This is an audio transcript of the FT News Briefing podcast episode: ‘The medical bills hurting China’s economy’
Marc Filippino
Good morning from the Financial Times. Today is Thursday, February 27th, and this is your FT News Briefing. Nvidia saw its revenues soar last quarter and the high cost of healthcare in China is hurting the country’s economy. Plus, US investors are kicking a lot of cash into UK football, and a lot of smaller clubs are seeing the benefits.
Josh Noble
If you’re a billionaire and you want to dabble in owning a football club, it’s quite cheap, pretty low-risk, but you can have some fun along the way.
Marc Filippino
I’m Mark Filipino and here’s the news you need to start your day.
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Nvidia reported quarterly earnings yesterday and the chipmaker really outdid itself. The company said its sales increased 78 per cent year over year to more than $39bn. That blew Wall Street expectations out of the water. Nvidia expects that it will bring in around 43bn in revenue this quarter, which is what analysts more or less expect. Investors were happy with what they saw. Nvidia’s share price rose around 2.5 per cent in after-hours trading.
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Over the past two decades. China has expanded its healthcare coverage to about 95 per cent of its population. Healthcare coverage for children, pregnant women and infectious diseases isn’t too far off what you might see in high-income countries. But the system still lags in some ways, and it’s taking a toll on China’s economy. Joe Leahy is the FT’s Beijing bureau chief, and he joins me now. Hi, Joe.
Joe Leahy
Hi.
Marc Filippino
So, Joe, what’s the problem with China’s healthcare coverage? It seems pretty expensive.
Joe Leahy
You know, China’s invested a lot over the past few decades in healthcare, and it really has expanded the coverage. And in some areas, like you mentioned, it’s become quite advanced. But the problem really lies in some of these more chronic diseases and in the sort of quality of the coverage in different parts of the country, and in particular coverage of catastrophic healthcare expenditure is a problem. And what that means is, you know, when a family has someone who suffers a very serious illness, quite often the insurance does not cover the entire cost of that treatment, so they end up becoming impoverished from spending on medical care. That’s still a very big problem in China.
Marc Filippino
Yeah. Can you give me a sense of just how big this problem is?
Joe Leahy
A Lancet study found that 21.7 per cent of households suffered from this problem in 2018, which is the most recent figures available. When you compare it to other countries, it’s actually very high. And because healthcare is administered by region. When you get out into some of the poorer provinces, which tend to be in the interior or north-east of China, you do see a big difference. Quite often the incidence of catastrophic healthcare is higher.
Marc Filippino
OK, so this is bad for these families. But what impact is this having on the broader economy?
Joe Leahy
This is a major problem for families in terms of expenditure. So let’s say you’re a young couple. You have your parents and you have a child. You have to plan for every sort of contingency. So as your parents get older, you have to save more and more money just in case they suffer a problem like this, because you know that your health insurance may not cover it. So when you’re in that situation, you sort of save more and more and spend less. So in terms of the wider Chinese economy, these kinds of problems are often cited as reasons that Chinese consumers save a lot and don’t spend as much as in other countries. You know, China’s producing at its factories probably more than it needs, but people don’t have the funds to buy that or that they need to sort of maintain their savings to prepare for a rainy day.
Marc Filippino
Right. And that rainy day could be a huge health scare that they would have to pay for. Joe, what are the authorities in Beijing doing about this?
Joe Leahy
So next week, actually, at the annual meeting of China’s rubber stamp parliament, the National People’s Congress, we should see some stimulus measures from the government and the government has been talking about increasing social welfare expenditure. China has been increasing spending on its medical insurance faster than GDP for some time. But the problem here is that the cost of treatment has also risen rapidly over the years. So it’s more complex than just simply pouring more money into the problem. You won’t see this in the headlines of what they call the work report, which is presented at the start of the meeting, but it will be there in the fine print. It’s very hard for China to anticipate that kind of transformation from an economy that’s very export-oriented and very production-oriented towards a social welfare model like you might see in Europe. And Xi Jinping himself has said in the past that he doesn’t like welfarism. So I think we will see some language in this direction, but not wholesale reform that is probably needed.
Marc Filippino
Joe Leahy is the FT’s Beijing bureau chief. Thanks, Joe.
Joe Leahy
Thanks very much.
