Archive for May, 2015

08/05/2015

China Parades Closer Ties in Moscow – China Real Time Report – WSJ

When a Chinese honor guard joins a military parade in Russia’s capital this weekend, watched by China’s President Xi Jinping, it will mark more than just a symbolic recognition of the two countries’ contributions to the Allied victory in 1945. As the WSJ’s Jeremy Page reports:

China’s participation also reflects an upgrade of its military ties with Russia, including joint naval exercises and a revival of arms purchases, that could complicate U.S.-led efforts to counter both nations’ expanding military activities, analysts and diplomats say.

The 102 Chinese troops who will join the Victory Day parade in Moscow on Saturday were seen during a rehearsal this week marching through streets near Red Square singing the Russian wartime ballad “Katyusha”, according to video footage posted online.

The only other foreign countries with troops in the parade are India, Mongolia, Serbia and six former Soviet states.

Three Chinese navy ships also made a rare foray into the Black Sea on their way to join commemorations in Russia’s southern port of Novorossiysk on Saturday.

The Chinese ships—two missile destroyers and a supply vessel — will then take part in joint exercises with the Russian navy in the Mediterranean Sea for the first time, according to Chinese and Russian authorities.

Both sides say the drills aren’t directed at other countries, but the timing, after Russia’s 2014 annexation of Crimea, and the location, on NATO’s southern flank, have compounded Western concerns about an emerging Moscow-Beijing axis.

via China Parades Closer Ties in Moscow – China Real Time Report – WSJ.

07/05/2015

Corruption: Not so far away | The Economist

“THE mountains are high; the emperor is far away,” goes a Chinese saying that has always given comfort to bureaucrats who play fast and loose with the law in remote parts of the country. But often, these days, distance is not enough. Those who hanker after the added protection of a foreign jurisdiction are often called “naked officials”. The term describes people who have moved families and assets abroad in readiness for escape themselves. Now, however, anti-graft officers are trying to extend their reach beyond China’s borders.

Since late last year, as part of the most intense and sustained anti-corruption drive in the history of Communist-ruled China, officials have been stepping up efforts to persuade foreign countries to send back those who have fled with their ill-gotten gains. On April 22nd they released a wanted list, together with mugshots, of 100 such people, as part of a new operation called Sky Net. The list was compiled by a Communist Party body, the Central Commission for Discipline Inspection (CCDI), whose agents often hold suspects in secret detention and torture them. “We will apprehend them no matter where they flee to,” Fu Kui, a member of the CCDI, told state media. The operation involves other agencies such as the police, the central bank and the foreign ministry.

Among the wanted fugitives, for whom Interpol has issued arrest warrants, 48 were the most senior officials in their workplaces. One was the deputy head of a provincial construction bureau accused of fleeing to America with 250m yuan ($40m) in embezzled funds. Another was a county-level finance official who allegedly took 94m yuan to Singapore.

Officials say that Sky Net is a new phase of Operation Fox Hunt, a campaign launched by the police last year to secure the repatriation of criminals (not just the corrupt). Officials say the exercise has been a success, having secured the repatriation of 680 fugitives from 69 countries. On April 27th the state prosecutor’s office said a further 61 people suspected of “dereliction of duty” had been arrested after spending time on the run abroad. Many had turned themselves in.

But anti-corruption officials have a big problem: the 39 countries with which China has extradition treaties do not include America, Australia or Canada, which are among the favoured destinations of corrupt fugitives. China has been pressing these countries for more co-operation. After a visit to Beijing in April by Jeh Johnson, America’s secretary for homeland security, state media said America “actively” supported China’s efforts. The Americans say they have agreed to a more “streamlined” procedure for handing back Chinese nationals whom they decide to repatriate. But they insist that such cases be handled according to American law and “values”.

China says it has sent 61 agents abroad (it has not said where) to “persuade” accused fugitives to return and face justice. It has also been trying a new tactic: scaring them with horror stories. State media last month reported one fugitive in America who dared not even see a doctor, so worried was he that his identity might become known. He returned home of his own will, a broken man.

via Corruption: Not so far away | The Economist.

07/05/2015

After Fresh Investment, Chinese Drone Maker DJI Valued at About $8 Billion – China Real Time Report – WSJ

Chinese drone maker SZ DJI Technology Co. secured a $75 million investment this week that values the company at roughly $8 billion, according to people familiar with the situation, propelling the firm into an exclusive club of startups and signaling Silicon Valley’s high hopes for the commercial promise of flying robots. As the WSJ’s Jack Nicas and Douglas Macmillan report:

Venture-capital firm Accel Partners said its $75 million investment in SZ DJI Technology is one of its largest ever.

“We think [the drone sector] is still an early market, but one that we think is a new global technology category,” said Sameer Gandhi, who led the investment for Accel, based in Palo Alto, Calif. “This is the company we believe is going to be the leader in that category.”

The Accel deal flows out of broader DJI fundraising talks reported last month by The Wall Street Journal that could ultimately value the drone maker at around $10 billion. Those talks continue with other potential investors, according to one of the people familiar with the situation.

