China’s economy is heavily dependent on the growth of the housing market. It is the third largest contributor to the national GDP, with some estimating the residential property market contributions at between 17% to 29%. The People’s Bank of China (PBOC) estimates that in 2020 direct investment in real estate was $1.8 trillion and contributed 7.4% to the GDP. In addition, the National Bureau of Statistics estimated that the construction industry, which is strongly predicated on the property market, contributed a further $1.15 trillion, which was 7.2% of the 2020 GDP. 

However, not only is the Chinese economy reliant on the real estate market, but individual households are too. The importance and prevalence of home ownership in China are two-fold. Culturally, it is perceived as a prerequisite for marriage, particularly for men. It is also a symbol of economic stability.  Consequently, China has the highest rate of home ownership in the world, at around 90%. Moreover, home ownership in China is an important marker of middle-class status, with the Chinese real estate market accounting for roughly 70% of Chinese personal wealth. Given the soaring property market prices, high resale value and the absence of property tax, many regard buying a second or third home as a wise financial investment. These factors have compounded, resulting in inflated residential housing prices.

To make matters worse, a lack of available housing, especially in large cities, has escalated housing prices even higher. Inversely, housing shortages are not a national phenomenon. In rural areas newly developed projects are sometimes left uninhabited as people migrate to the cities. 

The three red lines policy

Most Chinese home buyers purchase homes off plan from housing development projects, and developers then use this money to fund multiple housing projects simultaneously. These pre-sold homes account for between 70% to 80% of new home sales. Bank Group ANZ estimates that almost $220 billion worth of mortgage loans are tied up in developing projects. As a result, property development companies are some of the biggest drivers of the economy. According to NBS commercial housing sales grew from $914 billion in 2011 to $2.7 trillion in 2020 at an annual growth rate of 21.8%. 

The largest source of income for property developers comes from deposits and pre-sales of homes still under development. In 2020, developers raised over $1 trillion from these sources alone. Additionally, developers rely on credit to enable their projects, speculatively spending to complete their housing projects. In 2020 the property development sector borrowed more than $419 billion in domestic loans, accumulating over $5.2 trillion in  debt by June 2021. In response to mounting debt from property developers, the Chinese government introduced the three red lines policy in August 2020 to decrease lending.

The policy emerged from a symposium between the PBOC, the Ministry of Housing and Urban-Rural Development and China’s largest property developers, Evergrande Group, Vanke and Country Garden. The name of the policy refers to the three prerequisites for a company’s balance sheet;“ The asset to liability ratio must be greater than 70%, net debt to equity ratio must be less than 100%, and cash to short-term borrowings ratio must be less than one.” In addition, the government requires that all three project developers attain the stipulated debt reduction mandate by June next year. The three red lines policy aims “ to reduce leverage, increase liquidity, and mitigate financial risks associated with heavy debt refinancing strategies.”

Implementation of the policy has been detrimental to China’s property market. The debt reduction measures applied by the policy were the cause of property development company Evergrande Group defaulting on debt repayments, in turn halting construction on a number of their real estate projects. As a result, the balance sheets for project developers have continued to deteriorate. In 2020, property developers defaulted on $3.4 billion worth of bonds, shooting up to $7.1 billion, or 27% of all bond repayments, in 2021. In response, angry homebuyers are refusing to pay the mortgage on homes that are not completed.

The mortgage boycott

The Chinese nationwide mortgage boycott commenced in mid-July 2022 when a letter addressed to the Evergrande property developer group, which had made the most significant corporate default China has ever seen in December 2021, gained immense public attention. The letter was signed by 100 homeowners from the incomplete Dynasty Mansion project. The letter threatened that “All homebuyers with outstanding mortgage loans will stop paying” unless construction resumes before 20 October 2022. The letter quickly made its rounds on social media platforms such as Douyin and WeChat, garnering widespread support. Within four weeks, the letter became the boycott template for many other angry buyers of incomplete housing projects. Homeowners from over 320 projects in 100 Chinese cities have co-signed the boycott. 

The possible inability of project developers to deliver homes has shaken market confidence, triggering plummeting property values and sales. What this means for the broader Chinese economy remains to be seen.

What is Beijing doing about the crisis?

