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Chinese Healthcare Reforms Still On Track

Posted on Mar 02, 2010 by Sergio Ulloa ()  | Tags: China, Economy, Healthcare, insurance, Pharmaceuticals

In early 2008, prior to the global financial meltdown of September, which caused the collapse of such esteemed institutions as Lehman Brothers, the Chinese government announced a series of reforms entitled "Healthy China 2020." The goal of these comprehensive healthcare reforms was to institute national medical coverage which would be available to all Chinese citizens. When the Great Recession occurred, and the global economy entered a downward spiral, the need for such wide ranging legislation as the Healthy China reforms became painfully apparent as the country had no social networks in place to ensure that the population remained in a good state of health. Departing from the "Iron Ricebowl" system in the 1990's in an effort to catch up to the economic standards of the West meant that many Chinese nationals lost the comprehensive job security and lifelong benefits upon which they had come to depend for sustainable living. In tandem with this move towards a market economy, State hospitals in China (which currently account for more than 90% of all available medical services in the country) started to see decreases in government subsidies, and became self funding - increasing the end cost for many poor citizens, and effectively putting the cost of quality medical treatment out of reach for most of the Chinese populace.

People crowding for healthcare treatment in rural China.

According to the World Bank, more than 300 million Chinese citizens are without any form of health insurance, with only partial coverage available to the remaining 1 billion-strong population. As a consequence of this, ordinary Chinese must save approximately one quarter of their income each year in order to guarantee that should they fall ill, they will have the means to pay for medical services. As such, the amount of savings accumulated to cover the costs of medical procedures may exceed US$ 5 trillion according to industry analysts. In light of the Central Government's desire to modernize the economy and move from exports and investments to domestic consumption, the "medical savings" of the Chinese populace present a valuable resource to insulate the country against another external financial crisis, while providing the means to ramp up domestic spending. However, without some form of comprehensive social security guarding against serious health care issues facing the People's Republic of China, these funds are unlikely to be freed up. At the height of the economic downturn China's GDP growth dropped to its lowest level in a decade, a mere 6.1 percent in Q1 2009. The People's Congress has long had an end objective of 8% GDP growth year-on-year, which was achieved at the end of 2009 due to a record US$ 586 Billion infrastructure stimulus released at the end of 2008.  The GDP Growth rate ended the year at 8.7%. However, the GDP growth was a result of increased exports as China leapfrogged Germany as the world's largest exporter of goods; consumer spending, on the other hand, the Central Government's top priority in the 2006-10 year plan, remained stable at 35% of the GDP. As a consequence of this, the Politburo has called for the emphasis on consumer spending outlined in the 2006-10 year plan to be sped up. In a February 22 meeting, chaired by President Hu Jintao the Politburo discussed initiatives which will be outlined in a speech by Premier Wen Jiabao on March 5 of this year. The initiatives are expected to be a continuation of the stimulus outlined in April 2009 when the Central Government announced that it would spend approximately US$ 125 billion on healthcare between 2009 and 2012 in an effort to institute universal medical coverage by 2020. The direct result of these announcements by the Chinese Government has been an increased interest by both foreign and domestic business entities towards the Chinese Healthcare Market. Eli Lilly & Co spent US$ 15 million in 2009 to acquire a 15% stake in CITIC Pharmaceutical Ltd., a leading pharmaceutical and drug distribution company in the People's Republic of China.  The Shanghai based company; China NovaMed Pharmaceuticals also saw interest from foreign businesses, with Fidelity Asian Ventures obtaining a stake in the company at the end of 2008. Credit Suisse AG estimates that the Chinese pharmaceutical industry will expand from its current value of US$ 44 billion in 2008, to over US$ 110 Billion in 2015; figures which have many corporate interests seeing expanding opportunities across the nation. China Pharmaceutical Industry Experiences Growth However, this growth of the pharmaceutical industry may present some issues. In the USA, one of the key problems with regards to medical affordability is that the cost of prescribed medications has experienced rapid inflation over the last decade.  The Chinese government, realizing the potential threat raised by upward spiraling drug costs, took steps to address the problem in August 2009 by placing a price cap on 307 essential medicines commonly used by rural hospitals around the country. Further to this, in November of the same year, the list was expanded to include an additional 770 medicines deemed "necessary"; a move which could see the average cost of consumer medications fall by up to 12% according to a Goldman Sachs report. Outside of the Pharmaceutical industry, other healthcare related markets are looking to spur their Chinese growth as it becomes more evident that the current Rural-Urban healthcare divide will be lessened in the near future enabling more Chinese nationals to obtain quality medical services. A key part of this is with regards to the technology used by medical practitioners throughout the country, which is quite often severely out of touch with modern standards. As such, the Medical Device industry has also seen a renewed interest in providing products and services to the domestic market. GE Healthcare, a subsidiary of Connecticut based General Electric, saw it's CEO visit the country at least twice in 2009, pointing to a higher interest in the Chinese market on the part of the corporate giant. Royal Philips Electronics also sees more opportunities for medical device makers in the future, as China surpasses North America as the biggest consumer of Medical Scanning Technology. With a massive injection of stimulus funds over the next 3 years, the nation is making its first steps to radically revitalizing a healthcare system which has, historically been plagued by a myriad of problems. From the failure of the Barefoot Doctor Scheme in the early 1980's, to the current rural AIDS epidemic, the reforms proposed by the Central Government hold a glimmer of hope for a much beleaguered healthcare system; and present a host of opportunities to the international business community.
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