DJI says venture firm Sequoia Capital already is an investor.

DJI, based in Shenzhen, China, has quickly become the world’s top consumer drone maker by revenue, expecting to exceed $1 billion in sales this year, compared with $130 million in 2013, according to people familiar with its finances.

via After Fresh Investment, Chinese Drone Maker DJI Valued at About $8 Billion – China Real Time Report – WSJ.

07/05/2015

Primary care centres key to reforming healthcare in India: health economist Kenneth Thorpe

Over 60 percent of deaths in India are due to non-communicable diseases (NCDs) such as cancer, diabetes, chronic respiratory diseases and cardiovascular disease, which are also responsible for about 70 percent of spending on healthcare. They also affect the economic health of the country, with NCDs and mental illness expected to cost India $4.58 trillion between 2012 and 2030.

Health economist Dr. Kenneth E. Thorpe, chairman of Partnership to Fight Chronic Disease, an international NGO, is advising the government of India on developing a policy to deal with the country’s rising chronic disease problem.

In an interview with India Insight, Thorpe shared his thoughts on how India can reform its healthcare delivery system, the need to replicate successful models of primary health centres to cover the entire country, and why payments for health services need to be changed from out-of-pocket expenses to a subscription-based system and through insurance.

Q: Why should India focus on non-communicable diseases (NCDs)?

A: NCDs account for over 60 percent of deaths in India. It’s also a major driver of health spending – 60 to 70 percent of what India spends on healthcare is linked to NCDs. It’s a major problem not just in terms of healthcare but also in terms of productivity.

Q. Which sector is more crucial to improving healthcare delivery in India – government or private?

A: Both. It’s got to be a public-private partnership. So today, India spends about 4 percent of its GDP on healthcare. About one-and-a-half percent of that is the government and the rest is private. So we just need to scale that up – probably proportionally to something like 5 or 6 percent of GDP.

Q: In what way are you working with the Indian government?

A: We’re working on developing a policymaking framework for healthcare reform solution for India.

Q. Has there been any progress?

A: With the Modi government coming in, there was a renewed interest in developing something as a health policy solution for India. They seem very receptive to some of the things that we’re talking about in terms of preventing chronic disease and treating patients that have chronic disease.

Q: What have you been able to achieve?

A: We were here in December and the ministers asked us to put together a blueprint of what would a healthcare reform look like. And so we put together some thoughts that they basically incorporated into their blueprint (National Health Policy) in February. That’s like an outline, so the next point is saying: “How do we operationalise this outline?”

Q: What have you proposed in your blueprint?

A: One is that we really need to build up the primary care infrastructure. We need more manpower, more hospital beds, but we really need capacity – building up primary care clinics, primary care models that really deal with identifying chronic disease, preventing it and managing it. And there are some good models that we’ve identified throughout the country that we think we can scale them and replicate them throughout India.

Q: Are you saying that the main focus should be on primary healthcare centres?

A: That’s the biggest challenge. That’s the starting place. We need to build from the ground up.

Q: And majority of scaling up will have to come from the private sector?

A: I think one of our messages is that the government can’t do this alone. It just doesn’t have the resources to really build the system and build the infrastructure. It’s going to need private sector investment as well. So we’re trying to figure out how we can harness some of the private sector money and help build a healthcare delivery system and potentially a bigger healthcare insurance system.

Q: Where does the government come in?

A: The government has to play a role in funding, particularly low-income populations – the poor that live in rural areas, urban poor.

Q: What else?

A: Manpower training, more doctors and nurses …

Q: Can the government help in nudging private players to increase their participation, especially in rural areas?

A: The government’s got to play a leadership role and say: “Here’s where we are going, here’s the plan, here’s the framework, the blueprint. We’ll work with the states in order to implement this.”

But we need to sort of change the way that healthcare services are paid for. So today in India, 60 percent of spending is out of pocket. So we need to change that from out-of-pocket buying to something like a primary care package (subscription) or an insurance product.

Q:  Very few people in India have health insurance, and health policies have a very limited coverage.

A: I think the insurance model needs to be completely changed. Private insurance covers just 2 percent of the population and it covers only in-patient hospital care. And the problem is that most of these chronic diseases need primary care, medications, home community-based services – things that are not covered in current insurance policies.

Q: Where does India stand on the problem of NCDs as compared to other developing countries?

A: The challenge India faces is its ability to manage and deal with it is way below the average because the capacity is not there, the infrastructure is not there, the manpower is not there, the investment is really not there.

via Primary care centres key to reforming healthcare in India: health economist Kenneth Thorpe.

07/05/2015

China pulls out stops to avoid lay-offs as economy cools | Reuters

As growth in China’s sagging economy looks on the verge of spilling below 7 percent, officials worried about a spike in unemployment are pulling out all the stops to avoid mass lay-offs.

