The ultimate goal is to create a basic healthcare system that serves people in both urban and rural areas. With regard to the public healthcare system, the aim is to use publicly funded institutions to provide healthcare that is free and equal û in contrast to the current system which offers expensive and low-quality service with wide regional inequalities.
The medical services on offer will primarily come from non-profit providers supplemented by private institutions. Social health insurance, which covers the entire population, can be topped up by private insurance and the highly inefficient drug delivery system will be revamped.
The policy review sets ambitious targets without giving clear details about implementation, but there are interim targets to be met by 2010, such as the provision of social insurance to 90% of the population and the building of the necessary infrastructure to meet the coverage goals.
First off, there are going to be plenty of new hospitals û the government has announced that it intends to have one community hospital for every 30,000 people living in urban areas. To achieve that, nearly 17,000 hospitals need to be built in addition to the current 3,000. Part of the expenditure for the new hospitals will go towards medical equipment and a report by Credit Suisse suggests that Rmb16 billion ($2.34 billion) is a conservative estimate of the amount that will be spent between 2007 and 2010 to equip hospitals across urban and rural areas.
China's domestic medical equipment sector is well placed to take advantage of this spending as locally made products are cheaper than foreign goods and because of government tenders that favour local companies. The revenues created by high levels of government bulk buying will give the domestic equipment sector great opportunities for growth.
Two public companies that could benefit are Mindray Medical International, a New York Stock Exchange-listed manufacturer of diagnostic and monitoring equipment, and Nasdaq-listed China Medical Technologies, which makes in-vitro diagnostic products.
According to a recent report by Citi, Mindray's sales grew at an ôimpressiveö compound annual growth rate of 40% between 2004 and 2007 ôthanks to its robust export sales as well as being a major beneficiary from increased government rural healthcare spendingö.
Local equipment manufacturers are making big investments to ensure that they are able to offer up-to-date products. Last month, China Medical spent $345 million to acquire new diagnostic technologies to improve its position in the human papillomavirus market, which is estimated to be worth $700 million.
With regard to pharmaceuticals, the plan is to create an effective state basic medicine system that ensures equal access to effective and cost-efficient drugs. The drug industry in China has been split between domestic companies that predominately produce cheap, generic drugs, and multinationals that produce more expensive, innovative drugs that are patent protected. The domestic industry is enormous with over 4,000 manufacturers, even after two years of heavy consolidation.
"There's absolutely no need for that many companies," says China-based Robert Pollard, director of market research firm Synovate Healthcare. He expects further consolidation to result in a final tally of between twenty and thirty major companies supplying the majority of basic drugs to the entire healthcare system.
The other major area to be affected is China's health insurance system. ôIn the long term, the population's increasing awareness of the benefits of customised insurance and the ability to differentiate between healthcare services... should lead to commercial health insurance's rising importance to the insurers in terms of attracting new customers, and the boom of China's private healthcare service market,ö says the Credit Suisse report.
Private health insurance will supplement the basic state insurance, allowing patients greater flexibility and the opportunity to receive more expensive treatments not covered by the government insurance.
With private health insurance accounting for only 1.3% of China's national healthcare expenditure in 2006, it is still very much an industry in its infancy. Admittedly starting from a tiny base, it has grown at a CAGR of 48% in the past seven years. So far this year, the total health insurance premium income is up 80% year-on-year. Credit Suisse estimates that it can continue to grow at a CAGR of 33% and by 2015 could be worth Rmb450 billion.
Companies that the Swiss bank expects to benefit are the large life insurers such as China Life Insurance, Ping An Insurance and PICC Property and Casualty Company, based on the established breadth and depth of the distribution channels of these firms, the scale of their back office capabilities, and their scope of geographical coverage.
The development of China's healthcare system will help transform the economy overall. The country's national healthcare expenditure in 2005, as a proportion of gross domestic product (GDP), was 4.7%, one of the lowest in the world. Credit Suisse reckons that the healthcare market in China will reach Rmb10 trillion by 2020, accounting for 10% of GDP.
It is the individual in China that foots the bill for medical treatment û 85% of private medical costs come out of the patients' own pockets. Falling ill sits alongside the risk of unemployment and the cost of looking after elderly relatives as one of life's eventualities that need to be saved for. If the government helps remove some of the financial burden on individuals for seeking treatment and health insurance picks up in popularity, then perhaps the notoriously high savings rates among the Chinese will fall, making them more inclined to spend and providing the boost to domestic consumption that China needs.
¬ Haymarket Media Limited. All rights reserved.
