Denmark: A Socialist Welfare Monarchy

A lot has been said about how socialist some European countries are. Look at Denmark and you would know why.

The Welfare State

Her Majesty Margrethe II’s Denmark has 5.5 million people, with GDP per capita of $37,000, PPPed. GDP has been growing at around 3% in real term in recent years, and unemployment has been trending down to under 4%.

Besides the wind turbines all over the country supplying 18% of energy use (above map), what sets the economy apart – as well as most other western European countries – is the heavy tax rate.

The government collects and spends almost half of the GDP. The average personal income tax rate is 40%, with the top bracket being 65% (which is facing pressure recently).

BTW, there’s also a slightly less than 1% church tax for Folkekirken members.

Free Healthcare, Free Education, and Income Equality

If that doesn’t scare you away, I should tell you where the tax hike goes.

Healthcare is free

The government foots 81% of total healthcare expenditure. You can go see a doctor for free only with your health insurance card. The healthcare expenditure per capita is PPP int’l $3349 (9.5% GDP), half of the U.S.’s $6714 (15.3% GDP), while all health indicators – health life expectancy, child health, service coverage, etc. - are equivalent to that of the U.S.

According to the Ministry of the Interior and Health, 79% of the population, more aged and of a higher rate of use of alcohol and tobacco than that of the U.S., rated the nation’s healthcare service as “very good” or “good.”

Hospitals are run by the local authorities, and drug prices are reigned in by the government’s negotiation with drug companies and encouraging competition from other EU countries. From 1988-2000, the annual increase of total health expenditure was a mere 1.6%.

Education is also free

Free schooling starts from preschool. The State Education Grant and Loan Scheme grants 18+ student DKK 4400 (above $800) per month for student living away from parents.

The Tertiary-type A (i.e., high school) graduation rates are among the highest of the developed.

More Equal Income

The Danish Gini is the lowest in all OECD countries. In comparison, China is of the Mexican level.

Is It Socialism?

It depends on your definition of socialism.

If it means high-tax-rated, state-welfare type to you, you should add $10,000 family healthcare insurance, another $5,000 education expense per child, pension, unemployment insurance, and whatnot to your tax returns, and recalculate your tax rate.

Then we can talk, unless if you are now priced out from having a healthcare plan and can’t afford sending your kids to school.

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Denmark: Less Farmers, More Foods

A follow-up on the farmer post.

Denmark had over 50% population in agriculture in 1840. Today it’s less than 5% and running a trade surplus in food, under cold temperature.

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The Future of 900 Million Farmers

The United States has one quarter of the world GDP, and China has one quarter of the world population. It says it all about the Chinese economy. Of the one quarter world population or almost 1.4 billion strong in China, 900 million are farmers.

You would have guessed that such a large population would impose tremendous pressure on the food supply. I did some googling and find that China has done quite well on food production.

China, a Big Farm by Figures

China has a smaller share of land and arable land compared to the size of the population.

The population density is one of the highest.

But over years China has established an ample self-supply of cereals (rice, wheat, maize, etc.), and has dramatically increased the production share of meat, fruit, vegetables and fish..

..with a trade surplus.

The food gap is closing and people are eating more everyday. I assume the obesity kid summer camps would soon be overcrowded.

10% More for Food Safety

Now the government now has a not-so-ambitious new plan to hike food production by 10% till 2020. The plan plans to maintain the arable land area at 1.8 billion acres, a part that Mr. Mao, a renowned economist, doesn’t quite agree.

I don’t know too much about farming, so my comment probably wouldn’t help. But I found the public sentiment against Mao disturbingly amusing – if property rights per se is a mass, what’s (or whose) there to argue about?

Anyhoo, there’s plenty of opportunities to improve farming yield comparing to Monsanto America and Syngenta Germany, holding all other variables constant.

Poor Farmers, Rich Farmers

Food safety, local and global, seems not an adjacent problem into 2030. The real issue is how to improve the poor farmers’ income.

• In 2005, 949 million live in villages, of which 299 million (23% pop) are farmers.
• Urban income per capita is RMB 15,781 in 2008, while that of villages is RMB 4,761, or 30% of urban.
• GDP of agriculture, forestry, fishing and hunting, or the so-called Primary Industry, was 11% of total in 2007.