The complaints of protesters have spurred President Xi Jinping to order the completion of several housing projects across the country, with state-owned financial institutions being called to foot the bill. The three red lines policy has been eased, giving project developers more room to refinance their projects. The government has also committed to decreasing some lender liabilities and increasing their debt by 5%.

While many analysts believe that the measures taken by the government will inject finance into the market in the short term. However, it might not reverse the downward trajectory of the property sector. 

While the mortgage boycott appears to have had some success, China’s low tolerance for dissent has seen censors active on several social media platforms, scrubbing posts, silencing protesters and banning document-sharing links. Should the mortgage boycott become more than merely a social movement, it could be the seed of a much more contentious issue for the Chinese economy. 

The panicked resignation and departure of Sri Lankan president Gotabaya Rajapaksa and his brother, prime minister Mahinda Rajapaksa, amid mass protests has drawn global attention to the nation’s economic collapse.

Several compounding factors led to this collapse: tax cuts, a nationwide policy shift towards organic farming and the COVID-19 pandemic. The government has particularly blamed the pandemic, given that tourism is one of Sri Lanka’s biggest earners. But most critics have pointed the finger unerringly at one factor: economic mismanagement by President Rajapaksa.

At the end of the civil war in 2009, Sri Lanka decided to focus on providing goods to its domestic market instead of trying to bolster foreign trade. This meant that the bill for imports kept growing as its income from exports remained low. At the end of 2019, Sri Lanka possessed $7.6bn in foreign reserves; that number has dwindled to roughly $250 million. Sri Lanka now exports $2 billion more than it imports, further exhausting its foreign currency reserves. Rajapaksa’s tax cuts in 2019 lost the government an additional $1.4 billion in revenue. To make matters worse, in early 2021 when Sri Lanka’s foreign currency reserves became a serious problem, the government tried to save it by banning imports of chemical fertilizer, telling farmers to use locally sourced organic fertilizer instead. This led to widespread crop failure. The government was forced to supplement its food supply with imports, ultimately exhausting its foreign currency reserves.

Sri Lanka is bankrupt. It does not have enough foreign currency to pay for imported critical goods such as food, fuel and medicines. Inflation is up by 50% and, in May 2022, Sri Lanka defaulted on its foreign debt payment for the first time. The South Asian nation’s bank declared that it was now in a “pre-emptive default”. Defaults occur when a nation cannot make payments to some or all of its creditors. This, in turn, tarnishes the country’s image and reputation, ruining its future potential investments, currency and economy. 

China has been identified as a villain in this sad story. Between the years 2000 and 2020, China loaned about $12 billion to the Sri Lankan government, making Beijing, Sri Lanka’s sole majority creditor: 10% of Sri Lanka's debt comes from Chinese loans. The loans funded large-scale infrastructural projects including a port facility in the Rajapaksas’ hometown of Hambantota. Control of the port was remanded to China after Sri Lanka realised it could no longer make its loan payments. This forces one to pose the question, are developing nations are naively mortgaging off their resources and strategic assets to China? To many critics, it was confirmation of China’s imperial agenda and demonstrated the pitfalls of Chinese funding: that despite the absence of absolute political conditionality, there are certainly “strings attached” that may pose a threat to the sovereignty of a nation. Regardless, Sri Lanka opted for this path rather than going through the strenuous process of a debt restructuring dialogue with the IMF, and rigorous measures to appease the Paris Club.

Instead, it fell into what creditors are calling China’s “debt trap” diplomacy, a predatory system that traps and confines a country into a debt straightjacket. For years experts have been warning low to middle income economies against China’s “debt-trap diplomacy”, yet with the help of friendly heads and the lure of large scale investments, China managed to bag billions worth of dollars under its Belt and Road Initiative (BRI) from vulnerable nations. In 2020 Sri Lanka received a stream of $3 billion in easy credit from China to help pay some of its creditors. Unfortunately for Sri Lanka, in recent years, following a contraction in its economy, China has focused on mass debt collection rather than lending. Going to China instead of the IMF now appears to have been Sri Lanka’s greatest downfall. “Instead of making use of the limited reserves we had and restructuring the debt in advance, we continued to make debt payments until we ran out of all of our reserves,” Ali Sabry, Sri Lanka’s caretaker finance minister from April to May, told the Wall Street Journal. “If (we) had been realistic, we should have gone [to the IMF] at least 12 months before we did.”

