Cough, cough! The Municipal Transport Commission of the municipality of Beijing is encouraging communities within the fourth ring road of the city to build more than 110,000 new parking spaces by the end of the year and is offering a tax rebate of RMB 2,000 for each space, according to the Beijing Times. Beijing has 5 million cars and that number is growing. The parking problem is acute: there are currently only 2.48 million parking places within the city.

The engine of economic growth in China this century just happens to be the internal combustion engine. Car sales bolster the economy and provide not just a heck of a lot of taxes and jobs but expansion into many, many different areas. You've got to build roads for those cars .... an entire new motel industry will develop - patterned along the US post World War II model that spearheaded US economic growth during the last half of the 20th century. Only in the US, I think - or I remember ... but that too can be clouded by a senior moment - they planned for parking places. 110,000 more parking places is not going to alleviate anything - Beijing does have a problem that RMB 2,000 tax rebates simply will not cover.

If you are a real estate speculator in Beijing, then the following will not be healthy for you to read about: Finance Minister Xie Xuren stated during last month's National People's Congress that other cities (hint: Beijing!) should learn from the Shanghai and Chongqing property tax experiences and adapt this tax to cool the highly speculative property market. I've got news for you, Mr. Minister: it is still far too soon to have learned anything from the Shanghai and Chongqing property tax experiences other than the fact that these taxes are not truly property taxes and that they really did not cool the market. There will eventually be a property tax in China and it will be patterned after the one which will eventually have to be developed in Shenzhen, the border city with Hong Kong. Why Shenzhen? Well like virtually ever other city in China, Shenzhen supported itself through revenues derived off of long term land leases. What happens, though, when there is no more land to lease? That is the situation in Shenzhen, now.....and that is why a more 'orthodox' property tax, with Chinese characteristics, will be developed by Shenzhen, much to the dismay of the Hong Kong real estate speculator, who does not find this to be a healthy situation, at all.

What a pleasant surprise: Both the PRC and India are currently in their own, respective 12th Five Year Plans! I have been a 'student' of the Chinese five year plan since the 9th plan, when I discovered that the government is not just posturing its positions but truly is following through upon its promises - at least insofar as tax related revenue and expense measures are covered.

In the case of the new Indian 12th Five Year Plan, which, according to the Business Standard article I read on 30 March, there was not much time prior to inception: It began on 1 April - two days hence. The article covered health matters that are covered under the plan. This might be a good time to simply compare and contrast tax expenditures planned under both countries 12 plans. In China, a major program has been announced with the goal of making it state policy to insure all its citizenry of basic needs. The economic planners in China are cognizant of the fact that the export boom days of the past are now over and that for the future, China will have to become a consumption nation.

The Chinese, as a culture, are savers - you cannot believe how ingrained it is within the culture. With the end of the iron rice bowl in the 90s (anyone remember last century?), Chinese were confronted with tremendous cost obligation for their children's education, old age support and medical care. These were costs paid for by their work units. As privatization took place, the individual had to pay for all this and while people grumbled, they paid. But the days of full employment in China (albeit with rock bottom wages) because China was able to stock the Walmarts of the world have radically changed because of lower wages elsewhere. Bangladesh and Vietnam have replaced the Pearl River Delta for low wage, labor intensive manufacture. Both jurisdictions are wary of replacement, with competition from Cambodia, Myanmar and, at some point in the future, the DPRK.

China will re-invent itself and become a consumption nation rather than one of savers (at least to the degree that they currently save) but to do this, pensions, health care and educational costs have got to be borne by the state. This will definitely happen. How long it takes is the big question.

According to a 24 March South China Morning Post article, in 2001, PRC residents were responsible for 60 percent of their medical costs. Now, according to that same article, that percentage has dropped down to 35.5 percent. These percentages, provided by the Chinese government are, I believe, understated - individual cash outlay by the average PRC citizen for health care is still higher than that and saving is obviously necessary to avoid catastrophe.

The 12th Five Year Plan produced the lofty goal of bringing down costs per individual through a complete health care system reformation. Beijing has promised to increase spending on healthcare at a pace faster than other governmental spending. The country has promised to ensure universal access to basic medical services by 2020 (note the difference: the country will insure, not make it either mandatory or optional that the individual is responsible for this). That's going into not only the still to be written Sixth Five Year Plan but Plan # 7, as well. Currently, public hospitals are allowed to impose 15 percent surcharges on prescribed medicines, allowing these hospitals considerable leeway to generate additional revenues through test charges - the more revenues needed, the more tests prescribed, as the government will currently reimburse only 10 percent.

Under new guidelines, tax spending for medical care will replace scrapping surcharges and limiting tests. This plan promises to make up for hospital losses through increased spending from the central government to cover medical services. Consultation fees, operation costs and nursing fees are soon going to be covered by the central government in a bid to reform county-level public hospitals as the center of country-wide medical services covering 90 percent of patients nationwide. This will all be managed at the county level of government. It will all happen....it will go through years of trials, tribulations, corruption, et al.....but this eventually will happen.

Does the central government have any idea how much this is going to cost? I doubt it. Let's face it: 1.3 billion people in a country that has vowed to cover basic medical costs for 90 percent of all patients by 2020? Yeah, it will take longer to accomplish than 8 years but with an abundance of tax revenues to spend, it will happen. It's simply the cost of doing this that I question, as I do not think the government actually knows how much of a tax expenditure it will be making in this area. In fact, no one really does, anywhere, unless you control insurance, spending, etc, etc, etc....along with strict guidelines about what the developing legal profession can and cannot do.

And what is India's 12 Five Year Plan doing towards health? Well, hey guys - read about it in your newspapers......and frankly, insist that more be done.....transparently!

I'm going to end this essay by quoting a paragraph written by Eric Li, a Shanghai-based venture capitalist, who wrote an op-ed piece that appeared in the 3 April South China Morning Post. Li was explaining the subtleties of 'labels' attached to the shades of the PRC political spectrum and discussed why the government in China seems to be accomplish that which it says it wants to accomplish while the rest of the world suffers through the throes of the economic dung heap that seems to be growing, rather than shrinking. Read this and write back, letting me know: a) what you think of this, vis a vis the current political stagnation in India; but perhaps more importantly, b) that there is actually someone out there reading what I write!!!

In the past three decades, a powerful consensus within Chinese society has been forged: continuous economic reforms that promote market forces is the only path that will deliver prosperity to the Chinese people; political stability grounded in one-party rule is the only guarantor against extreme populism and national disintegration; a continuously reforming and meritocratic Communist Party is the most viable political organization that can lead the nation in its renaissance. China's political system may not be ideal, but it is the best among all realistic alternatives.

Remember: these are Eric Li's views, not mine....but I'd like to see how you feel about this.

Larry
Guangzhou (where it is raining with the intensity of the Indian monsoon!)