Philanthropy
Easier to give away money than earn it, isn't it? If this is a cause that speaks to you, use a tax credit if you are in a developed market or returning a favor here are quick key points to address through the due diligence process:
Program Efficiency Ratio: This shows the percentage of total expenses that go directly to program services as opposed to administrative or fundraising costs. The typical benchmark is an 80/20 split between program and administrative expenses. This can vary based on the organization's size, mission, and operational model with sufficient funds are directed towards their core mission. Some prominent non-profits have 90% expense ratio the opposite of what it should be.
Fundraising Efficiency: This ratio assesses the cost of raising funds. It's calculated by dividing fundraising expenses by the total income generated from fundraising. A lower ratio indicates more efficiency.
Cost per Unit of Service: This metric calculates the cost involved in delivering a specific unit of service. It helps in understanding the direct financial impact of the services provided.
We don’t give much relevance the reliance ratio which measures the percentage of total income that comes from various sources like donations, grants, and earned income. The known rule of thumb is no income source should exceed 75% to ensure diversification and reduce risk per say. This should be contextually interpreted as risk perception is relative. Limited access to diverse funding sources, a higher reliance on a single source might be also create direct impact.
Realizations over dinner
As my teenage son, still grappling with the financial concepts of depreciation versus compounding, weighs the merits of investing in shares of Cava against the allure of the latest fancy sneakers, it serves as a humble reminder of the complex decisions that shape economies. This microcosm of choice reflects on Davos takeways, Global Events, and the capital markets eying China’s fiscal stimulus actions…
China's Fiscal Policy Over Decades
Policymakers in Beijing, have deployed about 2 trillion yuan ($278 billion) from the reserves of state-owned enterprises. This move aims to reinforce the stock market through the Hong Kong exchange link—a savvy use of international financial avenues to fortify domestic confidence. Furthermore, at least 300 billion yuan ($42 billion) from local funds is allocated to invest in mainland shares, a move designed to directly nurture the economic landscape. Collectively, this represents a substantial 2-3% of China's projected 2023 GDP, which stands at an imposing $17.5 trillion. To provide approximately $3 trillion contraction in market value witnessed over the past three years.
From the 1980s Onward
The 1980s marked the beginning of China's shift from a centrally planned economy to a market-driven one, with GDP burgeoning from $191.149 billion to $390.28 billion. This period of transformation was underscored by a series of reforms that decentralized economic control, spurred infrastructure investment, and invigorated rural development. It laid the cornerstone for a vibrant and diversified economic base that would define China's fiscal identity.
The 1990s witnessed China's real estate sector expansion, escalating from contributing 4-5% of the GDP in the late '90s to over 10% by the 2010s. This growth was facilitated by the 1994 tax-sharing system and a tactical response to the Asian Financial Crisis with a fiscal stimulus of approximately 2.6% of GDP. China's WTO accession and the booming of its export sector, growing from $18 billion in 1980 to an astronomical $2.5 trillion by the late 2010s. The 2008 Global Financial Crisis prompted a 4 trillion yuan stimulus package, equivalent to around 12.5% of GDP, which significantly underpinned growth in infrastructure and real estate.
The 2010s were characterized by a strategic pivot towards reducing overcapacity and managing debt, with a notable investment of over 33 billion yuan in EV subsidies between 2009 and 2017. This decade saw a concerted push towards a knowledge-driven economy, with technology and service sectors prominence.
The COVID-19 pandemic's fiscal response was marked by a 2.5 trillion-yuan stimulus package, emphasizing the importance of economic support for businesses and healthcare infrastructure. This was succeeded by continued fiscal support and infrastructure investment in 2021 or support for the US and Global Growth.
The fiscal narrative of 2022 and 2023 is sculpted by sustainable and digital economy investments, with increased fiscal incentives for high-tech sectors and substantial investments in high-tech aerospace credits. The introduction of reduced VAT for small taxpayers and a $72 billion EV tax credit in 2023. The silver economy, experience and travel incentives are on the agenda. These are the tip of the iceberg but just like SEO, we don’t see what the backlinks are. It is somehow puzzling to witness the power of capital markets, that the second biggest economy only represents single digit percent share of global traditional MSCI benchmarks.