China is not Sri Lanka’s only lender. India and Japan are also creditors, both accounting for a considerable amount of Sri Lanka’s debt. Both nations are now engaged in talks about further repayments and aid. However, China’s political involvement in Sri Lanka points towards something much deeper than mere debt. China actively supported the powerful Rajapaksa brothers’ political ideals and policies. The blatant mismanagement of state resources and funds that ultimately led to Sri Lanka’s bankruptcy transpired in full view of its majority creditor, China. It will be interesting to see how Beijing, holding the fate of a vulnerable nation in its hands, will proceed.

About the author

Qhawezo Ayesha Fakude is a Researcher at Africa Asia Dialogues (Afrasid).  She holds a Bachelor of Social Science from the University of Cape Town, South Africa. She majored in politics and governance, anthropology and sociology.

The Africa Youth Survey 2022 found that while pessimism about the future has declined, African youth continue to search for opportunities elsewhere.   African youth are immigrating abroad in search of better economic opportunities with more than half considering emigrating to another country in the next three years to secure employment and educational opportunities for their future.  African governments are therefore pulling all stops in preventing young people from leaving the continent.  Meanwhile, some are turning a blind eye to violations of labor laws particularly by Chinese multinational companies.  Namibia for instance have several bilateral agreements with multinationals and yet it has dismally failed to implement these agreements.  In the first quarter of 2022, South Africa’s official national youth unemployment rate was at 34,5%; 63,9% of that is youth  aged 15-24 and 42,1% for those aged 25-34 years.  In Namibia youth unemployment stands at 46.1%, of that, men account for 43.7% and females for a staggering 48.5%.. 

China is one of the continent’s major business partner and the country’s state-owned construction companies have almost obliterated some southern African countries’ infant construction industry.  Chinese construction companies are also largely blamed for the increasing unemployment rates within the construction industry.   Beyond this, Chinese companies are widely accused of subjecting their African workers to the most inhumane working conditions, whilst showing g great contempt for local labor laws.  They are also accused of paying extremely low wages. In Namibia for an example, the Chinese domination of the domestic construction market has crippled the local construction industry. Lucrative construction tenders are awarded to Chinese state owned construction companies, including a N$530-million contract that was awarded to a Chinese state-owned construction company to build a road in the south of the country.  Another tender to the value of N$1Billion to construct 21 kilometres road between Windhoek and the Hosea Kutako International Airport, was also awarded to a Chinese construction company, Zhong Mei Engineering Group.

The Chinese influence in Africa has been categorized as part of what is regarded as a second phase of the scramble for Africa, typified by economic summits and bilateral trade deals which more often than not come with secretive clauses.  A 2021 analysis by AidData reported that these agreements put China in a perfect position to influence the domestic and foreign policies of those African countries China has given loans.  The latest data shows that Sino-African trade has reached 254.3 US$billion by 2021.  There is also growing anxiety over rising Chinese debt levels in several African countries, and the likelihood that China is eager to impound sovereign asset such as airports and seaports, in these countries to set off these ever-increasing debt.   This trend of awarding tenders largely to the Chinese, as well as a perception that the Namibian government is bent on protecting Chinese interests, has seen growing anti-Asian sentiments in Namibia.  It has triggered a spate of protests by youth leaders who have threatened to shut down or burn down Chinese businesses if the situation does not change soon.

In the forefront of these demonstrations is Michael Amushelelo an  entrepreneur-cum-political agitator,.  Amushelelo. is fighting growing Chinese economic domination in Namibia.  His arrest recently was well reported across Namibia.  It follows the Namibia Revenue Agency’s (Namra) decision to burn N$ 5 million worth of counterfeit goods belonging to unemployed Namibians whilst same goods belonging to Chinese small-scale businesses were left untouched. Amushelelo and the Namibian Economic Freedom Fighters (NEFF) were applauded for exposing poor working conditions at a Chinese-owned cement factory as well as tax evasion at a Chinese construction company working on the Hosea Kutako International Airport.

Amushelo has accused the governing South West People’s Organisation ( SWAPO) party of being complicit.  Consequently, according to Amushelo; he has been unduly targeted by the police and the labor ministry along with the entire cabinet, which took a resolution to castigate his actions. 