You do the math.

As a comparison, in the U.S. 1.4 million (0.5% pop) works in agriculture, forestry, fishing and hunting – one person per one big farm, farming with GPS guided John Deeres. The GDP share is 1.2%.

Yes, you can get rich being a farmer.

How to Get There? The short answer is it takes time, the long answer ..

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Philippine’s Poor

Telling statistics from Philippine’s National Statistical Coordination Board.

The bottom 30% spends over 60% on food. Remember that there was a commodity price boom before the global recession?

The above shows the so called Engel’s law.

With the goal of boosting internal demand in mind, I would suggest the Chinese government do some equivalent survey in the villages, before pushing down the policies.

Of course, what to do afterwards is another matter.

 

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Global Top 0.02%

A very different population map. The complete report here [PDF].

This is China.

Have some aspiration and do some prep reading. You can work it out on your own, or find someone dumb who couldn’t care less.

A side note: I am not against wealth. Well, who does?

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The Paradox of a Money Printer

This is a preliminary note on the very unique Chinese banking system, with a focus on the monetary operations.

The Chinese Banking System

China doesn’t have a well developed and sophisticated capital market and financial system. No pains, no gains.

Though constantly evolving, the perception is that Chinese banks are more of the old-day bank-at-the-street-corner type. They take deposits and make loans or buy government bonds. No securitizations, no excess derivatives.

The total assets of the financial sector is of RMB 50 trillion in size (1.7x GDP), over 90% funded by deposits. Market shares are concentrated. The big four – ICBC, ABC, BOC and CCB – controls over half of the assets, and the major shareholder of those four is the Chinese government.

Yes, the banking system is nationalized, in good times and bad, and it works in its own way. No free market, supply and demand mechanism for interest-bearing loans and securities: the central bank, PBoC, sets the entire ladder of interest rate, from that of deposits to loans.

Sounds like a boring, stable, socialist banking system, right? Oh, except the astonishing rate of non-performing loans (NPLs).

It was about 20% at its peak, though the situation is improving in recently years. At such a level, banks are easily bankrupt despite of hefty fee collection due to lack of competitions. An example here. I don’t know how they did that – it’s not easy. One possible explanation is that it’s policy-driven. More on this later.

But the good news is that banks are nationalized, so that the government is there for bail-outs, in good times and bad. No FDIC type of deposit insurance necessary.

PBoC’s Ever-expanding Balance Sheet, Reserve Ratio and Sterilization

Monetary policy is a completely different craft in China. Take a look at PBoC’s balance sheet and you would know why.

What drove the rapid balance sheet expansion is China’s foreign reserve accumulation, topping $2 trillion today. Besides causing trade tensions, safety concerns and controversies, the current account surplus pile-up is rather a headache for PBoC: it floods China with money and threats with inflation.

How is PBoC fighting against it? They do two things – reserve ratio escalation and sterilization.

The above is the deposit reserve ratio (a portion of banks’ deposit money kept with the central bank to control the upper limit of credit). It is climbing up, until later last year.

The other one is the bond issuance by PBoC to sterilize money supply, or to take money out of the marketplace. It totaled over RMB 4 trillion – not a negligible amount and it would keep ascending as long as there is CA surplus.

There’s another possible way – to spend it. It is an incredible amount of money to spend. I did some long posts on it.

An Example: Stimulus Package in Chinese Way

Remember China’s RMB 4 trillion stimulus package? (Admittedly, I didn’t do the homework well.) It’s a perfect demonstration of how powerful the system is.

Amazingly, it seems happened overnight, and no known complaints.

It is still developing and the result is yet to be seen. I might well be wrong.

Will PBoC be Insolvent?

Sounds like a crazy question, since it prints money (not exactly) freely. But it doesn’t hurt to contemplate either.

One issue is the exchange rate. I don’t know how exactly they do the book-keeping on the foreign assets (mainly foreign reserves, plus some gold and others), but notice that RMB has been appreciating. If marked to market, the decreasing value of the foreign assets would drag the net worth underwater. Funny, since PBoC sets exchange rate and they are doing so to bankrupt itself. If there’s an outflow, it would be cash-based.

