After Tiananmen, Deng Xiaoping retired from public view. While keeping ultimate control, power was passed onto the third generation of leadership led by Jiang Zemin, who was hailed as its "core". Economic growth, despite foreign trade embargoes, returned to a fast pace by the mid-1990s. Jiang's macroeconomic reforms furthered Deng's vision for "Socialism with Chinese Characteristics." At the same time, Jiang's period saw a continued rise in social corruption in all areas of life. Unemployment skyrocketed as unprofitable state-owned enterprises were closed to make way for more competitive ventures, internally and abroad. The ill-equipped social welfare system was put on a serious test. Jiang also laid heavy emphasis on scientific and technological advancement in areas such as space exploration. To sustain vast human consumption, the Three Gorges Dam was built, attracting supporters and widespread criticism. Environmental pollution became a very serious problem as Beijing was frequently hit by sandstorms as a result of desertification.
The 1990s saw two foreign colonies returned to China, Hong Kong from Britain in 1997, and Macau from Portugal in 1999. Hong Kong and Macau mostly continued their own governance, retaining independence in their economic, social, and judicial systems. Jiang and President Clinton exchanged state visits, but Sino-American relations took very sour turns at the end of the decade. Much controversy surrounded the NATO bombing of the Chinese embassy in Belgrade in 1999, which the U.S. government claimed was due to bad intelligence and false target identification (DCI statement). (Conflicting reports have alternately claimed that the bombing was deliberate or accidental.) Inside the US, the Cox Report stated that China had been stealing various top US military secrets. Moreover, in 2001, a US spy plane collided with a Chinese fighter jet over the South China Sea, inciting further outrage with the Chinese public, who was already dissatisfied with the US.
On the political agenda, China was once again put on the spotlight for the banning of Falun Gong in 1999. Silent protesters of the spiritual movement sat outside of Zhongnanhai, asking for dialogue with China's leaders. Jiang saw it as threatening to the country's political situation, and outlawed the group altogether, while using the mass media to denounce it as an evil cult.
Conversely, Premier Zhu Rongji's economic policies held China's economy strong during the Asian Financial Crisis. Economic growth averaged at 8% annually, pushed back by the 1998 Yangtze River Floods. After a decade of talks, China was finally admitted into the World Trade Organization. Standards of living improved significantly, although a wide urban-rural wealth gap was opened, as China saw the reappearance of the middle class. Wealth disparity between East and the Western hinterlands continued to widen by the day, prompting government programs to "develop the West", taking on such ambitious projects such as the Qinghai-Tibet Railway. The burden of education was greater than ever. Rampant corruption continued despite Premier Zhu's anti-corruption campaign that executed many officials.