In conclusion, Namibian workers have been subjected to serious human rights abuses at the hands of Chinese business owners.  There have been several reports on human rights abuses in Namibia, in one incident, a worker was ordered to strip naked in public for inspection.  Another incident that was reported involved a worker who was forced to dispose the excrement of a Chinese business owner who had defecated in a plastic bag.  Although these incidences were condemned by the government and police intervened, human rights abuses perpetrated by Chinese business owners still occur unabated.  

The proliferation and success of Chinese businesses in Africa have succeeded largely due to lack of proper laws on the ground, these companies have exploited that situation.  Some governments have been turning a blind eye in this regard; it has taken civil society organisations and, in some instances, protests to raised alarm regarding the labor laws abuses.  Having said that, it will take more that civil society to alter the labor laws in Africa against exploitation; African governments need to legislate, remain vigilant and work with the civil society in ensuring that workers are protected from exploitation by Chinese multinational companies.

In what many regard as a large milestone for southern Africa, Zambia and the Democratic Republic of Congo (DRC) have signed a memorandum of understanding (MoU) to explore synergies related to the manufacture of electric vehicles and batteries.

It is hoped that this will bring economic and employment opportunities for both countries. Zambia’s President Hakainde Hichilema reportedly said such cooperation agreements were key to poverty alleviation and would “remove the stigma” of Africa not benefiting from material and being viewed merely as a source of raw materials. The DRC’s President Felix Tshisekedi said the agreement would create a value chain for the production of batteries for electric cars and that Africa’s economic power would be advanced though such initiatives, which would create jobs for many young people.

Both countries are diversifying from producing copper and cobalt, respectively, into motor vehicle batteries and are hoping to capitalise on growing international demand for the products. For this to happen, the countries must collaborate closely and share emerging research about market trends and electric vehicle technologies. This knowledge can be harnessed to open up job and training opportunities. Ultimately, Zambia and the DRC aspire to become hubs of electric vehicle battery manufacturing – both for the continent and the world. They could also become central to developing alternative energy solutions as climate change and environmental degradation continue to batter the region.

The global production of electric vehicles rose by 43% in 2020 to 10 million amid the  Covid-19 pandemic. It is estimated that by 2025,  electric vehicles will comprise 16% of all new passenger vehicle sales and that 54 million electric cars will be moving on the world's roads. These predictions bode well for Zambia and the DRC’s economies as they diversify.

Robert Sichinga, an international trade expert based in Zambia, is confident that, given the country already produces good grades of copper and cobalt, it is well-placed to produce electric vehicle batteries. But, he warns, both it and the DRC must “do their homework properly so that they have quality machinery that is able produce quality products”.

The electric car and battery revolution is not without its issues. It’s been claimed that making  batteries could emit 74% more carbon dioxide. Zambia and the DRC must ensure that any work in this area is done in an environmentally sustainable matter.

Green Blue Foundation Africa’s Zambia Chief Executive Officer, Dr Richard Kakuwa, also believes that while electric cars reduce the amount of greenhouse gas emissions into the environment, any local projects, once operational, should be considerate of the global environmental impacts that may come as a result of the manufacturing of electric car batteries in the region.

Dr Kakuwa, an environmental and conservation advocate, warns that the DRC and Zambia’s efforts to cash in on the electric vehicle market may compromise regional efforts to manage the environment sustainably – and anything that adversely affects southern Africa will negatively affect other parts of the world, too.

But mining expert Edward Simukonda says Zambia has produced batteries before and is confident that the country, in collaboration with the DRC, will manage the environmental aspect of electric car battery manufacturing. “So whatever emissions will be produced will be managed and I don’t see any disadvantages in any way. No matter how the undertaking, it is an advantage for the DRC and Zambia as everyone will be demanding for those batteries, leading to an enhanced economy,” he said, adding, “This is changing the world and Zambia and the DRC will be contributing to the economic fortunes of the region as they will be raking in serious income.”

And Professor Blessing Chitsenga, Group Chief Executive Officer of 12K Energy, a renewable energy company, believes that with countries such as South Africa already assembling vehicles in the region, the manufacturing of batteries will assist in sourcing of complete components from the region without resorting to any imports.

