Amid Trade War, China's $60 Billion Offer to Africa Backfires at Home

In September, China held the two-day Forum on China-Africa Cooperation (FOCAC) in Beijing.

In his keynote speech at the opening ceremony, Chinese President Xi Jinping announced to the world that China will provide a total of $60 billion (about 413 billion Chinese renminbi) in financing to Africa. That includes $15 billion in foreign aid (grants, interest-free loans, and concessional loans), $20 billion in credit lines, $10 billion for a special fund for development financing, $5 billion for a special fund for financing imports from Africa, and at least $10 billion in investment in Africa from Chinese companies.

While the outside world is still debating whether China’s financial package to Africa is good or bad, or whether China is changing the make-up of its financial assistance, the Chinese public had a different reaction. Many Chinese were infuriated by Xi “throwing around money in Africa” without taking care of his own people at home.

China and the United States are fighting a trade war now. While the Chinese media have repeatedly published articles claiming that China will win in the end, the Chinese public sees economic risks that loom larger day by day.

China’s peer-to-peer (P2P) lending sector is crashing. The pension system is shaking. The stock market is tanking. Many people – including the usually well-off middle class – are witnessing their quality of life going down.

Meanwhile, the Chinese government is planning to raise taxes to refill the shrunken national treasury.

Feelings of uncertainty, anxiety, anger, and powerlessness are already haunting the Chinese public. China offering $60 billion to Africa just added to these mixed feelings.

Is the Trade War Hurting China’s Economy?

On September 7, Zhou Xiaochuan, the former governor of China’s central bank, told CNBC at the Ambrosetti Forum in Italy that the trade war’s impact on China will be insignificant and China can respond to the worst scenario by quickly rerouting exports to other countries.

On the other hand, Larry Kudlow, the White House's top economic advisor, insisted that China’s economy is already “terrible” and the United States is “crushing it.”

Faced with such sharply contrasting remarks, the Chinese public can’t help but be swayed by Kudlow’s assessment (though few would say so publicly). Many see China’s economic risks as looming large on the horizon.

For example, China’s stock market has been falling headlong for months. The Shanghai Stock Exchange Composite Index (or SCI, the index of all stocks traded at the Shanghai Stock Exchange) has dropped nearly 1,000 points from 3,559 points this January. At the time of writing, the SCI has dropped to the point where it bottomed out in 2016. Further, since the Trump administration unveiled its tariffs targeting China in mid-June, the CSI 300 index, a composite of Shanghai and Shenzhen stocks, has fallen 13 percent. A large number of analysts believe that China’s stock market will only plunge further as the trade war with the United States continues.

While investors in China’s stock market are struggling, investors in China’s P2P lending sector are experiencing their darkest moment. Promising high returns to investors, P2P platforms gather funds from retail investors and loan the money to small corporate and individual borrowers. This type of lending started flourishing in 2011.

According to a report from Jiemian, this year a total of 364 P2P lending platforms have gone bust, leaving behind more than 1 trillion RMB in outstanding loans. This June and July saw the most platforms – more than 200 –  close down, leaving hundreds of thousands of investors in bankruptcy overnight.

Middle-class Chinese became the major victims of the P2P crisis. In one of the most disturbing cases, Wang Qian, a 31-year-old single mother in Zhejiang province, hanged herself after she lost all her savings in a busted P2P platform. Thousands of victims have poured into Beijing, Shanghai, and Hangzhou, China’s most important financial hubs, rallying against the government for regulatory negligence.

To make matters worse, as China’s society continues to age, its pension system is shaking too, leaving even more people in panic.

Early in 2017, China’s 2016 Social Security Development Annual Report, issued by the Ministry of Human Resources and Social Security, pointed out that the pension funds in 13 provinces and regions – Guangxi, Jiangxi, Hainan, Inner Mongolia, Hubei, Shaanxi, Tianjin, Hebei, Liaoning, Jilin, Qinghai, Heilongjiang, and the Xinjiang Uyghur Autonomous Region – only had enough money to pay less than one year’s worth of pensions to local people. Among the 13 regions, Heilongjiang province was in the worst shape, with a total deficit of 23.2 billion yuan ($3.51 billion).

This year the looming pension crisis finally broke out. Unsurprisingly, it happened in Heilongjiang first. In late July, a large number of senior citizens in the province reported that they failed to receive their pensions on time.

Many Chinese people believe that while the U.S.-China trade war might not be the direct cause of the various financial crises China has seen recently, it is undoubtedly making things worse.

Bad local economic news together with the eruption of the trade war has left the Chinese public anxious and uncertain about the future.

The Government’s Response

When the trade war broke out, China’s state media urged Chinese citizens to “share the burden together with the government.”

However, the government’s measures to shore up the weakening economy as well as control various crises are far from satisfactory.

On the P2P crisis, the Chinese government responded to the affected citizens with censorship and even violence. According to multiple foreign media outlets, on August 6, hundreds of police locked down Beijing’s financial district – the area where China’s central bank, China Banking Regulatory Commission, and China Securities Regulatory Commission are located – to prevent a demonstration over the P2P crisis as victims across the country poured into the area.

All the protestors were escorted by the police to buses waiting along the street and sent away. Those who refused to board a bus were reportedly treated brutally by the police.

Other cities adopted similar policies toward the unwanted P2P demonstrations. In her death note, Wang Qian, the woman who committed suicide, said that she, together with several hundred other victims, had been beaten by police in Shanghai.

However, none of these demonstrations was reported by local Chinese media. The story of Wang Qian in particular was completely censored on Chinese social media.

To address the pension shortfall, the central government in July decided to create a national pool, taking a portion of money from provincial-level pension funds and redistributing the money to poorer regions. This decision was seen by richer provinces as “robbing the rich to assist the poor.”

In addition, the central government announced recently that China’s taxation authority will start to consolidate the power to collect mandatory social insurance levies next year; all levies will be “strictly collected,” according to the new regulation. Previously, local governments collected such taxes in a flexible way. Many Chinese citizens prefered to pay as little as possible so as to keep more cash at hand. For many Chinese, the new regulation will significantly decrease their take-home income, although their nominal income remains the same.

Beyond this, the Chinese government has been planning to collect various new taxes in the near future, including a property tax and e-commerce tax, to refill its shrunken national treasury. Chinese national media have been reporting these plans by citing experts or related departments. Faced with different opinions and complaints online, the Chinese government chose to shut the discussion down.

Unsurprisingly, all these recently issued or upcoming measures have only made Chinese citizens feel more discontented and anxious.

Against that backdrop, Xi’s latest offer of $60 billion in financing to Africa is a cruel irony to many Chinese. While the Chinese people have to “share the burden with the government,” the government is squandering its people’s money without hesitation.

More and more Chinese people have come to realize that in the process of decision making for significant national policies, they don’t have a say at all.

Many Chinese netizens are complaining on their social media accounts that they can only afford to eat instant noodles with Chinese pickled vegetables as the economy keeps getting worse. They even coined a nickname – Chinese chives – for themselves. This strong plant can survive the toughest conditions and grow extremely fast; even if its top leaves are cut away, Chinese chives can still grow and bloom for the next harvest.

“Chinese chives are born to be cut,” Chinese netizens say, directing some bitter sarcasm at themselves.