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Marc Filippino
BP is giving up on its role as a leader in the energy transition. Instead, it’ll make fossil fuels its top priority. CEO Murray Auchincloss said yesterday BP had been too optimistic when it decided to pivot towards green energy. Activist investors pressured BP to return to its oil roots. One of those activists being Elliott Management, which has built a nearly 5 per cent stake in the company. All right, so what does this plan look like? BP says it will increase oil and gas spending to $10bn a year, and cut expenditures on renewables by 70 per cent. Now, investors weren’t particularly psyched by the news. BP’s share price fell a little bit more than 2 per cent when the company published its strategy update on Wednesday.
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Football, or you know soccer for us Americans, is known as the beautiful game. And UK football is looking very attractive to investors. International owners are pouring big bucks into clubs, including teams that are lower down the leagues. And that kind of money could change the state of football. The FT’s Josh Noble has written about this and he joins me now. Hi, Josh.
Josh Noble
Hi. How are you doing?
Marc Filippino
I’m doing well. This is an interesting story. So first off, can you set the scene for us? Big English soccer teams have had foreign owners for a while now. But we’re not talking about these million dollar giants like Chelsea or Man City. So what’s different about what’s going on now?
Josh Noble
Well, what we’ve seen in recent years, not just in English football, but actually across European football, is a sort of steady flow of interest from investors from all over the world. In smaller football teams, we’re seeing some really rich people and rich companies come in and start to take an interest here.
Marc Filippino
Yeah. Tell me about these lower league teams with overseas investors who are some of the more notable clubs we’re talking about and who owns them.
Josh Noble
Recently we’ve seen a lot of activity in League One where you’ve got a really exciting top of the table clash between three clubs, one who will be well known around the world. Wrexham, owned by Ryan Reynolds and Rob McElhenney.
Marc Filippino
McElhenney is the the actor from Always Sunny in Philadelphia, right?
Josh Noble
Yes, yes. So the little Hollywood sort of power duo behind Wrexham, then you’ve got Birmingham City, which is owned by Knight Head Capital, which is a US hedge fund, and then Wycombe Wanderers, not particularly glamorous side owned by a Kazakh billionaire. These three teams are vying for promotion at the top of the well it’s the third-tier of English football, so you’re quite a long way away from the Premier League, but there’s a lot of money flowing around in this league and everybody’s competing for those all important promotion spots.
Marc Filippino
OK, but why would these wealthy investors go after the smaller teams we’re talking about instead of the bigger, more well-known teams?
Josh Noble
Well, one is a question of opportunity. Big teams don’t come up for sale very often, and when they do, the price tags can be enormous. Wrexham as an example. The two Hollywood guys, they spent £2mn to buy that club. So your cost of entry is nothing compared to trying to buy into the Premier League. That also means that your risk is greatly reduced because you’re not buying a club that on day one, you’re having to fork out hundreds of millions of pounds a year on wages for players. And also you don’t have that same sort of media focus. So I think if you were in it to have a bit of fun, frankly, if you’re a billionaire and you want to dabble in owning a football club, it’s quite cheap, pretty low risk, but you can have some fun along the way.
Marc Filippino
So looking forward, how is the investment in lower leagues going to impact soccer in the UK? Is it going to change the state of the game at all?
Josh Noble
Well, I guess we’ve already seen it change the game because of this money flowing around in the lower leagues means that the quality of players at the top clubs moving around between the leagues is changing. So, you know, Wrexham, because of its wealthy owners, was able to attract players to the team when it was playing in the fifth tier. That would normally have expected to be in maybe the third tier. So you’ve now got increased competition for top players because you’ve got wealthy owners willing to spend. It also just means there’s intense competition at the top of these divisions. You’ve now got owners who are sort of wealthy and really want to win. So if you’re a club that doesn’t have a wealthy owner, things could get even harder. And we’ve seen that across European football for years now, but we haven’t seen it happen lower down the divisions before.
Marc Filippino
So Josh, is this the new norm? Should we expect this kind of spending from here on out?
Josh Noble
Well, I think the spending of this year will be a one-off. There is a push, a sort of regulatory push, to rein in some of this spending to stop wealthy owners with big pockets from outspending by such a degree, their rivals. So there’ll be new rules coming in in the summer, which basically means if you’re super-rich, if you put $100, £100 to your club, you’re only allowed to spend 60 of it on players. Those are relatively new ideas to football, and I think as that kind of gathers momentum, we should see things calm down a bit.
Marc Filippino
Josh Noble is the FT’s sports editor. Thanks, Josh.
Josh Noble
Thanks, Marc.
Marc Filippino
You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.