About the author

Juliet Makwama is a research fellow at Afrasid.  She is a trained journalist with experience in print and electronic journalism.  She writes  and reports on the convergence of electrification, transportation and e-mobility.

“Shocking, outrageous, disgusting, abhorrent” are some of the descriptions used to refer to a video widely circulated on the social media showing African children chanting demeaning phrases in Mandarin.  ‘’I am a black devil. I have a low IQ ‘’ were some of the phrases these children were made to chant.  The video in which African children from Malawi are seen clad in Chinese outfits and a Chinese man barking instructions behind the scenes, followed by a humdrum dance, has sparked a wave of anger on social media since it was posted in mid-February 2022.  It is perhaps the most debated video on the continent since the advent of social media.  The video has triggered a serious social debate on racial tensions and treatment of Africans in China’s social media platforms.   Berthold Ackon, also known as Wode Maya online, brought the video to the attention of many Africans.  According to Ackon, “the person who made this video is exploiting African children by putting them on YouTube and Chinese social media. The children don’t understand what they are saying. This kind of video destroys trust between China and Africa. It’s scandalous.” He called upon African governments to stop exploitative practice of African children by Chinese nationals.  The video has also caught the attention of the media, and the matter has since taken a life of its own with various civil society organisations and politicians condemning China for not doing enough to stop racial discrimination against Africans.  

In 2017, a Chinese museum in the city of Wuhan angered Africans after it posted a racist video as part of the exhibition online juxtaposing pictures of Africans alongside wild animals.  According to the local blogger and the owner of the exhibition, Yu Huiping, the ‘This is Africa exhibition’, was meant to ‘’give a sense of primitive life through the interplay of humans, animals and nature.’’  After a huge uproar on social media, the exhibition was pulled down.   Another racist incident that drew outrage occurred in Shanghai, China.  Shanghai based cosmetics company Leishang Cosmetics, posted an advertisement featuring an Asian woman stuffing a black man into a washing machine.  The messaging had racial undertones, it suggested that even black people can turn white by using a Leishang detergent.  The company blamed the Western media for over amplifying the issue; it was later forced to issue an apology. 

Some Chinese believe that the rise of hate speech and growing incidences of racial slurs in China are signs of growing discontent about the increasing number of Africans working and studying in China.  Sub Saharan Africans living in Guangzhou have increased exponentially over the years.  China has since introduced strict immigration rules to prevent further rise of African population in Guangzhou.  In recent years China has been courting African nations with tens of billions of dollars in loans and aid.  China is one of Africa’s significant trading partners and continues to invest in various infrastructure including roads, airports and railways across the continent.  The continual racial tensions have put the future of that investment at risk.  Although China has repeatedly stressed the importance of healthy China-Africa alliances based on “mutual prosperity”, the growing numbers of racial incidences involving Africans at the hands of Chinese suggests otherwise.  China’s racial animosity towards Africans is fast becoming untenable and could lead to a potential irreversible damage to partnerships between the people of these continents in business and other spheres life.  Chinese government continues to downplay incidences of racial prejudices and has dismissed such incidences as “over amplification of these issues by enemies of China”. 

China’s “see no evil hear no evil and money first foreign policy” in Africa is beginning to show some cracks.  China’s loans and financial aid to Africa has been without normal strings for obvious reasons.  Knowing the shortcomings of its population, China preempted their business dealings with Africa by insisting on a relationship that is strictly business nothing else.  China has no interest in promoting and condemning human rights in Africa, it has turned a blind eye on those governments who violate basic rights; it expects similar reactions from those governments on its own track record on human rights. 

However contrary to the wishes of China, calls for Chinese government to intervene in preventing the spread of racial discrimination are getting louder.  The “I am a black devil. I have a low IQ” video has triggered a harsh response in Malawi, a country where the video was shot.  Kenyan member of parliament Moses Kuria has taken the matter a step further; he has called for “the expulsion of all Chinese in Kenya”.  

In conclusion, racial prejudices at the hands of foreign powers are still fresh in most people’s minds in Africa and are deeply deplored.  The video has caused serious damage to China-Africa relations; it will take more than an apology this time to reassure Africans that China is serious about clamping down on racism including cyber racism.