This Chinese unemployment crisis could be the worst since the founding of the People’s Republic. Almost a fifth of people between the ages of 16 and 24 do not work – a new record – and unemployment is approaching levels not seen since 2008.

China’s urban unemployment data based on surveys has been below 6% during the pandemic. But private measurements, which better account for the 292 million immigrant workers, paint a much uglier picture. In early 2020, Li Xunlei of Zhongtai Securities said more than 70 million jobs had disappeared, before he deleted the report and was fired. Since then, few have released updated estimates. But of the 11 million people who have graduated from university this month, only 15% had found a job in mid-April, according to the Zhaopin portal.

The problem centers on services, which employ half of the active population. Many are menial positions. A March survey of 165,000 SMEs revealed they had liquidity for 2.4 months, the lowest share on record. The poorly timed crackdown on the tech, education, and real estate sectors—big employers—has aggravated the situation. And the latest lockdowns will cut growth.

Under Mao, almost everyone who could work had a job in the command economy: one reason the safety net remains underdeveloped, with limited coverage and low benefits. Another is that subsequent reforms allowed the authorities to treat temporary spikes in unemployment with gross growth.

At the end of the 1990s, the government cut public employment in order to enter the WTO, but the explosion of exports absorbed the surplus of labor. By 2008, those productivity gains had already started to fade, and the collapse in overseas demand hit manufacturers hard. Unemployment reached 9.4%. Beijing stopped it by lowering rates and allocating funds to infrastructure.

That won’t do this time. You can’t get into the WTO twice, and cheap, young labor has been depleted; now they worry about pensions and aging. The returns on additional investments in infrastructure are lower. Bad debts from 2008 have yet to be fully digested, limiting monetary easing. Fiscal spending seems exhausted. Exports, which supported the economy in the pandemic, will not be maintained if the partners enter a recession.

The government will surely lend a marginal hand, but it can’t hire everyone. The Army could absorb some graduates for its NCO class. State companies and institutions affiliated with the Executive, which already employ up to 16% of the active population, can also help. Yunnan province has announced that it will give an annual grant of 7,000 euros to graduates who accept “grassroots jobs” in education, medicine, agriculture and poverty alleviation. Suffice to say, these positions won’t produce the disposable income that firms like Starbucks and Tesla are seeking. Further burdening already bloated public companies is not sustainable and deters private investment. Civil servant positions are already scarce. In 2021, there were 2 million candidates for only 30,000.

If not contained, the crisis may turn into a vicious circle in which falling real wages further deter domestic consumption and thus investment and job creation. It is a scenario reminiscent of the stagnation of Japan. This, in turn, would place an additional burden on already strained public finances. In the end is the worst nightmare of the Communist Party: social instability among legions of unemployed, and lack of jobs for all.