Another issue is interest rates that determines the income statement. PBoC collects interest payment mainly from foreign assets and pays out on deposit reserve and bonds. If (well-controlled) domestic interest rate is higher than foreign, it eats into the capital. As you can see, not much is left.

It’s not risk free, after second thought.

Does it matter and what to do?

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Easter Eggs

Is that an April Fool’s prank, or otherwise?

Original link here.

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Bear Rally?

Did I once mentioned that stock markets work the same way as inflation does – meaning higher demand would drive up price?

The above is the new accounts opened weekly for Shanghai Stock Exchange A-shares.

If you compared to the index, they are almost of the same shape.

The above is mutual fund flow data.

You may have guessed it.

I see few reasons for euphoria, but you should consider stock market for now – stay near the door though.

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Home Appliances for Villages

Chinese economy needs a structural change, and many seem to agree that to stimulate domestic demand is key.

In my view it is something rather fundamental, but short-cut ideas fly around. Look at this guy, who is a people’s representative of the National Congress, advocate a nutty idea of national holiday to release domestic demand. By that logic, unemployment would really help.

BTW, the guy owns a tourism company, so that more leisure time would surely boost his business, and he spoke bluntly about it. Great. While convening to speak for the people, why not as well use the marketing platform to speak for himself?

Recently an usual thing happened – the government decided to subsidize farmers to make home appliance purchases by reimbursing 13% of sales price. Items include TV, cell phone and fridges.

It’s a serious project. They even built an online information management system for it. According to one village survey, farmers are satisfied, though not without concerns.

It is somewhat another unprecedented, well-intentioned socialism move by the government.

Leave the gun, take the cannoli.

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Chinese Consumers’ High Saving Rate

There is a cute little household wealth survey by Statistics Bureau in 2002, which helps explain the high saving ratio of Chinese consumers.

“[..]子女教育、养老、防病成为居民家庭进行储蓄的主要目的。在调查问卷列示的十余种储蓄目的当中，把子女教育摆在首位的家庭最多，达到36.5%。而实现子女教育消费则周期较长；排在第二位的储蓄目的是养老，选择率为31.5%，我国目前已步入老龄化社会，但由于社会保障制度尚不完善，不少被访者特别是中老年被访者对未来养老问题表示担忧，故以此为首要储蓄目的的家庭也超过了三成；排在养老之后的储蓄目的是防病，选择率为10.1%，在医疗制度改革后，由个人承担的医药费比例明显提高，居民家庭用于治疗和药品方面的支出大幅增长，因此以防病作为首要储蓄目的的城市家庭逐渐增多。除子女教育、养老及防病外，选择率靠前的储蓄目的还有买住房（7.2%）、子女婚嫁（5.7%）和防失业（3.0%）。”

I have an earlier attempt to tackle here.

If you look at the household financial assets of Japan, another Asian high-saving rate country, the household balance sheet looks almost the same, though of different magnitude and for different reasons.

The United States is a completely different case. Take a mortgage, take a dozen of credit card, and cross over what’s on the shopping list or not, then pay down overtime, or never.

It is not a contemporary phenomenon driven by sophisticated financial engineering, but started a century ago.

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Almost Universal Healthcare: Can We Afford it?

This post in a response to China’s new Healthcare Reform Plan.

I don’t have to repeat the importance of healthcare. Now, finally we take the courage to work towards one. Hoorah!

Key Features of the Healthcare Reform

The health reform plan spans into 2011, budgeting an additional RMB 850 billion or 1% GDP annually, with a bit over 1/3 from the federal government.

It aims to cover 90% with healthcare insurance – a comprehensive landscape change from the mere 15% coverage as of today.

It establishes a nationwide procurement and distribution system on a list of basic drugs. The government would reign in drug prices, and public healthcare providers would retail drugs at purchase cost.

It would separate drug prescription and purchase – a break from the current hospital-also-sell-drugs system, presumably to avoid conflict of interest.

It will build a lot of new hospitals, with the goal to cover each and every village in the country.

It would provide training to 2 million healthcare personnel.

..and many, many other good stuff.

Overall, it is a tremendously exciting one and a courageous move of the government. Send in your thank-you note.

China Health, an International Comparison

If you have time, read WHO’s ultimate death book for a global health overview. Here’s a screenshot.

