A Tale of Two Businesses: 4,000,000,000,000 Revisited

I talked about the audacious RMB 4 trillion stimulus package earlier. The well-respected Prof. Leung agreed it, so I can’t disagree more.

It’s a modern Keynesian approach, on infrastructure spending. The ten key items laid out - covering road/railway construction, healthcare, education, environment, and all other election issues - is here.

Still, there’re choices to make. For example, shall it be spent more on building roads or schools? This is what puzzles me recently. Allow me to look further in this long post.

The Education Business

China’s a 9-year mandatory education system. It’s mandatory, but free: no tuitions, students only need to pay textbook at cost. If you ask me, I’d say it’s a huge commitment.

Here’s some stats for primary schools.

• 333,058 primary schools run by DOE and communities
• 100 million of 100.8 million school-age enrolled, enrolment ratio 99.3%
• 5.6 million full-time teachers, or roughly 20 students per teacher
• '07 governmental education expenditure was RMB 1.2 trillion, or 16% of government expenditure and 3.3% of GDP
• For primary school, the expenditure was RMB 2,200 per student plus another RMB 400 from the mish-mash pool

Here’s a typical budget sheet of one (poor) school. As you can see, it’s almost 100% funded by the government, and teachers are not well-paid.

The Road Business

Here’s an example of the road business. Zhejiang Expressway built road, gas stations, service centers, and more importantly, toll-booths.

It’s provincial government controlled, Hong Kong Stock Exchange listed (00576.HK), ADR shares traded from New York to Berlin to London.

At today’s depressed price, market value is around RMB 19 billion. The executive director, a former government prosecutor, owns 3%, or over RMB 500 million, down from peak value of RMB 1.5 billion. Why is corruption necessary?

At a glance, the road business is quite good business. You can just sit there and collect money, without competition. I suggest you buy the stock – the dividend payout ratio is over 6% assuming no growth, a better deal than putting money in the bank. Oh, if it interests you, they diversified a bit into the brokerage business, highly profitable.

The Choice?

The choice is yours. I have no idea.

 

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