Putting the immediate liquidity, debt, and asset price problems aside (ha), there is significant excess capacity on the real side of the economy. It will be very hard to fix this problem without letting significant numbers of SOEs go under. The central government fears the resulting unemployment, plus the SOEs are the Party’s power base. Yet the leaders know what must be done, and the SOEs have been reformed before. So the government is tightening the screws with more purges and censorship and power centralization, in part so they can do some SOE reform. The chance of this working is 30-70. One danger is that SOE reform leads to a loss of political stability. A second and more likely danger is that reform is incomplete and China ends up full of zombie companies and banks.