China pursues universal health care

[Americano]

Those godless commies are going to, gasp, implement universal health care:

http://www.forbes.com/2009/01/22/china-health-care-markets-econ-cx_twd d_0122markets04.html?partner=globalnews_newsletter (http://www.forbes.com/2009/01/22/china-health-care-markets-econ-cx_twdd_0122markets04.html?partner=globalnews_news letter)

Funding is already being dedicated to begin universal health care in China, with 90% of the population to be covered by 2011. A measure to control upcoming civil dissatisfaction due to global economic decline, I consider it a brilliant strategic move to capitalize on freeing up domestic spending formerly used for private medical care.

Interesting?

Perhaps the wrong forum for this particular question, but how long before China begins spending the nearly $2T of USD reserves to pay for their economic stimulus as growth slows?

[Michael]

Those godless commies are going to, gasp, implement universal health care:

http://www.forbes.com/2009/01/22/china-health-care-markets-econ-cx_twd d_0122markets04.html?partner=globalnews_newsletter (http://www.forbes.com/2009/01/22/china-health-care-markets-econ-cx_twdd_0122markets04.html?partner=globalnews_news letter)

Funding is already being dedicated to begin universal health care in China, with 90% of the population to be covered by 2011. A measure to control upcoming civil dissatisfaction due to global economic decline, I consider it a brilliant strategic move to capitalize on freeing up domestic spending formerly used for private medical care.

Interesting?
Very interesting. I've been looking around today for some analysis on this (there is very little of course) but it seems that China has a HUGE savings rate because the Chinese people like to save up for healthcare emergencies.

This is brilliant policy from China who is facing a substantial downturn in their economy right now - with all of China's trading partners (export markets) in recession.

The universal healthcare program will reduce the Chinese need to save huge amounts of money and will likely lead to some substantially increased domestic spending in China. This has a triple value for China of a) reducing political upheavals from a stagnant economy, b) increasing the size of the domestic Chinese marketplace, and c) increasing the overall health of the Chinese citizenry.

Perhaps the wrong forum for this particular question, but how long before China begins spending the nearly $2T of USD reserves to pay for their economic stimulus as growth slows?
China has no need to do so. China can finance the entirety of the proposed universal healthcare policy without any need to raid the 'reserves'.

China isn't stupid either. Flooding the markets with re-sale treasuries would only drive the USD down and the US economy with it. That would be bad news for China since USA is one of the largest export markets for China.

I think the Chinese holding of $2 trillion in US treasuries serves a couple of purposes for the Chinese. First of all, it supports their own currency and banking system (as Central Bank reserve funds). Secondly it is a useful for securing financing for international trade (knowing it is there means other nations are more willing to deal with Chinese banks for export credits). Thirdly, it stands as 'backup ammunition' in the case of the long expected Taiwan dispute with the USA. If push comes to shove over Taiwan, China certainly will use this $2 trillion as a weapon (or a threat), you can be sure of it.

I can't see the Chinese abandoning such a useful thing as their $2 trillion US treasury reserve.

[Americano]

With regard to the US being important to China's export manufacturing sector, Here's the 2008 months 1-5 statistics of China's exports:

1 - EU 16.4%
2 - USA 12.9%
3 - Japan 10.5%
4 - ASEAN 9.4%
5 - Hong Kong 7.9%
6 - ROK 7.5%
7 - Taiwan 5.5%
8 - India 2.4%
9 - Australia 2.2%
10 - Russia 2.2%
Others - 23.1%

From a concentration perspective IMO China, considering their explosive growth, has performed an admirable feat of customer mix. While the US is 13% of China's exports, US production costs are incapable of replacing those imports without enactment of protectionist level tariffs. I don't see the US doing that and causing China to cease rolling over US debt, so any reduction of Chinese exports to the US will be from US economic lack of demand.

China implementing universal health care should drive domestic consumer spending to recovery of a significant portion of US exports lost to US economic decline. New US administration is already making noises about China letting the Yuan float to make US exports to China more attractive, which IMO will simply force China to reduce US imports.

