social services

health and welfare

Does China have good social services / health care? Nope. China has social services, but not ready for large increase in demand.

China well behind:

• nurses and midwives
• ICU beds
• low public spending for education (below average)
• half of South Afria in healthcare

China’s countryside: 27% anemia, 20% uncorrected poor vision, 33% intestinal worms.

projections of needed increase

• level of benefits is still modest
• eligible population is still limited

As population ages and household decline, demand for higher coverage and spending will increase.

tax avenue has been slowing due to economic shrinking.

conclusions

1. China’s growth has depended on low-cost unskilled labour
2. the unskilled wage rate is rising rapidly
3. “for all its investment in physical infrastructure for decades, China failed to nivest enough in its people”
4. rural education is particularly lacking

What about moving to high tech?

1. higher education system turning out a lot of STEM
2. universities / high schools are teaching basic skills at a high level
3. …but maybe decline in critical thinking

And so:

China cared too much about physical infrastructure and not enough about health and education.

1. increasingly serious constraints on China’s future ambitions
2. increased percentages of spending and investment
3. undermines the past growth econmy

debt

Them AMCs aren’t going to pay themselves. China’s debt/GDP ratio has gone up very fast. While Japan/USA, debt is in government, China has a large amount of corporate debt: thus affects growth in economy much more directly — debt held a lot by local government finacning firms.

China can’t issue bonds because they aren’t willing to pay interest via forex, and no one buys a RMB bond. Local government financing vehicles play a large role.

how did we get here?

• China insulates itself
• turn to domestic growth and made lots of debts (since collapsing global demand)
• local government financing loans accumulated

Infrastructure and public projects can’t generate quick revenue, so retiring loans is hard.

Implications

• shifting to a new growth model much more complicated in 2006
• Debt overhang needs to be reduced gradually Future investment must yield higher returns; maybe the economy can shift to a different model of financing and corporate governance

Problems

• slowing growth exacerbates local government debts
• slowdown in real estate reduced government land sales
  • …makes it more difficult to retire debt, create fiscal shortfalls for many local governments
  • …local government financing vehicles was trying to solve debt problem, but they become premannte.

viwe: debt is ultmitael not the problem

• banks don’t push firms into bankrupty (because they are still paying local goverments VAT)
• and thus unrecognized / unliquitadted debts are just swiling aronud

how to delveerage

extending loans is a bad idea: delaying resolution since it concentrates support to less efficient firms

we can also just curtail credit (i.e. stop debt growth): tried with housing, but the entire market crashed and it made governmet debt problem worse.