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INVESTORSECONOMY
China’s economy is the world’s most rapidly changing, fuelled by a huge population, increased disposable income, greater levels of international investment and supportive government policies. In the last three decades China’s economic growth surge has been unrivalled world wide. It consistently achieves double digit growth rate of annual gross domestic product (GDP) [1]. This spectacular expansion looks set to continue for decades with some economists predicting that by the year 2050 China’s economy will be 75 percent larger than that of the USA [2]. The 21st century is shaping up to be China’s century, with the nation on track to replace North America as the world’s leading superpower [3].
BIOMEDICAL MARKET
Alongside industries such as information technology and real estate, China’s pharmaceutical sector is the focus of government growth plans which aim to make biopharmaceuticals one of China’s leading industries within 15 years [4]. Since 2006 the Chinese government has been committed to attracting higher levels of foreign investment through making the drug approval process more transparent, reforming the Shanghai and Shenzhen stock exchanges and issuing a comprehensive Intellectual Property protection plan.
Coupled with strong government support, other key growth drivers of the pharmaceutical and medical device industries are the increased levels of foreign investment in the sector, largely facilitated by China’s accession into the World Trade Organisation (WTO), its growing well-educated workforce and the cost advantages for foreign businesses entering the Chinese market [5].
The dramatic growth of the pharmaceutical and medical device markets in China is also being driven by the changing demographic of China’s ageing population, higher living standards, increasing urbanisation, developing trend towards self medication, increasing rates of disease diagnosis and the growing popularity of Western medicines.
The pharmaceutical and medical device distribution structure in China has been reformed in recent years, so that it now has a market-oriented demand system, rather than a centrally controlled supply system [6]. This has resulted in increased price competition and easier access to pharmaceuticals and medical devices for patients as there are more innovative products available on the market. The Chinese are also moving away from purchasing their pharmaceuticals from hospital dispensaries to buying them from retail drugstores, thus saving the 15 to 20 percent hospital markup. It nevertheless needs to be pointed out that pricing of most pharmaceuticals is centrally controlled and price levels in China for many pharmaceuticals are significantly below those in Europe and the USA.
HEALTHCARE SYSTEM
Despite China’s huge economic growth and success, it is recognised that the country’s healthcare system is in desperate need of major reform. Up until 1994, healthcare was provided under a socialist system where medical treatment was free or very low cost to the majority of the population. Reforms in 1994 included a user pay system together with incentives that encouraged both liberalisation and privatisation making healthcare unaffordable for a substantial proportion of China’s citizens.
According to a survey by World Health Organisation (WHO), two thirds of China’s residents pay for all their health services. In 2005 fewer than 60 percent of the urban population had at least a limited form of medical insurance and only 20 percent of rural residents had some insurance coverage [7]. In some instances this user pays system has forced patients, especially in rural areas, to use their lifetime savings or become heavily indebted to pay for medical treatment. There is also, however, a rapidly growing middle class, based largely in urban areas, where demand for the best healthcare is matched by the ability to pay for it.
The relative spend on healthcare also demonstrates China’s extraordinary growth potential. China’s per capita spend on healthcare in 2004 was US$71 [8], increasing to US$112 in 2007 [9]. This compares to a US$6401 spend in 2005 in the USA and a US$3128 spend in Australia [10].
In light of its growing recognition that the current healthcare system is ineffective, in August 2007 the Chinese government announced plans for reform so that virtually every citizen would be covered by a basic medical insurance policy by 2010 [11]. Currently 79 pilot cities are involved in the reform with only employed urban residents allowed to participate [12]. It is too early to say whether this reform will successfully make healthcare easily accessible and affordable for all.
Helicon is well placed to participate in China’s projected economic growth, the immense development of China’s pharmaceutical sector and its focus on improving the delivery of improved healthcare to the general population.
If you would like further information on China, below are links to sites that may be of interest.
FOOTNOTES
[1] Introduction to Healthcare in China, viewed 22 April, 2008, www.medscape.com/viewarticle/564226_2
[2] Fishman, T 2005, China Inc: how the rise of the next superpower challenges America and the world, Scribner, New York, p 17
[3] Ruthven, P 2008, Our place in Asia, Company Director, viewed 28 April 2008, www.companydirectors.com.au
[4] Fu, J 2008, Biotech sector shows bright future, Shanghai Daily, viewed 19 April 2008, www.shanghaidaily.com/emagazine.com
[5] Bhambra, R 2007, The Chinese pharmaceutical market: A strategic opportunity analysis, PharmARC, York, p 6
[6] Bhambra, R 2007, The Chinese pharmaceutical market: A strategic opportunity analysis, PharmARC, York, p 22
[7] Jiangong, Z 2007, Red hue to China’s healthcare, Asia Times Online, viewed 22 April 2008, ww.atimes.com/atimes/China/IH23Ad01.html
[8] Cheung, J 2007, Healthcare system in China and Hong Kong, viewed 22 April 2008, http://www.finproevents.fi/tiedostot/default/finpro1000000264.pdf
[9] 2008, Chinese health statistics show longer life spans, better infant survival, Human Rights Net, viewed 22 April, 2008, http://www.humanrights.cn/en/Messages/FF/Statistics/t20080108_315444.htm
[10] How does Australia compare? OECD Health Data 2007, viewed 22 April 2008, http://www.oecd.org/dataoecd/46/38/38979536.pdf
[11] Jiangong, Z 2007, Red hue to China’s healthcare, Asia Times Online, viewed 22 April 2008, www.atimes.com/atimes/China/IH23Ad01.html
[12] Jiangong, Z 2007, Red hue to China’s healthcare, Asia Times Online, viewed 22 April 2008, www.atimes.com/atimes/China/IH23Ad01.html