 

China, still a poor developing country, lags behind the developed in many aspects on healthcare.

The life expectancy is on average 7-8 years shorter in China than G7 countries. Want to live longer? Move to a developed country.

The infant mortality rate is much higher.

Infectious and parasitic diseases, perinatal conditions, and injuries caused much more death per person.

China’s Premature Healthcare Infrastructure

Healthcare service coverage is primary compared to G7.

And environmental infrastructure lacks.

The Disparity of Healthcare Expenditure

Even on PPP-based, China spends per capita 7.5% of the average of G7’s. Not 75%, but 7.5% - No kidding. Did somebody call China a threatening super-power?

GDP-wise, China spends 4.5%, while G7 countries spends about 8-10%. The exception is the U.S., who expends a 15% from an already forerunning GDP, without seeing obviously better health conditions other than occasional personal bankruptcy of the 16% uncovered (hearsay: most other developed countries have universal healthcare). Mystery.

China doesn’t have an established health insurance system, with over half health expenditures paid out of pocket. It is almost eye-popping that there would be a 90% coverage.

A Concern on Cost

It is a common knowledge that national healthcare cost usually overshoots, and sometimes explodes. So we have to worry about it, though it may not be a good time.

There are several “detonators.” One is aging.

The Chinese population is relatively young, but it is turning old.

Age drives up healthcare expenditure exponentially.

Another factor worth attention is healthcare price inflation. For example:

The situation of China doesn’t look good at all. Despite that unit cost increase may not be the only factor, the per capita inpatient and outpatient expenditure per treatment paced up much quicker than consumer price index.

Can We Afford it?

With many fickle economic, social and natural variables, it is near impossible to predict the future cost of a national healthcare system. I hate to be a fortune teller here.

The key question is: do you see healthcare a cost or a contribution to the economy?

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A Small World

The world is becoming an increasingly crowed place. “It’s a small world,” as some would say.

Global GDP and Population

According to UN’s Population Division (yes, there’s one), the world population will double from today’s over 6 billion to 12 billion in 2050, based on medium variant estimation.

Besides Asia, which has over half of the population, there’ll be a lot of people in Africa.

I remembered from the other day that some guy on TV said we would need four planet earths (another three other than what we have) to maintain the current living standard for all population. Not the exact quote, but roughly so.

One candidate is Mars – a 55-100 million km, eight-month trip. Book your ticket earlier and bring warm clothes.

The on-going depression also reminds us the GDP. The global GDP is around $55 trillion, a number that I neither care for nor could make any sense of. Besides, there are various accounts of it.

One reason causing the discrepancy is national currencies and exchange regimes. Appreciate you currency 5% and you get a 5% GDP hike in US dollars. Trouble. An international currency may have some merits after all.

Someone dubs the U.S.-China president meeting in the London G-20 summit as G2. It is well-grounded: both nations are a quarter important worldwide, and the difference is the U.S. get a quarter of global GDP, while China gets a quarter of the population.

A More Connected World

Check out UNWTO.

Moneywise, nations are linked via trade and capital flow (that includes financial assets or FDI). They grow much faster than GDP.

Trade

 

Global one-way trade is approaching 30% of GDP, leading to the famous global imbalance problem.

Portfolio Investment

Thanks to the global capital market and ETFs, you can own a piece of everything with your IRA – Brazilian equities, Japanese Yens, oils and soybeans, Spain sovereign bonds, you name it.

The cross-border financial asset holding is reaching 80% of global GDP. The source and use of money is correlated with national GDP level, though more dispersed today.

Moien, Luxembourg.

FDI and MNCs

Another way to throw money abroad is by foreign direct investment (FDI), which is approaching 30% global GDP.

Europe is the most active region. Merci, Euro.

As you can expect, money is flowing from the developed to the developing. (Notice Hong Kong, Wannechglift.) Through a chain of M&As, you can build a global business empire. You can compare the Fortune 500 list with the country GDP list.

Now China is the FDI receiver - As always, the rich becomes richer.

MNCs in China are increasingly active..

.. and profitable.

The U.S. is one of the most active global empire builders.

Can China do that one day instead of hoarding treasury bills?

Addi or a voir.

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