Who Pays for America’s Tariffs? The Shocking Truth Revealed!

Hi, I'm Dong Xiong. Welcome to Digging into China, where we explore China in depth to reveal unique perspectives. On March 19, my program China's Trade Mystery analyzed China's export data for the first two months of this year. I calculated the export unit price of Chinese goods for everyone. And what we found was that this year, Chinese goods have seriously been sold at a lower price to boost sales volume. In a way, it's like China has quietly swallowed the new tariffs imposed by the United States. Then, on March 23, data released by China's Ministry of Finance confirmed this situation. In the fiscal data for the first two months of this year, published by the Ministry it clearly states that export tax rebates reached 507.4 billion yuan, up 17% year-on-year. Let's take a look at why export tax rebates have surged so much. Of course, it's because the government has given export companies more tax rebate subsidies, allowing them to smoothly lower prices, secure orders, and absorb the U.S. tariffs. The tax data from the Ministry of Finance doesn't lie, and it almost always contradicts the numbers from the National Bureau of Statistics every month. So in this video, we'll use fiscal figures to show you the real state of the Chinese economy. Tax revenue can answer a lot of our questions, like whether the economic fundamentals in 2025 have gotten better or worse. But first, let's clear up this export tax rebate issue. In the first two months of this year, China's exports measured in yuan totaled 3.88 trillion yuan, up 3.4% year-on-year. However, the export tax rebates reported by the Ministry of Finance were 507.4 billion yuan, up 17%. So what's the export tax rebate rate this year? It works out to 13%. Now, what was the number last year? For the whole of last year, China's export tax rebate amounted close to 2 trillion yuan, while total exports were 25.4 trillion yuan. That gives us an export tax rebate rate of 7.6%. What do you think? Isn't the Ministry of Finance basically telling us that this year the Chinese government has ramped up export subsidies? So here's the question. Who ends up bearing the cost of the tariffs the U.S. imposes on China? If we think carefully about this export tax rebate figure, it starts to feel pretty alarming. Last year, China essentially spent 2 trillion yuan of fiscal funds to subsidize overseas consumers. If we calculate it based on this year's export tax rebate rate, the amount spent subsidizing overseas consumers could exceed 3.3 trillion yuan. Now let's compare that to how much China's government spent subsidizing its own consumers last year. For the trade-in program for consumer goods, the government spent 150 billion yuan last year and plans to spend 300 billion this year. So do you see it now? The money the Chinese government spent subsidizing its own people doesn't even come close to one-tenth of what it spent subsidizing Americans. Last year, China spent 2 trillion yuan subsidizing overseas consumers. That 2 trillion accounted for 10% of China's total fiscal revenue for the year. In other words, out of every 10 yuan that every Chinese person pays in taxes to the government, 1 yuan is taken by the Communist Party to hand it over to Americans. Tell me, shouldn't a government that bends over backwards like this be criticized by its people? Why does Trump's America First slogan work in the U.S.? It's because people there can do the math. When their government keeps sending money abroad but doesn't provide a disaster relief or support for its own people, the citizens of any country would get angry. That's why Chinese people need to shout their own China First slogan at the Communist Party. Let me break down another calculation for you. Do you all remember that the big A share market rally at the end of September last year? It started because China rolled out unprecedented 924 new policy, a double dose of fiscal and monetary easing. The government loosened restrictions on local bond issuance and increased the debt quotas for local governments. Then we saw it in the social financing data. Government bond and net financing surged month after month. In the last quarter of last year, new government debt reached 4.12 trillion yuan, up 13% year on year. In the first two months of this year, new government debt hit 2.4 trillion yuan, up a staggering 167%. That's right. Because the government sped up its bond issuance this year, the year-on-year growth in government bond issuance is shockingly high. Now, think about this. Over the past five months, net financing from government bonds has increased by more than 6 trillion yuan. In theory, most of that money should be going towards investment, right? Government investment drives GDP growth. We are all familiar with that playbook. And when investment increases, tax revenue should logically go up too. But the National Bureau of Statistics tells us that in the first two months of this year, fixed asset investment only grew by 4.1% year on year, slower than last year's 4.2%. That's pretty strange, isn't it? The government has all this money in its hand, issuing 167% more debt than last year. Yet the growth rate of fixed asset investment is lagging behind last year. So where did all that money go? The tax data from the Ministry of Finance is just as bleak. In the first two months of this year, national tax revenue dropped 4% year on year, value-added tax only grew by 1%, and even more shockingly, corporate income tax plummeted by 10.4%. With so much money out there, it's neither generated investment nor tax revenue. That leaves us with only one answer. It's all gone to pay off debt. Of the new bonds issued this year, about 1 trillion yuan has been specifically earmarked to refinance various hidden debts. And even the other new government bonds issued under the guise of various projects, well, they twisted in a turn, but in the end, local governments still use them to pay off debt. But this debt they are paying off is hidden debt, and we can't see the interest costs of hidden debts in the fiscal data. So in the fiscal expenditure for the first two months of this year, debt interest payments exceeded 150 billion yuan, up 20% year on year. There is no way around it. Since the fourth quarter of last year, with all those newly issued bonds, the cost of interest payments has shot up significantly. So at this point, we can at least draw one conclusion. The massive fiscal easing that started in the fourth quarter of last year has caused the government debt to skyrocket. But that money has mainly gone toward paying off debt, not into the real economy. That means no contribution to GDP and no boost to tax revenue. The Chinese government keeps shouting about stimulating the economy, but after all this effort, there has been no effect at all. Since fiscal tax revenue isn't growing, they've naturally had to get creative with non-tax revenue to make up the difference. And unsurprisingly, in the first two months of this