by Asia Perspective

China’s Healthcare Sector – Promising, But Challenging

May 4, 2012

Due to rapid growth, China is expected to overtake Japan’s placeas the largest healthcare sector in Asia-Pacific, making the Chinese market increasingly interesting going forward.

In fact, according to Marketline, China’s healthcare sector is estimated to grow by an annual 11% the next five years to become the region’s largest by 2015. Despite these impressive figures, however, the Chinese frequently complain about the healthcare system, which historically has suffered from underfunding, inequalities, poor quality and overpriced services[1].The government has responded to these demands, but there are still some adverse issues facing the industry.

First of all, the healthcare system is plagued by scandals. As recent as this April, a manufacturer of gel capsules was shut down due to production at an industrial waste site, resulting in hazardous levels of carcinogenic chromium. As a result, 25 medicines were immediately put off the market. Although this shows great resoluteness on the part of Chinese authorities, the fact remains that the healthcare industry is dominated by poor safety-levels and quality control mechanisms.

Second, counterfeited medicines are pervasive on the market. In 2011 alone, over USD 347 million worth of counterfeits were seized duringtargeted raids. Yet, this estimate is most likely only indicative of the actual value of fake medicines on the market. Not only can this problem deter foreign companies from investing in China, but citizens are falsely assured of potency and product safety, as the above-mentionedcaseclearly illustrates. The lack of trust this creates can undermine the willingness of Chinese to make use of modern healthcare services and keep to their traditional medicine practiceswhose benefits have yet to be clinically proven, making them another cause for concern.

A third issue is that of inequality. Healthcare service provision in rural China is not at par with the rest of the country. An estimated 700 million live in these parts of China, where disease prevention, insurance coverage, treatment availability and accessibility are all nowhere near government standards. Reasons for this include a widely dispersed population and lower-than-average incomes, which makes operating in rural China much less profitable. This has created a great gap in healthcare quality, which even public officials say will take decades to completely close.

In order to address these pressing issues and others, the PRC State Council embarked on a significant reform in 2009. With an estimated cost of USD 124 billion, the goal is to completely overhaul the healthcare system and enable provision of basic, affordableservices to every Chinese citizen by 2020. As part of this initiative, the government also announced a public-private partnership (PPP) between China, the U.S. and several pharmaceuticals in order to help Chinese healthcare providers adopt best practices from the West. So far, progress has been made according to plan: The healthcare gap between rural and urban communities is narrowing, 95% of the 1.3 billion population is covered by medical insurance in some way andsatisfaction among patients isrising–impressive accomplishments given the country’s size.

These actions, combined withthe highly supportive Five-Year Plan of 2011,also reveal significant opportunities for pharmaceuticals, especially those in the medical device market.Although China historically has been reliant on import of such equipment, this is changing rapidly. In fact, during the next five years the Chinese medical device marketis estimated to grow at anaverage annual rate ofaround 20%, thereby increasing the country’s share of the world total from the 5% it currently holds. The reasons for this rise are many, but perhaps most significant is the fact that the Chinese are increasingly subject to chronic diseases, for which intensified urbanization and rising levels of pollution are deemed the primary culprits. Moreover, the Chinese population is ageing fast and the percentage of people aged 65+ will rise from the current 8% to over 23%of the population by 2050, which will further strain today’s capacity  in healthcare provision.

This trend also complemented by a steep rise in the need for research facilities able to adapt to the Chinese market, and many foreign companies have already invested dearly in such capabilities. However, the increased demand for healthcare R&D is not only related to the prospects of medical devices. It is also facilitated by the large and increasing pool of skilled workers, among which so-called ‘sea turtles’ are in particularhot demand. These relate to people with degrees from top Western universities and those with extensive R&D experience from abroad who are returning to China en masse, a trend strongly encouraged by the government via incentives such as tax deductions,

Combined, these indicators suggest that we will continue to see a dramatic rise in healthcare expenditure, R&D and innovation in China. According to the Economist, this is exactly what is needed to tackle the challenges facing the Chinese healthcare sector. Also, the resolute actions and long-term orientation of both the private and the public suggest that the challenges facing China’s healthcare sector is being responded to seriously. However, the need for higher quality services to meet the future healthcare requirementsand their homogenization across the country remains an important concern. This opens up many opportunities for pharmaceuticals and healthcare providers, particularly for players in the medical device market.


[1] China Business Review, 2011 (Christine Kahler)