A story in New York Times wrote "Land grabs by officials eager to cash in on China's booming economy are provoking mass unrest in the countryside and amount to a "historic error" that could threaten national stability, Prime Minister Wen Jiabao said in comments published Friday...Local officials operate with impunity in the one-party state and have little to fear from a legal system that answers to the party. " Read the story here.
To preserve social stability, what can the central government do?
1) The central government can of course organize internal clean-up campaign in a bid to get rid of bad elements (read corrupt officials). But the government seems to have tried this route many, many times and this does not seem to work very effectively.
2) Of course, with piles of Forex in its treasury and decent fiscal health, the central government can simply use money to compensate the victims, then again this method can only be a short term solution because it can only rectify old problems but not stopping new ones from occuring. Indeed, knowing that central government will clean up their mess, this policy will only encourage more of such corrupt behavior on the part of local officials (moral hazard).
This method has another problem as well. You need someone to give the money to the victims don't you? And whom you are going to rely on? Corrupt local officials who make a mess in the first place!
3) If the central government cannot deal with its own corrupt local officials, can it simply use force to silence those angry victims of government policies? No. Again, knowing that the central government will clean up their mess (like option 2, only this time with sticks rather than carrots), the same moral hazard problem will occur and future protests are bound to come up again and again.
4) An open government(by that I do not mean democracy but a govenment characterized by rule of law and protection of individual liberty). You can't use force (at least not in a scale comparable to that used in June 1989), you can't trust your own people to rein in their own behavior (they are corrupt and are thus the source of the problem in the first place), what else can you do other than opening up your government?
May be I am too optimistic, but I just don't see China's central authority has that many choices open to them other than opening up the government. Hopefully we don't need to wait for too long.