange and loosened rules allowing investment. Money has poured into the market creating what very much looks like a bubble. In an attempt to cool the bubble, they approved a slate of IPOs, which they had been postponing, to suck up the extra funds. Then people got scared about the bubble and the market started tanking. Today they allowed pension funds to invest up to 30% of their assets in equities (gasp!) to prop the market back up.

It's hit a tipping point and the Party in no longer in control. There are two options: 1) clamp down and restrict the economy, damaging investor confidence and dramatically slowing the growth China has relied on to prevent civil unrest, or 2) liberalize further to allow the market to sort out the problems and determine value itself.

"Shock-and-awe" vs. "step-by-step" are appropriate strategies in different situations. But the important thing to remember is that step-by-step is not a linear walk and will eventually become an avalanche.