China's lodestar is not reform but avoiding chaos

``China's policymakers talk much of reform. What really drives them is something different: a fear of chaos. The treatment of the country's local government debt pile is an example of risk aversion getting the upper hand. The strategy is imperfect, but also right... For a still-developing market, showing some mercy isn't entirely foolish. Uncontrolled defaults would undermine confidence and real economic activity. Genuinely useful projects might be unable to find funding, to the dismay of the citizens who have to live among the ruins. The wider agenda may be to ring-fence those projects that deserve official support before identifying those that do not. Jiangsu and Xinjiang provinces will soon be the first to swap some safer government-backed credit into bonds. If failures can be kept at bay for a while, those trials are more likely to succeed.''