Monthly Archives: February 2011

Fixing Healthcare In China: First Fix Local Government

A big part of China’s widening inequality gap is disparities in the provision of healthcare, both between town and country and between rich and poor. Policy makers in Beijing want health care reform to play a leading role in closing the gap–one reason that the system is being overhauled to provide accessible and affordable healthcare widely. But as the World Bank notes in a new policy research working paper, Equity and Public Governance in Health System Reform: Challenges and Opportunities for China, national policy reform isn’t working through to implementation at provincial government level and below.

The funding and the instructions may be coming through from Beijing just fine: government spending on healthcare is now within touching distance of the 1.5%-2.0% of GDP the World Health Organization says it will take to provide primary health care for all, after having lagged for years in the 0.7%-0.9% range. But how and where the money is being spent is in local hands. At the prefectural, municipal and district levels priorities tend to transform into something different from those of central government. The mountains are high and the emperor far away.

As a result for the past decade, healthcare resources have been concentrated on the larger towns and wealthier areas in ways such as building expensive specialized urban hospitals. Beijing and Shanghai, for instance, the paper notes, are better equipped with magnetic resonance imaging machines and other advanced medical equipment than a typical European city. Meanwhile, rural areas are suffering from preventable deaths for lack of resources.

To redress all this, the Bank says:

It may be crucial to strengthen the role and accountability of provincial governments. Provincial governments may have to become explicitly responsible for equity and efficiency in public resource allocation, for national policy implementation, enforcement of laws, standards and regulations, and for adequate health system performance within the entire province.

The paper has detailed suggestions on how this could work. Were it to happen, healthcare would be similar to education, where achievement of the national goal of universal nine-year compulsory education is subject to performance evaluation at the local level. At present, healthcare is more like food safety, or product and environmental safety come to that, where strict national laws and regulations are undermined by poor local implementation.

For all that to change, it will require parallel reforms in local governance and the way local government is funded. That is also going to be necessary for all central government’s other plans to reduce inequalities across society through the provision of better social services as outlined, yet again, by Prime Minister Wen Jiabao in his web chat at the weekend. That in turn will provide a challenge for the new leadership that will have to transform almost beyond recognition a local officialdom that has hitherto had little incentive to deliver the efficient and equitable provision of public services.

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The 3% Skim Off China’s 2 Trillion Yuan High-Speed Rail Network

The web of corruption surrounding disgraced former railways minister Liu Zhijun was widespread and drew in equipment suppliers and middle- and high-level officials, Caixin reports. The publication also says that Ding Shumiao, the businesswoman whose own corruption investigation led to the detention of Liu, skimmed off at least 800 million yuan ($122 million) in kickbacks from railway equipment supply contracts as a result of her connection of Liu.

It says that the practice of companies giving middlemen, such as Ding, a “commission fee” for help in winning contract bids was commonplace. It quotes one such arrangement in which “a large state-owned company gave Ding Shumiao…about 100 million yuan.” The fee would have been routed via a private sub-contractor and was said to be 3% of the total value of the project. Given that China is spending 2 trillion yuan on developing its high-speed rail network that works out at potentially a sizable chunk of change going to commission fees.

Update: Caixin has posted an English translation of its investigation.

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China’s Navy, Unusually, Sails Forth

A necessary but not sufficient condition of being a superpower is not just the possession of power but also the ability to deploy it around the world. This week a Chinese warship was in the Mediterranean. PLA Navy ships have been in those waters before on goodwill visits but not on active duty. Now, one swallow does not a summer make. The 4,000 ton missile carrying 054A class frigate, the Xuzhou, seen above in April last year during a naval parade off Qingdao, was on a humanitarian mission to evacuate Chinese nationals from civil war-stricken Libya and had been redeployed from international anti-piracy patrols off the coast of Somalia.

Yet those patrols in turn are the first deployment of a PLA Navy group of warships outside of China’s regional waters. We imagine it was no coincidence that one of the navy’s most modern missile carrying frigates was deputed to the evacuation task. It is equally notable that a Chinese warship can enter these waters without causing alarums and excursions, a testament to the general lack of global military deployment of the country’s military power hitherto. And there is no doubt that Beijing’s swift evacuation of its citizens from Libya is driven by domestic political concerns rather than any about its international standing. Yet every journey of a thousand miles starts with a single step.

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Dragon Mother And Satirist

Our man in London sends word that we got it all wrong about Dragon Mother Amy Chua, the Yale University law professor whose parenting book Battle Hymn of the Tiger Mother has been such a controversy-stirring best-seller. We had failed to realize the book was not a paean to alpha-mom parenting but a satire on it. Our man directs us to an interview with Chua in today’s FT:

The book was an attempt at satire. Chua tried to paint a self-effacing portrait and use humour to poke fun at her shortcomings. “It is a strange memoir. You hear me making fun of myself 18 years ago, and then I change. It is a self-caricature. Yet every review is on the parenting methods described,” [Chua] laments. “I had higher ambitions, that people would see it more for its literary merits,” she says, again with a laugh. “That’s not come out at all.” The authors she admires, and was hoping to somehow emulate, include Nabokov and David Sedaris.

