2012-03-05

Central planning doesn't work, China edition

Reading the Chinese news this morning I was struck by two items that fortunately have been covered by English media. First up is drug prices.

Minister tells Chinese hospitals to cut drug costs
Chinese hospitals must stamp out corruption and stop selling high-priced drugs to maximise profits, Health Minister Chen Zhu was quoted by Xinhua as saying on Sunday.
This story seems normal and if you click through and read it, it will sound not much different that what the U.S. or European governments do to hold down costs. In the Chinese article (破解以药养医不能单兵突进) however, we learn the following:
另一方面,现行药品加价不得超过15%的政府定价机制也值得商榷。政府定价的结果,是医院宁愿采购并给患者使用高价药品以获得更多利润,也不愿意采购实惠有效的低价药品。由此,旨在减负的定价机制效果被打了折扣。
In plain English, the government limits the markup on drugs to 15%. Therefore, hospitals choose the more expensive drugs because the 15% markup results in greater net profits! These types of unintended consequences litter the Chinese economy due to the heavy interference of the Communist party.

With regards to healthcare, the situation in China is probably closer to a market system than the United States and certainly Europe. However, the following example should hammer home why the nation is desperately in need of economic reform.

Director: Ticket price key to movie industry
Award-winning director Feng Xiaoning says the ticket price of Chinese films should be lowered for domestic audiences.

The latest draft proposed by the film administration under the State Administration of Radio, Film and Television said discount tickets should not be lower than 70 percent of the full price. According to Feng, this needs to be revised.

"The tens of millions of people who watch the films are the backbone of the industry. Without them, Chinese films are dead," Feng says.

"If we raise the ticket bar too high, we may lose a wide range of audiences, especially those who are used to receiving a 50 percent discount. That equals giving the Chinese film industry a death sentence," Feng says, adding he agreed that the film ticket should be controlled under current circumstances.
Many theaters offered 50% discounts on Tuesday's and "group buy" sites offered the same 50% deals, but the government recently said 30% off is the maximum discount.

Movie makers seek lower ticket prices
Film ticket prices should be lowered in order to attract larger audiences, according to six industry figures who are National Committee members of the Chinese People's Political Consultative Conference(CPPCC). About 72 percent of 316,400 micro-bloggers on Sina agree with them.

The six CPPCC members propose greater discounts on ticket prices and also related policies that would spur construction of theaters in second- and third-tier cities.
In addition to setting the price of movie tickets, the government may also become involved in theater construction.

China's new draft rule on movie tickets worries Xiamen cinemas
The proposal aims to standardize ticketing management in the film market, said the administration.

Such proposal put a cold chill to movie fans in Xiamen, who usually purchase discount movie tickets on group buying websites.

"Cinemas in Xiamen have not received official notice yet. Many people prefer to buy film tickets at a discount of more than 50%, whose price ranges from RMB 30 to RMB 35. The movie box-office earnings of Xiamen cinemas may decrease once the draft proposal is implemented", said a responsible person with Xiamen Jinyi Cinema.

According to statistics provided by tuan800.com, China’s famous group buying website, a total of 69,210 movie tickets, valuing RMB 2589,100, were sold via thirteen group buying websites in Xiamen in 2011, ranking No.1 in all group buying goods.
If you are an optimist, China has a lot of gains to make by abandoning micromanagement of the economy. If you area a pessimist, you will not expect reform and calculate the hidden costs piling up in the system.

1 comment:

  1. 普大煤业 / Puda Coal lying to Chinese people too?
    http://realblog.zkiz.com/greatsoup/31751
    Link to the US Documents http://www.scribd.com/doc/84860518/USDNY

    ReplyDelete