Is China's Health Care on the Mend?

China generally lives up to the stereotype of having a sub-par health care system marked by underfunded and overcrowded hospitals and clinics. The sight of hundreds of ill patients in dimly lit hospital waiting areas, hoping for an appointment is, sadly, still quite common. Patients still frequently slip “tips” in red envelopes to China’s underpaid doctors and surgeons in hopes of getting scheduled to be seen more quickly or receive more attentive care.

While some urban areas have better hospitals that cater to expatriates in China and residents who are both willing and able to pay for private care, the vast majority of Chinese clinics are public and simply lack resources. Patient care is deficient as ill-paid doctors typically try to fetch more compensation by over-prescribing medications in order to get kickbacks from drug companies. Fortunately, however, the government has pledged to reform its health care system, and triple its spending in this area to US$1 trillion by 2020.

China’s government health care spending has already been growing rapidly and China is now the third largest health care market in the world. Despite this growth, China’s health care spending as a percentage of GDP is still among the lowest the in the world at 5%, compared to about 16% in the U.S in 2011. With both urbanization and an aging population on the rise, the government has recently targeted an increase in health care spending to as much as 7% of GDP by 2020. This is expected to occur through various reform initiatives that aim to expand insurance coverage, encourage pharmaceutical innovation and overhaul the health care industry.

China may still be decades behind developed Western nations in drug development, but many local pharmaceutical firms are now increasing their research and development (R&D) spending to create more branded drugs or generics that may hit the market before their competitors do. Industry analysis shows a clear steady trend in the past few years of higher R&D spending by leading pharmaceutical firms along with increased submissions for new drug approvals. In addition, the government has committed more than US$17 billion over the next 10 years to support the development of innovative drug research that could have long-lasting impacts on China’s biotechnology and pharmaceutical industries.

Despite the many challenges facing China’s health care sector, I believe the recent initiatives and the market’s continued growth could create many future investment opportunities in areas ranging from medical device manufacturing, insurance, pharmaceutical and a range of general and specialized care facilities.

Matthews Asia

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