Welcome back to another issue of Girl Economics! We have expanded our team of writers, and our Outreach Team is working hard to develop a new Girl Economics Website, to be launched later this week.

In the mean time, we have an exciting new section on Healthcare Economics which our contributor Nikki Mohan is introducing. Our China Reporter, Nirupama, also delves deeper into the Chinese Property Crisis.

Hope you enjoy!

• Erin McGurk

Headlines

An Introduction To Healthcare Economics: Nikki Mohan

So what really is Health economics? 

Health economics is a branch of economics concerned with issues related to efficiency, value & behaviour in the production and consumption of healthcare. A great case-study, which we’ve all lived through, was the Covid-19 pandemic and its monumental affect on both the economy and developments in healthcare.

Health economics is now a term commonly used in public policy documents, in the medical and scientific literature, and in the lay press. There are also very visible signs of change in the health care market. Attention is shifting from the “passive” funding and administration of systems, in which physicians identify and provide appropriate care, to concerns about the resource costs of care and the health outcomes achieved from providing care.

Below is Alan William’s renowned ‘plumbing diagram’ which divides the discipline into 8 key topics.

The principles of health economics consider supply and demand issues and how the two might interact given that the standard market solution generally fails due to problems such as:

• Adverse selection

• Moral hazard

• Asymmetric information - Doctors may have more qualified knowledge about medicine than patients /consumers. Therefore, the individual may not be the best judge of his/her own interests, the doctor acts as an agent of the patients demand.

• Supplier induced demand

Generally, I think Health economics links well to topics in science, behaviouraleconomics as well as requiring quantitative analysis. Inserted below is a timeline I’ve created on the history on Health economics.

By utilising the principles of Health economics, we can see how it causes global development in healthcare. Can we use economics to reduce healthcare inequality? If so, how, and where has it been done before? Should there be a free market for healthcare, or is it better governed by the state? Do stay tuned for case studies regarding these questions.

China’s Struggling Property Market: A Case Study

After completing their visit to China within the last weeks of the month of May, the International Monetary Fund released their brief statements on the state of China’s economy and suggestions to improve the current situation. With a previous year of sluggish economic growth and worries of economic downturn, the IMF predicted a 5% growth in the country’s economy after a strong first quarter and recent policy changes to tackle struggling markets. Whilst there were many suggestions such as focusing macroeconomic policies on domestic demand, structural reforms, and easing protectionism, an important, recurring theme was that of a struggling property market. They mentioned new lending initiatives to increase affordable housing but also ideas to “protect buyers of pre-sold unfinished homes and accelerate the completion of unfinished presold housing”, all of which are imperative to the stabilisation of China’s property market. But what really is the issue with China’s property market, and how did it come about?  

Firstly, it is important to note that the property law in China means that all land is first owned by state and local governments, of whom are then able to sell it off to property developers; private “freehold” land ownership does not exist. China’s rapid urbanisation meant that from the start of this millennium the country had been experiencing large property demands for buildings in its cities and subsequently incentivised large-scale property development projects in these areas. Now, the property law comes into play when we consider the developers’ need to partake in leverage borrowing to fund these in-demand projects and the acquisition of the land, all of which are highly expensive. With the pandemic causing a sharp decline in demand and rising housing prices, as well as fewer consumers being willing to risk paying for these higher prices and stricter borrowing policies to limit repurposing funds from unfinished projects to finance new projects, developers found themselves in difficult positions with their loans. In 2021, Evergrande - China’s biggest real-estate developer - announced they would be defaulting (failing to repay a loan) on over $300 billion USD, becoming the world’s most indebted property developer, and in 2023, similar real-estate giant Country Garden made a similar announcement.

China has since faced many consequences with the crisis leaving too many development projects abandoned, and housing prices too high for the general public. Not only can existing projects not be sold but those who have invested their funds in this highly risky business and have paid for these projects cannot receive the results that they had funded for. With a growing phenomenon of “lying flat” or 躺平 amongst the youth who are choosing more and more to take a step back from their careers to ease their societal pressure, the high cost of living and this crisis have made it so that young Chinese people have lost hope in owning their own properties. This leaves the future of the property market in uncertainty. On a larger scale, more than half of China’s former top 50 developers have also had to go into default since the start of the crisis, signalling a diminishing market. Evergrande was ordered by a court in Hong Kong in January to liquidate the assets and a similar court case is currently underway for Country Garden.

To combat all of this the Chinese government has announced new plans to help its population get back into the market. Its central bank, the People’s Bank of China, announced it would be financing 300 billion yuan ($42 billion USD) in small loans distributed amongst 21 banks to support affordable housing. This would work by loaning to local state-owned enterprises who can then buy unsold homes and resell them or rent them at below-market rates to consumers who are of below-income households. They also plan to scrap the minimum mortgage rate, making it cheaper for the average consumer to borrow and are hence incentivised to enter the market. They will also cut the minimum down payment for first-home buyers and the minimum deposit on second homes by 5%.

Whilst China is still grappling with this crisis, they seem to be on track for recovery. With an otherwise booming economy, if they continue to make policy changes such as these they may see the return of their once flourishing property market. However, they must also take into account the advice of the IMF. They need to accelerate the completion of these many unfinished projects and provide greater protection for the buyers of these projects who have been let down. They need greater price flexibility to tailor to the needs of their varied population and most importantly they need a stable economy as their backdrop for recovery.