Industry Insights: China's Evolving Healthcare Sector
November 9, 2023
China Healthcare Market

China Healthcare Market

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In most countries around the world, healthcare is one of the most thriving and lucrative sectors of the economy and China is no different. With high levels of growth due to an increase in household incomes, China’s healthcare industry is one of the largest sectors of GDP for the country. China’s strong manufacturing, technology, and research industries make it a priority area of investment for both the government as well as private investors. Here we explore what China’s healthcare sector comprises of, the various areas of investment and more.

Investment in China’s healthcare industry can take various forms such as investing in shares of existing Chinese businesses, expanding Western businesses into China by adding a foreign office or manufacturing plant, or establishing an entirely new foreign-owned enterprise in China.  As a priority area of investment, there are several sub-sections of the healthcare market worth exploring for investors. Each has its own strengths and economic outlooks for the coming decades.

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Healthcare Services

China has a dual healthcare system. China firstly offers free public healthcare, which is covered by the country’s social insurance plan. Public healthcare is available to the majority of Chinese nationals, and in some cases to expat residents as well, with basic healthcare at public hospitals being free.

There are also specialty and private hospitals, as well as private wards within certain public hospitals. Private healthcare is generally used by those who have private insurance or who can afford it, as well as for expats and foreigners who come to China, especially for medical care. Because of this, they usually offer a higher standard of care, specialty medicine and more specialized areas of practice, such as cosmetic surgery.

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Public Hospitals

Chinese public healthcare comprises of the largest part of the sector and is significantly larger than private healthcare. An example of this is illustrated by the fact that out of all hospital visits in China in 2021, 84% were to public hospitals and clinics. While access to public hospitals is easier in urban, rather than rural areas, China’s public healthcare system is still able to reach approximately 90% of China’s population through smaller outpatient facilities and clinics in villages.

Chinese public hospitals not only remain dominant because of size, but due to strong government backing they also retain an overall strong talent pool and have access to resources. With China’s changing demographic however, public hospitals will be required to cut costs and improve efficiency, in order to maintain the aging population.

Public hospitals are also the largest buyers of Chinese medical equipment. This illustrates how the different parts of the Chinese healthcare market intertwine and connect. Due to such practices, foreign businesses who might want to enter the market and import their medical equipment into China may run experience difficulty on various levels, as Chinese regulations often require that their state-run hospitals must buy the majority of their supplies from Chinese sources.

Public hospitals are expected to continue to grow as a healthcare segment, both in the Chinese market and around the world. This is because of the increasing need for a strong healthcare segment. The COVID-19 pandemic meant that thousands more Chinese needed medical treatment than before, leading to a rapid expansion of the capacities of public healthcare. China’s one- and two-child policies have led to a rapidly aging Chinese population that may have the wealth to support themselves in their old age, but do not have the traditional Chinese family infrastructure to provide old age care. In the next few decades, this will lead to an increased reliance on the public healthcare system to provide these services for the elderly.

The weakness of the public healthcare system is inadequate funding. In order to remain strong, China’s public healthcare system needs to continue to improve patient care and experiences, while simultaneously streamlining their financial efficiency.

Private Hospitals

Private hospitals, while a smaller segment of the Chinese healthcare system, retain a proportionally larger amount of the Chinese healthcare revenue. As private hospitals are generally smaller, with fewer beds and a lower nurse-to-patient ratio, the cost is often substantially more expensive. Over 86% of private hospitals have less than 100 beds, whereas almost half of public hospitals have over 100 beds. This means they can offer a higher standard of more specialized care.

Since private hospitals are not financed and run by the state, there is a greater opportunity for foreign investors to fund or establish these kinds of institutions. Most private hospitals are still Chinese-owned and operated however, due to China’s rapid urbanization and COVID protocols, there is an increased need for better quality medical care. Due to this, the Chinese government has made it easier for foreign companies and investors to enter the healthcare sector.

When it comes to private healthcare, there is also reduced access as private hospitals are mostly available in urban centers, while the public hospitals are more spread out in order to serve the rural population. However, due to rapid urbanization, there is an increase in demand among China’s western rural population for access to more private healthcare.

How much does China spend on healthcare?

China has experienced a substantial increase in spending on healthcare as the government has recognized the increased importance of providing better quality and more accessible healthcare to its citizens. There have been various factors that have influenced the increase in expenditure which includes a shift demographics, an increase in healthcare expectations, and an enhanced danger of contagious disease spreading, as seen with Covid.

