Echoes of 1989: How soaring youth unemployment and trade wars haunt Beijing.

Echoes of 1989 Tiananmen Square: How China navigates economic headwinds and youth unemployment

China stands at a complex juncture. Decades of rapid economic expansion have lifted hundreds of millions out of poverty, but the growth model that powered this transformation is showing signs of strain. Compounding these domestic challenges are intensifying external pressures, most notably the imposition and potential expansion of US trade tariffs.

This confluence of factors is creating significant economic headwinds, particularly visible in the alarming rise of youth unemployment, stirring uneasy comparisons to the socio-economic conditions that preceded the tumultuous events of 1989 in Tiananmen Square. The Chinese Communist Party (CCP), acutely aware of this history, is deploying various strategies to maintain stability and prevent a recurrence of widespread social unrest.

The looming crisis of youth unemployment

One of the most pressing issues confronting Chinese leadership is the difficulty young people face in securing meaningful employment. While official data releases on youth unemployment became sporadic and then ceased altogether after hitting a record high of over 21% in mid-2023, unofficial estimates and anecdotal evidence paint an increasingly grim picture.

Reports from universities suggest that employment rates for recent graduates in 2024 have plummeted, with some figures indicating that nearly half of new graduates are struggling to find work.

This isn’t merely a statistical concern; it represents a profound societal challenge. Millions of highly educated young Chinese citizens, having invested heavily in their studies with expectations of upward mobility, are finding their aspirations thwarted.

Stories abound of graduates sending out thousands of job applications with no success, of skilled individuals accepting low-paying, high-intensity jobs far below their qualifications, and even of layoffs hitting previously secure positions within state-owned enterprises (SOEs).

The psychological toll is immense, breeding anxiety, disillusionment, and a sense of betrayal among a generation promised prosperity. This widespread frustration among the youth demographic is a key area of concern for the CCP, given historical precedents.

Echoes of 1989: Economic discontent as a catalyst

To understand the CCP’s current sensitivity, it’s crucial to revisit the late 1980s. While the 1989 Tiananmen Square protests are often remembered primarily as a call for democracy, their origins were deeply intertwined with economic grievances.

Following Deng Xiaoping’s “Reform and Opening Up” policies initiated in the late 1970s, China embarked on a rapid transition away from Maoist orthodoxy towards a market-oriented economy. Deng, inspired by models like Singapore, aimed for rapid economic growth, believing it essential for national strength and party legitimacy, albeit without corresponding political liberalisation.

These economic reforms, while ultimately successful in boosting overall growth, created significant societal dislocations. The shift from a system where the state guaranteed jobs for university graduates to one theoretically based on meritocracy, but often riddled with corruption and nepotism, left many students feeling disenfranchised.

Inflation eroded purchasing power, and rising inequality became starkly visible as some connected individuals benefited immensely while others struggled. University students, facing uncertain job prospects and witnessing official corruption, began organising protests as early as 1986.

These initial demonstrations, fuelled primarily by economic anxieties and demands for fairness, gradually coalesced with broader calls for political reform, culminating in the mass mobilisation in Tiananmen Square in the spring of 1989.

The CCP’s brutal crackdown serves as a stark reminder of the lengths the party will go to maintain control when it perceives a fundamental threat, particularly one rooted in widespread popular discontent.

China’s export-reliant model under pressure

The current economic difficulties, including the youth unemployment crisis, are exacerbated by structural imbalances within the Chinese economy and the impact of external trade policies. China’s growth model has long relied heavily on investment and manufacturing for export, rather than domestic consumption. While this strategy fuelled decades of impressive GDP figures, it has resulted in an economy heavily dependent on external demand, particularly from consumers in the United States and Europe.

Data consistently shows that domestic consumption constitutes a significantly smaller share of China’s GDP compared to other major economies. While American consumption drives nearly 70% of its GDP, and most developed nations hover above 50%, China’s figure remains markedly lower.

This imbalance stems from various factors, including a weak social safety net that encourages high household savings, income inequality, and, increasingly, a lack of confidence among consumers grappling with economic uncertainty, particularly in the wake of a protracted real estate crisis and the lingering effects of strict COVID-19 policies.

This reliance on exports makes China particularly vulnerable to trade disruptions. The trade war initiated by the US, involving substantial tariffs on Chinese goods, directly targets this economic engine. While China initially weathered the storm, the persistence and potential escalation of these tariffs are squeezing exporters, leading to factory slowdowns, reduced investment, and, consequently, fewer job opportunities, especially for new entrants to the workforce.