Perhaps we should have guessed when we learned that the book was being published in the Chinese market under the title Being An American Mum. Our apologies. We are just too busing being post-ironic to keep up. And we are sure Chua is still able to be satirical all the way to the bank.

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China Sacks Railways Minister

Liu Zhijun, the official at the centre of the alleged corruption investigation around the building of China’s high-speed rail network, has been sacked as Railways Minister, Xinhua reports. He had already lost his more senior job as party secretary in the ministry.

Sheng Guangzu, 62, previously head of the customs administration and who had taken over as Party secretary in the ministry when Liu was detained, will also become minister.

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CNPC Confirms Attacks On Libyan Operations

China National Petroleum Corp. has confirmed that its facilities in Libya have come under attack. CNPC says that it has repatriated a first group of 24 its 391 Chinese staff across its five facilities in the country. CNPC did not give details of the attacks, which are among many being reported on Chinese owned business operations in the country. As of Thursday, the company says, 47 of its staff have been evacuated.

CNPC has been working in Libya since 2002 when it won a pipeline construction contract to take oil and natural gas from a desert field 1,000 kilometers inland to the coastal terminal at Mellitah. In 2005, the company signed an offshore exploration contract with Libya’s National Oil Corporation. It also provides oilfield services and engineering and construction services to other multinational oil companies working in Libya. It is not, however, an oil producer there. (Sinopec buys 6 million barrels of crude a month from Libya, the backbone of the $6.6 billion a year in two-way trade between the countries.)

In all, Xinhua says, China has so far evacuated 4,600 of its 30,000 nationals working in Libya, mostly in energy and construction. The operation is being said to be the country’s largest overseas civilian evacuation and is being seen as a test of the competence of the government to protect its citizens abroad, tens of thousands of whom now work in politically volatile countries around the world.

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World Bank Recommends China Place Greater Emphasis On Early Learning

We take no convincing of the value of education in the first six years of life. Our eye was caught, however, by a startling number in a newly published World Bank policy note, Early Childhood Development and Education in China: Breaking the Cycle of Poverty and Improving Future Competitiveness. Taking into account the economic benefits and lower societal costs that ECDE programs promote over the long run, the internal rates of return on these programs, the note says, range from 7% to 18%. That would make investing in early-years learning “one of the most cost-effective strategies to break the inter-generations transmission of poverty, and to improve productivity and social cohesion in the long-run.”

The authors add:

Although China has made enormous progress in maternal and child health and has reached 51% gross enrollment for the 3-6 age group, rural children are under served, particularly the extremely poor and ethnic minorities. The 0-3 age-group is also underserved.

One reason: China isn’t devoting sufficient resources to early learning by international standards. In 2008, public spending on ECDE was a 0.01% of GDP, or 1.3% of the total public expenditure on education. This is far below the OECD average of 0.5% of GDP, or 8% of total public spending on education.

The Bank says China should aim to make ECDE universally available for the 0-6 age group. Over the next five-year plan it recommends that the anti-poverty program should include ECDE for the extremely poor, and that poverty monitoring should include child development outcomes. It also says that ECDE should be given greater emphasis and be considered a mainstream social service.

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China Tweaks Regional Banks’ Capital Ratios, Frets About Local Gov’t Debt

China’s central bank is acknowledging a badly kept secret, that it is applying different capital reserve requirements to different banks. Xinhua reports that 40 regional banks with low capital adequacy ratios, rapid lending growth and a high risk loan book have been the subject of individually differentiated reserve requirements.

Capital reserve requirements are one of the main tools used by the central bank to mop up the inflation-driving excess liquidity in the economy. Last week, there was a further 0.5 percentage points rise in the benchmark ratio, the eighth increase since the beginning of last year. Large banks are now required to maintain capital ratios of 19.5%. Small and mid-sized banks will have to set aside upwards of 16% of their deposits as reserves, Xinhua says. Some banks are already said to have had a 20% ratio imposed.

Meanwhile, Bloomberg reports that regulators have told banks to recalculate their capital levels using higher risk weightings for their loans to local governments via captive investment vehicles used to get round restrictions on raising capital from banks directly. We have noted the risks inherent in these before. Banks had lent at least $1.2 trillion this way to local governments as of June 30th, with 23% not backed by cash flows. It is these latter loans that particularly concern regulators and to which the highest new risk weightings, 300%, will be applied.

