Wednesday, May 26, 2004
A reporter at a major newswire service wrote to ask me about the links between economic factors and the 1989 protest, as well as their role in potential unrests in China today. Since I have some time these days, I decided to give a long-winded answer:
1. What role did economic factors (inflation, unemployment, etc) play into the 1989 protests?
I think economic factors, inflation in particular, played an important role in providing preconditions to the protests. The summer of 1988 saw the most severe round of inflation since reform, with inflation in some cities reaching almost 40%. Although the State Council quickly imposed price control, there were instances of panic buying and severe shortages. Although prices began to stabilize at the beginning of 1989, the economy also stagnated due to the harsh measures used to quell inflation in 1988. Thus, inflation in 1988 saw urban residents' purchasing power drop dramatically. Meanwhile, some of their savings were also wiped out since banks were essentially giving negative interest rate to depositors for some months in 1988. At the same time, the slow-down in 1989 meant that the job market for university graduates was quite grim. At that time, the state still assigned jobs for most university graduates. Because of the economic slow-down and because SOEs were beginning to make serious losses, the prospects for many university students weren't good. University students at that time were just at the cusp of a mental transformation: from a high expectation for state-assigned job to a willingness to seek jobs in the private and JV sectors. The students in 1989 hadn't quite made the transition and thus felt trapped by the seemingly tight state-controlled labor market. Fortunately for the CCP, however, the major cities still more or less had full employment since SOEs were just beginning to see losses. Although they were less willing to hire new workers, they were still capable of using bank loans to finance current wage needs. Thus, although some workers joined the students in 1989, their participation was limited. Certainly, workers' participation would have been much more substantial in the 90s.
2. What is the danger of the current economic pressures (inflation, unemployment again) spilling over into political protest?
There is a lot of economic pressure in China today, but for a variety of reasons, I don't think another large-scale urban protest on the scale of the TAM protests is likely to occur. Certainly, the unemployment problem for SOE workers is extremely severe these days, with effective unemployment rate of over 50% in some Northeastern cities. However, to the extent that there are workers' protests, they are limited in scale or geography. We see small-scale workers' protests all over China, but their scale in central cities like Beijing and Shanghai has been small. The larger protests mainly take place in the Northeast and in some Western cities. Also, despite the unemployment problem, there has not been a visible alliance between workers and students. In many ways, university students in China today have many more economic benefits than their elders in 1989. Instead of confined to the state-controlled labor market, they now have choices to get jobs in foreign multinationals, JVs, and domestic private firms. This year, university graduates are in hot demand, which probably give them wages well above that of the average Chinese. Thus, with the exception of a small handful of idealists, they are unlikely to join the workers to protest against the government. Of course, a severe economic downturn can change this dynamic. Finally, the Chinese government is now much better at preventing a small protest from spreading. Recently, students protested the accidental death of a classmate in Beijing, but the government quickly went in, addressed the students' grievance, but also sent in a bunch of spies and security agents. As the recent Washington Post article reveals, the Chinese security services now employ numerous spies among the students to monitor any potential dissident groups. Thus, I think it will take a major exogenous shock now to prompt a similar scale of protest in major cities in China.
1. What role did economic factors (inflation, unemployment, etc) play into the 1989 protests?
I think economic factors, inflation in particular, played an important role in providing preconditions to the protests. The summer of 1988 saw the most severe round of inflation since reform, with inflation in some cities reaching almost 40%. Although the State Council quickly imposed price control, there were instances of panic buying and severe shortages. Although prices began to stabilize at the beginning of 1989, the economy also stagnated due to the harsh measures used to quell inflation in 1988. Thus, inflation in 1988 saw urban residents' purchasing power drop dramatically. Meanwhile, some of their savings were also wiped out since banks were essentially giving negative interest rate to depositors for some months in 1988. At the same time, the slow-down in 1989 meant that the job market for university graduates was quite grim. At that time, the state still assigned jobs for most university graduates. Because of the economic slow-down and because SOEs were beginning to make serious losses, the prospects for many university students weren't good. University students at that time were just at the cusp of a mental transformation: from a high expectation for state-assigned job to a willingness to seek jobs in the private and JV sectors. The students in 1989 hadn't quite made the transition and thus felt trapped by the seemingly tight state-controlled labor market. Fortunately for the CCP, however, the major cities still more or less had full employment since SOEs were just beginning to see losses. Although they were less willing to hire new workers, they were still capable of using bank loans to finance current wage needs. Thus, although some workers joined the students in 1989, their participation was limited. Certainly, workers' participation would have been much more substantial in the 90s.
2. What is the danger of the current economic pressures (inflation, unemployment again) spilling over into political protest?
There is a lot of economic pressure in China today, but for a variety of reasons, I don't think another large-scale urban protest on the scale of the TAM protests is likely to occur. Certainly, the unemployment problem for SOE workers is extremely severe these days, with effective unemployment rate of over 50% in some Northeastern cities. However, to the extent that there are workers' protests, they are limited in scale or geography. We see small-scale workers' protests all over China, but their scale in central cities like Beijing and Shanghai has been small. The larger protests mainly take place in the Northeast and in some Western cities. Also, despite the unemployment problem, there has not been a visible alliance between workers and students. In many ways, university students in China today have many more economic benefits than their elders in 1989. Instead of confined to the state-controlled labor market, they now have choices to get jobs in foreign multinationals, JVs, and domestic private firms. This year, university graduates are in hot demand, which probably give them wages well above that of the average Chinese. Thus, with the exception of a small handful of idealists, they are unlikely to join the workers to protest against the government. Of course, a severe economic downturn can change this dynamic. Finally, the Chinese government is now much better at preventing a small protest from spreading. Recently, students protested the accidental death of a classmate in Beijing, but the government quickly went in, addressed the students' grievance, but also sent in a bunch of spies and security agents. As the recent Washington Post article reveals, the Chinese security services now employ numerous spies among the students to monitor any potential dissident groups. Thus, I think it will take a major exogenous shock now to prompt a similar scale of protest in major cities in China.
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