For three decades now, China has established itself as a global economic powerhouse by providing cheap exports to the rest of the world. But as demand for Chinese goods slumps in a global recession, the ruling Communist Party, which owes its popularity to expanding prosperity, faces new tests: slowing growth, rising unemployment, an epidemic of factory closings, and a stock market that's lost 65% of its value.
While Chinese banks have been insulated from the troubles abroad, analysts say a slowdown in growth below 8% will fail to produce enough jobs to keep up with increases in the working-age population. The government is expected to invest big in infrastructure projects and attempt to spur consumption by savings-happy Chinese. One worry is whether preoccupation with problems at home might lead Beijing to shift resources away from American debt. The crisis is "a ground-shaking event," says one Chinese economist.