The argument made by US officials and economists is that China’s economic structure is relatively inflexible – its factories and trained workforce are geared towards exports and cannot easily pivot, whereas US demand can be more readily shifted to other suppliers (like Vietnam, Mexico, or India) or met through reshored production.

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The CCP’s balancing act: Stability above all

The CCP leadership under Xi Jinping is acutely aware that sustained economic prosperity has been the bedrock of its legitimacy since the Deng Xiaoping era. The implicit social contract has been: the party delivers economic well-being in exchange for unchallenged political control. A significant economic downturn, particularly one leading to mass unemployment and social hardship, threatens this contract and raises the spectre of instability.

In response, the CCP has historically relied on massive state-led investment and stimulus spending to prop up GDP growth during downturns. It has also leveraged its position in global trade to export its way out of trouble, sometimes leading to accusations of dumping excess capacity onto world markets.

However, the effectiveness of these tools is diminishing. Decades of stimulus have contributed to enormous debt levels, particularly at the local government level, and the returns on further infrastructure investment are declining.

Furthermore, the international environment has become less accommodating, with the US and EU increasingly pushing back against Chinese trade practices they deem unfair, including subsidies and intellectual property theft.

The discrepancy often noted between China’s official GDP growth figures and other economic indicators, such as tax revenues (which have shown declines even as GDP reportedly grows), fuels skepticism about the true health of the economy. Critics suggest the party prioritises maintaining headline growth figures for political purposes, potentially masking deeper underlying problems.

The party’s nervousness about potential unrest is palpable. Incidents like the spontaneous mass bicycle rides undertaken by students – seemingly innocuous gatherings – have reportedly drawn swift crackdowns from authorities, citing safety concerns but likely motivated by a deeper fear of any large-scale, unmanaged assembly of young people. This hypersensitivity underscores the party’s deep-seated anxiety, informed by the memory of 1989, about the potential for economic frustration to morph into political challenges.

Trade tensions and strategic vulnerabilities

The US tariffs and the broader trend of “de-risking” or “decoupling” present significant challenges beyond just export revenues. Intellectual property (IP) theft has long been a major point of contention, with US estimates suggesting it costs American businesses hundreds of billions annually.

Protecting American IP and demanding reciprocal market access are key US objectives in trade negotiations. The tariffs serve as leverage in pursuing these goals, aiming to force concessions from Beijing.

Furthermore, China’s economic model relies heavily on importing critical resources, including energy (oil and LNG, where it is the world’s largest importer) and food (importing a substantial portion of its needs). These imports must largely be paid for in foreign currency, primarily US dollars, which are earned through exports.

A significant and sustained decline in export earnings due to tariffs or decoupling could, over time, strain China’s ability to secure these vital imports, adding another layer of strategic vulnerability. The US position appears firm: tariff reductions will likely only come as part of a broader negotiated deal that addresses structural issues, including market access, subsidies, and IP protection, while encouraging the reshoring of critical supply chains away from China.

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The path forward: Rebalancing or confrontation

China faces difficult choices. Continuing to rely on the old model of export-led growth appears increasingly unsustainable in the face of global pushback and domestic imbalances. The alternative requires a fundamental rebalancing towards boosting domestic consumption.

This would involve significant structural reforms: strengthening the social safety net to reduce precautionary savings, addressing income inequality, fostering a more transparent and predictable regulatory environment to boost consumer and business confidence, and potentially allowing greater currency flexibility.

Such reforms, however, are politically challenging and could potentially weaken state control over the economy, something the current leadership may be reluctant to embrace fully. Yet, failing to address the underlying economic issues, particularly the crisis of youth unemployment, risks fuelling social discontent. The CCP is caught between the need for economic adjustment and its overriding priority of maintaining absolute political control and social stability.

The US trade tariffs are not the sole cause of China’s economic challenges, but they act as a powerful accelerant, exposing and exacerbating existing structural weaknesses. As Beijing navigates these turbulent waters, the lessons of 1989 loom large.

The party’s efforts to manage the current economic slowdown and prevent widespread unrest will shape not only China’s domestic trajectory but also its future role in the global economy. The world watches closely as China attempts to walk this precarious tightrope between economic necessity and political control.

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