State firms are encouraged to keep idle workers employed, subsidies and tax breaks are given to companies that do not fire their workers, and some businesses are even enticed into hiring despite the slackening economic growth.

The measures appear to be working for now, said a senior economist at the Development Research Center, a think-tank affiliated to China’s cabinet.

“There is no big problem in employment. They (top leaders) are more worried about financial risks and debt risks,” said the economist, who declined to be named.

But things could change quickly.

In one of the first signs of distress in China’s labor market, the Liaoning government said in April it had slashed its 2015 job creation target to 400,000 from 700,000, to reflect a “severe” employment trend.

That came in the wake of data that showed Liaoning, one of three rustbelt provinces in northeastern China, grew just 1.9 percent in the first three months of the year, the slowest of China’s 31 provinces and regions.

Disappearing job opportunities or a spike in unemployment are always a concern for China’s stability-obsessed government, especially with 7.5 million university graduates estimated to join the labor market this year.

via China pulls out stops to avoid lay-offs as economy cools | Reuters.

07/05/2015

Why China’s consumers will continue to surprise the world | McKinsey & Company

China has an awesome consumer story. Yet lately you can’t pick up a newspaper, go online, or watch television without hearing continual moaning about the country’s slowing economic growth and the need for “rebalancing.” The reality is that Chinese consumers are going to continue to increase in wealth and complexity. And if you’re worried the country’s economic importance is declining, you’re probably looking at its performance the wrong way.

Don’t worry about consumer spending as a percentage of GDP

As in most developing Asian economies, China’s early growth was based on savings, investment, and exports. You get your population to save, move to the cities, work in factories, and make stuff. This is sold, and cash is brought back home for investment. Plus, you get some foreign investment as well. This process enabled China to develop its infrastructure largely with its own cash. That, by the way, is not the norm. Developing economies typically borrow from foreigners and then default—for example, American states such as Mississippi and Florida were chronic defaulters on foreign debt as they initially developed.

One of the downsides of this investment-first approach is that it makes consumption look small and often like it’s shrinking. Chinese consumption decreased from approximately 51 percent of gross domestic product in 1985 to 43 percent in 1995, 38 percent in 2005, and 34 percent in 2013. By comparison, consumption is around 61 percent in Japan and about 68 percent in the United States. In fact, China’s small and decreasing consumption percentage is one reason why people keep talking about “rebalancing”—the need for the economy to become driven more by consumer spending than investment and exports.

Our position? Don’t worry about this stuff.

First, from 2000 to 2010, the size of the Chinese economy more than doubled.1 So consumption grew from around $650 billion to almost $1.4 trillion. Regardless of its relative percentage of GDP, China’s consumption has been growing faster than just about any other country’s in absolute terms. Second, just getting consumer spending back to 43 percent of GDP, the level in 1995, would have a huge impact on “rebalancing.” It would also create the largest consumer market in the world. Third, most of these numbers are wildly inaccurate. Consumer spending is nearly impossible to measure in such a big, complicated economy. Combining a vague number with two other big vague numbers (investment and net exports) is very fuzzy math. Until economists start putting uncertainty estimates on their China calculations, relative percentages aren’t worth paying much attention to.

Household income is what matters, and it’s great

The number you really want to keep in mind is household income. You can’t have consumption without income. And here’s where it gets really awesome. China’s household income is huge. It is now likely above $5 trillion a year. Plus, lots of income is unreported, so this is really the lower boundary for true household income. Developing economies—especially the BRIC nations of Brazil, Russia, India, and China—are frequently grouped together, but Chinese consumers dwarf all the others in terms of household income (Exhibit 1).

Rising discretionary spending is the exciting part

Discretionary spending is buying the stuff you like but don’t need. Or you only sort of need. And, fortunately, people seem to have an endless appetite for everything from entertainment to skiing to caffe lattes. Chinese citizens are now moving beyond being able to only afford the basics of life, and their discretionary spending is taking off. Growth in spending on annual discretionary categories in China is forecast to exceed 7 percent between 2010 and 2020, and growth of 6 to 7 percent annually is expected in a second category of “seminecessities.” Both of these categories are growing faster than spending on actual necessities, which are expected to grow around 5 percent a year, about the same as expected GDP growth (Exhibit 2).

Finally, an important related issue is the Chinese tradition of saving. If we compare spending and saving rates across the emerging markets, we see a spike in savings in China. That spike is fairly understandable. First, it’s cultural. Second, they are precautionary savings—no social safety net means if you get sick, it’s all on you. Third, Chinese savings are not unique. Japan, Korea, and Taiwan all hit 30-percent-plus savings rates in their early development. And fourth, without much of a consumer-finance system, it’s tough to use debt to hit truly spectacular consumption levels. After all, a vacation home or car may cost the equivalent of a year’s income.

That’s our rant on China’s macro consumer situation. Basically, we believe it remains a great story. It may be volatile. It’s also somewhat unpredictable. But you just don’t get a consumer growth story this good anywhere else.

via Why China’s consumers will continue to surprise the world | McKinsey & Company.

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