In order to me to meet the growing need of the population, the Chinese government has taken the necessary steps to ensure they can facilitate adequate healthcare. This includes the establishment of the healthcare insurance system applicable to both rural and urban residents, an effort to invest in healthcare infrastructure, including development of new hospitals and clinics, as well as the advancement of medical technologies. The increase in expenditure reflects the commitment of the government to enhance the well-being of its citizens stop.

China’s healthcare industry has seen rapid growth over the past decade and comprised of approximately 6.7 of the GDP in 2021 according to a report by Statista.

with a 50% increase targeted by 2030. In 2022, a total of RMB 2.25 trillion was spent on health and hygiene by the Chinese government according.

Pharmaceuticals

China’s pharmaceutical industry is second only to the United States in market share according to Statista, where the market share was 7.6% in 2022. The pharmaceutical industry is composed of several different sectors for different consumers’ needs.

Chinese Medication

Traditional Chinese medicine is generally used and preferred in China above Western medicine. These treatments and supplements are generally over-the-counter type medicine, similar to how Western grocery stores might carry cough syrup or medicated ointment. These medicinals generally are state-supported and approved and have a strong brand image. They also have a history of effectiveness, or common belief in their effectiveness, that allows them to retain their popularity.

Chinese pharmacies that sold Chinese traditional medicines experienced supply chain stress during the pandemic, as many customers bought and hoarded cold and fever medicine. However, the physical stores were able to recover faster from the stress and maintain supplies better than e-commerce sellers of the same goods. This shows that manufacturers and sellers of these traditional remedies are a robust industry with a strong supply chain.

Western Medicinals

Many Western pharmaceutical companies have outsourced their manufacturing to China. This also means that Chinese companies have begun to create their own lower-cost alternatives of these same drugs.

These are used in China’s public and private hospitals and are often exported overseas to Western countries as well. While many people in Western countries enjoy the lower prices that come with alternatives to higher-priced drugs, this industry is not easy to maneuver. This is largely due to trade restrictions, industry regulations, and quality control, chiefly in the United States.

Chemical Reagents

While not strictly medicine, chemical reagents are another important part of China’s healthcare industry. China is the largest producer and consumer in the world of chemical products; therefore, the chemical reagents industry is significantly related to healthcare in China. These are used in performing various kinds of medical tests for different diseases and conditions.

Medical test reagents are manufactured in China’s chemical laboratories and manufacturing plants. Some are used in China’s domestic healthcare system, and many are exported. Since these are not strictly medicines, they can often be imported and used more easily than the medicines or drugs themselves.

These chemicals are also important for creating and testing the drugs themselves. China is positioning itself to become one of the world’s centers for medical research and development, as its population expands and as developed nations, such as the United States, begin to tighten their R&D spending.

Medical Equipment

China’s strong manufacturing capabilities means that they manufacture a great deal of medical equipment. This can mean several different things: surgical tools, caregiver equipment, patient aids, and large items such as X-ray machines.

The largest buyer of China’s medical equipment is the Chinese public hospitals, but about a quarter of the medical equipment manufactured are exported to the United States. Medical equipment manufacture is expected to grow at approximately 8.4% per year between 2021 and 2026, with an estimated market value of nearly USD 50 million.

Digital Healthcare and Technology

Finally, China’s tech and healthcare segments coincide in digital healthcare. There are various different elements where these industries will intersect, such as:

  • Telemedicine – which involves the distribution of health services essential to bring the best care to rural communities and those who are far from urban areas.
  • Through AI – which refers to the intelligence of machines or software and comprises of devices that can help diagnose common diseases based on chatting with the user-patient.
  • Digital record storage – secure electronic storage of patient records to smooth communication between hospitals and other caregivers.
  • Improved digital imaging technology – this is critical to achieve higher levels of care, especially in China’s private hospitals. In a national survey, over 70% of private hospitals cited better quality imaging as key to improved patient outcomes, as opposed to only about 50% of public hospitals.

China’s Changing Healthcare Demand

Healthcare in China still offers a great deal of potential to investors, especially due to a rise in income, advancements in technology and the change in demographics. Whether in R&D, supply chain or health technology, the opportunity for growth and change exists.

Due to the change in demographics China has been experiencing over the past few years, there will certainly be an increase in healthcare demand. As China’s population over the age of 65 continues to grow, this would require more resources and have implications on China’s social welfare system.

Closing Thoughts

Overall, the economic outlook for investors in Chinese healthcare is bright and offers huge potential. The main hurdles investors will face are not necessarily economic ones but will likely be more related to social and political reasons. Due to the rise in challenges, potential investors in the Chinese healthcare industry are advised to speak with an expert on Chinese business and partnerships.

Disclaimer: all articles and its related content are the property of MSA Consulting Company Limited and may not be reproduced either in part or in full without prior consent.
China Healthcare Market

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