Opportunities in China's Healthcare Industry

In my last post, I wrote about the trend in Chinese consumption being significantly upwards. Some people commented on my Facebook and LinkedIn groups that they believed China’s consumer market would be much larger if it were adjusted for the exchange rate.

Doris Gallan, an American who has lived in China for years, wrote: “The way people shop in Wenzhou, China — they are aiming to be the #1 consumer nation! There are many high-end consumer stores here and people (especially youths dress very fashionably and drive expensive cars).”

While the Chinese middle class (see my definition of the Chinese middle class) will alter the global economy in the years ahead, there are obstacles to Chinese consumers increasing their spending. Most people I talked to save 25 to 50 percent of their monthly income for a rainy day.

Although decades of double-digit growth have instilled widespread optimism in Chinese people (a recent survey by Economic Intelligent Unit indicates that 91 percent are optimistic about the future), many of them are also living under extreme anxiety. They observe that some people suddenly become rich, while others remain poor. They are worried about being left behind.

One of the major causes of anxiety is China’s inadequate health care system. Before the 1980s, health care was essentially free in China. In urban areas, state-owned enterprises usually covered at least 90 percent of medical expenses for their employees. In rural areas, peasants had basic medical treatment at minimal expense.

The economic reforms abandoned the old socialist “cradle-to-grave” welfare system. The government dramatically reduced funding for health care, although a new and effective social safety net was not yet in place. Hospitals began to focus on the bottom line rather than providing quality medical care. Many doctors were under pressure to prescribe highly profitable drugs, and charged steep fees or took bribes for seeing patients and performing operations.

Soaring fees made medical services less affordable to ordinary people. Many set aside large chunks of their income to self-insure against health care costs. Victor Ku, a hotel manager in Guangzhou, told me that he saved two-thirds of his income. “I have to pay for my own health care expenses,” he said. “In China, we don’t have security. If you get sick, you can immediately become poor. The government is not going to take care of us any longer. So we need to save to take care of ourselves.”

The Chinese government understands the challenges and is taking steps to establish a stronger social safety net. In 2009, the Chinese government announced a plan to spend $124 billion to overhaul the country’s broken health care system. The government’s ambitious health care reform to ensure basic health care coverage for 90 percent of the Chinese population is a first step in the right direction.

There are many opportunities for technology companies, health-services providers, insurers, and pharmaceutical companies in China’s fledging healthcare industry. The Wall Street Journal reported that IBM is deploying technology to help thousands of scattered hospitals in China standardize medical records. The market for health care software is expected to reach $2.4 billion by 2013. Dell and Microsoft are racing to secure a slice of this huge potential market. Analysts also predict 16 to 20 percent growth in China’s medical devices market from 2010 to 2015.

Currently, China’s private consumption accounts for 35 percent of GDP, compared to 70 percent in the United States. Stephen Roach, Morgan Stanley Asia’s chairman, believed that if the Chinese government moved aggressively on developing social security, pensions, and nationwide medical care, consumption could achieve a 50 percent share of GDP within five years.

(This article is adapted from The Chinese Dream).