China’s health care system: Uncharted waters

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China’s health-care industry continues to grow at an amazing rate. Spending is expected to increase from $357 billion in 2011, to $1 trillion by 2020. China is still one of the most desirable markets in the world, with the highest growth rate among all large emerging markets. Multinationals are flocking to capitalize on the opportunities. However, long-term success is not guaranteed. Multinationals will have a harder time competing in China’s healthcare market, even though we are optimistic about its overall outlook. We anticipate a more distinct division between the winners and losers. Late entrants may struggle.

The factors behind China’s boom in health-care markets

Health insurance in China strong market has been a highlight for health-care companies in recent years. It’s a bright spot in comparison to the poor conditions in many other countries.

It is amazing what a few years can do to make a big difference. Positive demographic trends, continued urbanization, an increase in disease burden, an expanding economy and income growth are the key factors behind strong growth in the sector’s health-care sector. This encourages more awareness and greater access to treatment. It also reflects government’s emphasis on health care as both an important social priority (as shown in the 2009 health-care reform), and a strategic priority (as demonstrated by the 12th five year plan’s impact upon the biomedical sector). The country’s health-care spending has more than doubled, from $156 billion in 2006 and $357 billion in 2011, bringing it closer to 5% of its GDP. Exhibit: Nearly every sector of the health care industry has seen benefits, from pharmaceuticals to medical equipment to traditional Chinese medicine.

It’s time to do a reality check.

China is still at the beginning stages of its social and economic development. Exceptional boom times have provided the perfect backdrop for substantial investment. Multinationals need to be cautious and look at the factors that could influence China’s attractiveness in the coming years.

The government is making significant efforts to improve health-care reform, including pricing. The nation is experiencing increased competition from local businesses, while the rate of economic growth is slowing. Several questions are raised in this environment. Are high-reaching growth expectations being met by China? Are companies too optimistic? Are they investing at the right rate and scale? Are they adapting their operating models to local conditions? Are they able to identify and evaluate the challenges that lie ahead?

Economic and demographics: Strong support to volume growth

There are several reasons why the demand for care will continue to grow. As the population grows older, more people move into cities and their lifestyles change, chronic conditions such as diabetes and hypertension increase rapidly. According to the New England Journal of Medicine, there are already over 92 million diabetes patients in China and another 150 million prediabetics living in China. The United States, however, has nearly 27 million diabetics.

The proportion of elderly and urban residents is expected to continue growing. McKinsey Global Institute, (MGI), projects that 61% of China’s population will be living in urban areas by 2020. This is an increase from 52 percent in 2012. It comes as 142 million people move from the countryside to cities. From the current 122million, the population of 65-year-olds will nearly double by 2030 to 223 million.