If China can successfully implement universal health care by 2011 I'd think internal product demand created by putting a portion of impressive Chinese personal savings into their domestic marketplace could easily put China at the front of the pack for global economic recovery. If that does happen, and the US inflates USD through what looks like desperation, excessive USD reserves will become more of a burden than an asset.

[Michael]

Good point about the 'export market diversity' on China's part.

However, I'd like to add a 4th "advantage" to my list given above of why China has good reasons to hold onto that $2 trillion in US treasury bills.

That is the value of that holding in the face of ANY threat of US protectionism or trade dispute with the USA. They can use the threat of 'dumping' this on the market (in a hurry) if the US tries to enact anti-Chinese measures. That's a powerful weapon to hold in reserve.

I respectfully submit that Chinese political culture has an inherent bias towards accumulating 'strategic reserve' power over 'actively applied' power. Thus, they are more likely to appreciate the strategic-political value of holding it over the short-term economic gain from reducing it.

[Americano]

Good point about the 'export market diversity' on China's part.

However, I'd like to add a 4th "advantage" to my list given above of why China has good reasons to hold onto that $2 trillion in US treasury bills.

That is the value of that holding in the face of ANY threat of US protectionism or trade dispute with the USA. They can use the threat of 'dumping' this on the market (in a hurry) if the US tries to enact anti-Chinese measures. That's a powerful weapon to hold in reserve.

I respectfully submit that Chinese political culture has an inherent bias towards accumulating 'strategic reserve' power over 'actively applied' power. Thus, they are more likely to appreciate the strategic-political value of holding it over the short-term economic gain from reducing it.

I'm not arguing China should dump USD for short-term gain. There's a yet to be defined global capacity for US credit appetite, and the US is already feeling that pressure. China currently holds $682B of US government securities http://www.treas.gov/tic/mfh.txt, the remainder in USD. IF the US continues its current policy of internal monetary expansion to spend its way out of economic decline, USD will devalue and I think China would be foolish not spending a good chunk of their USD reserves on medical equipment and infrastructure to dislodge a portion of the 50% personal Chinese savings rate into their domestic economy.

[Michael]

I'm not arguing China should dump USD for short-term gain. There's a yet to be defined global capacity for US credit appetite, and the US is already feeling that pressure. China currently holds $682B of US government securities http://www.treas.gov/tic/mfh.txt, the remainder in USD. IF the US continues its current policy of internal monetary expansion to spend its way out of economic decline, USD will devalue and I think China would be foolish not spending a good chunk of their USD reserves on medical equipment and infrastructure to dislodge a portion of the 50% personal Chinese savings rate into their domestic economy.
Yes, that makes sense.

And as China's own domestic market increases in size relative to China's export markets, China's need to hold huge amounts of foreign currency reserves is reduced.

On the other hand, the USA is reasonably well placed to benefit from an expansion of the domestic Chinese medical market witth lots of specialized US equipment makers in that market segment. Though of course, it is the Germans who always benefit the most from the whole high-end precision equipment export market. US markets need to adjust to the global economy and export their products, not just service the US domestic market.

On the "upside" for the USA, although China's need to hold USD is shrinking, the oil-rich Middle East still have LOTS of very good reasons to lock into US dollars. And as oil-prices rise in the future (as they certainly will), that's lots of cash sloshing around that needs to find a home and there is no home in the Middle East to hold it. Nobody is going to park cash in China or Russia or South America. Yes the USD has competition now from the Euro as a 'reserve-status' currency. That's good. Competition in the market is healthy for everyone. Indeed, if that's not "proof" of the end of US supremacy, I don't know what is. We are in a multipolar world. The US needs to 'adjust' to that fact.

[Americano]

Here's a couple of decent write-ups on US debt (in the US it takes an expensive subscription or painstaking hours of research and spreadsheets to get this info compiled) and how it affects USD:

http://www.asianews.it/index.php?l=en&art=14054

http://chinaaid.org/2008/12/19/us-debt-approaches-insolvency-chinese-currency-reserves-at-risk/

Will China spend USD reserves for other than oil and its decreasing imports from the US? Or use Euro reserves for imports of medical equipment/infrastructure with Germany leading that parade? The EU combined is a far larger export market for China than the US.