No official word on any of this that we’ve seen, but Bloomberg says the deadline for recalculation is March 31st, and it could reduce the capital ratios of the country’s five biggest lenders to near the regulatory minimum. Last year, authorities cracked down on such lending after a surge fueled concern that it could lead to a wave of defaults that could rock the banking system.

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U.N. Warns On Drought, Land Loss Threats To China’s Food Security

A senior U.N. official says that loss of farmland poses a major threat to China’s ability to be self-sufficient in grain. The warning comes from Olivier De Schutter, the U.N. Human Rights Council’s special rapporteur on the right to food, in a preliminary report based on a visit to China in December. De Schutter writes:

Since 1997, China has lost 8.2 million hectares of arable land due to urbanization, forest and grassland replanting programmes, and damage caused by natural disasters, and the country’s per capita available land is now at 0.092 hectares, 40 per cent of the world average. This shrinking of arable land represents a major threat to the ability of China to maintain its current self-sufficiency in grain. China has adopted the principle according to which any cultivated land lost for other purposes should be reclaimed elsewhere, and it has set a “red line” at 1.8 billion mu (120 million hectares) beyond which arable land will not be allowed to shrink further. But China is already dangerously close to this limit.

De Schutter also highlights the issue of drought:

Water scarcity is a huge problem: per capita water availability is less than one third the world average. According to one estimate, climate change may cause agricultural productivity to drop by 5 to 10 per cent by 2030 in the absence of mitigation actions, affecting principally wheat, rice and maize. Indeed, already today, droughts affect between 200 and 600 million mu of farmland in China every year.

De Schutter recognizes the progress Beijing has made in improving food security, but says more needs to done to improve living conditions in rural areas, to improve the security of land tenure and to move to more sustainable farming. All these are challenges that Beijing acknowledges it faces, though that makes addressing them none the less urgent.

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Chinese Firms Caught Up In Libya Unrest

State media are reporting attacks on Chinese firms working in Libya as unrest continues in the North African country. No fatalities have been reported but there is word of injuries. (Update: 15 are reported to have been seriously wounded.)  Workers are quoted as saying that nearly all Chinese companies in the country have been attacked or looted. It is not clear if Chinese businesses were targeted or whether they were just caught up in the general violence. South Korean firms have also been attacked, but, equally, that could also be a case of mistaken identity. Eighteen months ago, Chinese businesses in Algeria were the focal point of a violent backlash against the growing Chinese business presence in North Africa.

China’s trade and investment in Libya is modest but has been expanding since the U.N and the U.S. lifted their sanctions against Libya in 2003 and 2004 respectively, opening the way for Gaddafi’s pariah state to reengage with the world. Two-way trade reached $6.6 billion in 2010; Sinopec buys 6 million barrels of crude a month from Libya. Chinese companies have won a reported $21 billion of contracts to develop infrastructure in Libya, with Italian, Turkish and Russian companies providing stiff competition. ZTE, and Huawei have won telecoms contracts. China Railway is working on $2.6 billion worth of rail projects as Libya restores the rail network it abandoned in the 1980s. China Civil Engineering Construction Corporation is a general contractor. Chinese companies also have a joint venture with a Libyan state investment fund in a controversial rice farming project in neighboring Mali.

In all there are some 30,000 Chinese working in Libya, mostly in the construction and oil and gas industries. Chinese operations known to have been attacked in recent days include a construction site in the eastern city of Agedabia run by Huafeng Construction, which was looted, forcing nearly 1,000 Chinese workers to flee. Separately,  83 employees of China Building Technique Group, a state-owned architectural design firm, working in Tobruk evacuated to Egypt, where the Chinese embassy has temporarily stationed staff near the border with Libya.

Libya is Africa’s third largest oil producer and fourth largest natural gas producer. China has been trying to ease its way into the energy sector, which is dominated by BP and Italy’s ENI.  In  2009, Libya vetoed a $462 million bid by China National Petroleum Corp. for Canada’s Verenex Energy, which operates in Libya, and bought it itself. Chinese oil survey teams have since been active in Libya. CNPC announced last year its first find, a small oil and gas field in the Sirte Basin, which holds four-fifths of Libya’s proven oil reserves.

The fighting in Libya, in contrast to what happened in Egypt and Tunisia, has been on a scale that has made it difficult for China to ignore. The foreign ministry spokesman says China is concerned about the current situation in Libya, and says it will protect its nationals and firms in the country. Vice Premier Zhang Dejiang has been deputed to organize the evacuation of Chinese citizens from Libya. Chinese vessels in the Mediterranean have been put on standby to provide medical and other emergency supplies for Chinese nationals.

Update: Nearly 3,000 Chinese nationals including embassy staff are being evacuated to Tunisia by a fleet of some 100 buses. Meanwhile, an Air China airliner left Beijing on Wednesday for Libya carrying an official evacuation task force. Four liners have also been chartered in Greece and Malta for sea evacuations.

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