In 2017, the Chinese government pledged to provide better healthcare services with respect to accessibility and affordability to the majority of the nation’s almost 1.4 billion residents. The dramatic changes to China’s healthcare industry will affect many aspects, including medical services delivery, education on disease prevention, essential care provision, pharmaceuticals, general healthcare services and others.
With the vow of pouring in $125 billion by the Chinese government, the changes will most likely enhance the levels of care delivered to residents in China and improve their wellbeing. They will also drive the growth of China’s healthcare market and open the door to payers, suppliers, IT merchants and the like from the private sector.
The size of that market, which we estimate at $240 billion, or around 5% of China’s GDP, could surpass the estimated $600 billion within ten years. If China’s healthcare spending simply keeps pace with its projected GDP growth rate, it will increase to $480 billion by 2018. However, we believe that it is probably going to rise faster than GDP because of extended insurance coverage, increased health awareness, growing urbanization, and the change in diets and life styles. If health care spending hits 6.5% of GDP by 2018, the market size could be increased by an extra $150 billion.
Since the primary goal of the healthcare reform is to guarantee expanded access to fundamental healthcare service benefits, it creates more business opportunities for the private sector although the public sector is still expected to have a lion share of the market.
Although private hospitals have been existed for over 15 years, their role in the system is still very restricted. For example, private hospitals represent just 6.5% of China’s total hospital beds at present. In China, private hospitals can generally be classified into three types. First, the high-end one, which is service oriented. It targets expatriates and wealthy Chinese patients. Second, specialty facilities, which typically focus on select services such as basic dental procedures. Third, the large general hospitals, which compete directly with big public medical institutions.
Latest healthcare reforms are starting to remove certain constraints imposed by previous policies. For instance, doctors may now practice at more than one facility, including private hospitals, making prominent doctors more mobile and easier to be recruited by other institutions. As a result, private healthcare providers could begin building new hospitals or leveraging existing facilities that combine cutting-edge treatments with high-quality services to address the demanding needs of the fast-growing wealthy-patient segment. Once all these reforms are in place, the role that private hospitals play should be expanded. We anticipate that private hospitals could account for at least 8-10% of all hospital beds within the next few years, up from the current 6.5%. Private providers will play a critical role in China by creating healthy competition with public institutions and better addressing patients’ needs as a whole.
There are rumors that the Chinese government will allow 100% foreign ownership in private healthcare facilities; however, no official word has been given so far. Foreign ventures are, as of now, permitted to hold up to a 70% stake in such facilities.
China must figure out how to ensure sustainable financing if its changes to the healthcare system are to prevail in the long run and see if healthcare will become more affordable for its people. It should upgrade the capabilities of entities at all levels within the healthcare system, so the goals of enhancing healthcare accessibility and affordability can be attained. Although privately-owned businesses, particularly commercial payers and providers, will continue to have a growing but relatively small share of the Chinese healthcare market, they put competitive pressure on public providers to elevate their quality of services and offer patients an alternative to fulfill their unmet medical needs.
Blackrock to Start Offering Investment Advisory Services in China