Blogs are opinion pieces and reflect their author’s views

Comparing China's Health-Care Spending to the CNOOC-Nexen Deal

The CNOOC $15.1-billion acquisition of Nexen stirred up a nationwide debate in Canada, not least because of a premium price tag that no other big oil player around the world considered matching.

The source of CNOOC’s unrivaled financial power lies in Chinese government fiscal planning that places state capital expansion above the welfare of ordinary Chinese people. For example, despite its sixfold increase over the past five years, China’s government-funded health-care spending per person reached only 240 Chinese Yuan (less than $40) in 2012. That is less than 1% of the per-person health-care spending funded by Canadian governments, which is predicted to be over $5,900 in 2012. The Government of China, in 2012, funded $70 billion of FDI outflow through its state-owned enterprises (including the CNOOC takeover of Nexen) but only budgeted $51 billion of government health-care spending.

Fortunately, the Chinese government is talking about rebalancing its economic structure. That is, it will pay more attention to increasing domestic consumption and strengthening the social safety net than to expanding capital formation at any cost. For example, the latest government report delivered by China’s out-going premier Wen Jiabao on March 5, 2013 promised a 17% increase in government health-care spending to $44 per person for 2013. That is roughly $60 billion in total, albeit only about four times the CNOOC-Nexen deal of $15.1 billion. Imagine that, if the Chinese government truly focused on its people’s well-being and increased its health-care spending steadily at 17% annually, government health spending will reach $100 per person, or more than $150 billion in total, within the next six years or so.

Such a rebalanced economic growth in China might imply fewer SOE acquisitions targeting our natural resources but may generate more opportunities for Canadians to invest in and trade with China because of its huge market for health care and other consumer goods and services. Canada should plan ahead to exercise our comparative advantage in these fields in China while watching whether its government is a true believer in free trade.

Duanjie Chen is a Research Fellow with The School of Public Policy