year, non-tax revenue kept growing at a rapid pace, up 11%, outpacing last year's 8.6%. Since last year, we've been saying that the growth in non-tax revenue mostly comes from all sorts of cleverly disguised fines and fees. The issues of rampant fines across the country has gotten so bad that the public anger is boiling over, sorry, and it's been caught the attention of the state council. Last year, Premier Li Cheng personally stepped in, calling for an end to this chaos of arbitrary fines and issuing severe directives, several directives. But the Ministry of Finance's numbers this year tell us that the state council has failed at this. At least, whether it's a case of good intentions but not enough power or just empty slogans to fool the public, the fact remains that unscrupulous local governments are still harming people with these revenue-generating fines. It's like killing the goose that lays the golden egg. It's only going to worsen the economic downturn. Actually, if we want to judge whether the government's economic policies are truly effective, we can also look at the People's Bank of China's quarterly urban household survey report. Take last year's 924 new policy for example. Why did it happen? From the central bank's survey report, we can see that the third quarter of last year marked the lowest point for household confidence across various metrics. And here, I've got to seriously call out the central bank. They didn't release the third quarter report until the end of March this year, and they dropped it alongside the fourth quarter report. The goal, clearly, they didn't want us to see that report, right? Pretty sneaky move. Well, I'm going to show you anyway. Let's take a look at what this survey, the one the central bank tried to hide, actually says. In the third quarter of last year, household confidence in income and their sense of income hit rock bottom. You can see it in the trends. The first quarter of 2023, right after the pandemic lockdowns ended, was when confidence peaked. Then it gradually dropped, hitting its post-pandemic low in the third quarter of last year. Only 11.6% of urban residents thought their income would increase. 68.3% thought it would stay about the same, and 20.2% thought it would decrease. Keep in mind, the central bank survey only covers urban residents. It doesn't include the rural populations. So these numbers only reflect the economic expectations of city dwellers. Next, the employment sentiment index followed the same trend. Only 7.9% of residents thought the economy was doing well and the jobs were easy to find. 39.7% thought it was so-so, and 52.5% thought the situation was grim, with the jobs hard to come by or too uncertain to judge. Then there is the expectation for prices, which was completely at odds with people's outlook on the economy. Last year, when China was already facing severe deflation, people somehow widely believed that the prices would go up. This signal is actually telling us something. People's pessimism about the economy stems from worries about economic decline and falling incomes, while the cost of daily necessities keeps rising. How are people supposed to get by like that? Expectations about housing prices were also very telling. More people thought prices would fall. With that kind of outlook, the real estate industry naturally has no hope of recovery. Finally, let's talk about consumer willingness. You can see it in the trends. In the third quarter of last year, the number of people saying they'd increase investment hit a low point, while the number saying they'd save more reaches a high point. And where was their spending going? Mostly to education first, then healthcare second. That lines up with reality. Less spending on entertainment and enjoyment, more on essential needs. The household sector was indeed very pessimistic. It was precisely because confidence in the household sector hit a post-pandemic low in the third quarter that the Chinese government rolled out the 924 new policy at the end of September last year. With the A-share market surging from late September, the central bank's fourth quarter urban household survey report showed a slight uptick in household confidence. The most direct sign? The percentage of people saying they'd increase investment rose to 13.6%, up 2% from the previous quarter. Among their preferred investment options, wealth management products accounted for 43.2%, fund trusts 20.6%, and stocks 17.5%. In the third quarter, stocks only made up 13.3%. So it's clear the central bank's late September policies had an impact. But compared to the enthusiasm for stock investments, people's expectations for the broader economy at the end of last year remained pretty gloomy. The household income sentiment index only rose by 0.3%. The income confidence index kept falling, and the employment sentiment index dropped from the third quarter, while the employment expectation index rose by 0.2%. Overall, household confidence recovery was mostly concentrated in the enthusiasm for stock investments. When it came to the broader economic environment, people still felt pessimistic. Alright, let's wrap this up. Today, we've combined the Ministry of Finance's fiscal revenue data with the central bank's urban household survey reports from the last two quarters of last year. And what we've found is that China's economic environment is still in bad shape. Sure, the government tries to stimulate an economic recovery with that fiscal and monetary easing at the end of September last year. But the Ministry of Finance's tax numbers tell us that all the increased bond issuance just went to paying off debt. It didn't boost investment or generate tax revenue to stimulate economic recovery. On top of that, the Communist Party is taking more than 10% of its fiscal revenue to subsidize overseas consumers or to keep export orders alive under U.S. tariff pressure by letting export companies keep slashing prices. And that money? It's 10 times more than what the party spends subsidizing its own people with so-called trade-in programs for consumer goods. So, I think China is the country that most needs to adopt a China-first policy. No, wait, it should be Chinese people first. If the government doesn't start considering the interests of its people, the debt burden will just keep growing, and in the end, it'll be the people who get taxed to pay it off. Meanwhile, the Communist Party keeps subsidizing American consumers. Trump slaps on a round of tariffs, the party encounters with a round of subsidies, and the fiscal bleeding continues. That leaves the government with even less money to pay off debts tied to people's livelihood. So household confidence will never recover. What China needs most right now is Chinese people first. Thank you so much for watching. If you find this video helpful, please like it, drop a comment below, and hit the subscribe button right here. It really helps YouTube suggest my video to others. I'll be back with more content soon. Until then, be well.