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Investing in the health care sector in China and its impact on health insurance

According to an article published last year in the China Briefing, China has the third largest health care sector in the world, and it is one of the few markets that has seen near double digit growth over the past few years. Yet, according to the World Bank, the country only spent 5.6% of its total GDP on healthcare in 2010-2014. So how can a country see a booming health care sector when the health expenditure is among the lowest in the world? One of the most obvious answers is investment from the private sector.

Posted on May 19, 2015 by Rob McBroom

Investing in China’s health care

A number of articles published in the past year have highlighted that China’s health care sector has become one of the most popular sectors for private investors both foreign and local. According to an article published in the New York Time’s Dealbook, “Foreign and local private equity groups, drug companies, hospital operators and even construction companies are pouring record amounts of money into China to invest in hospitals, clinics, pharmaceutical businesses and medical equipment manufacturers.”

The article also noted that in the first 11 months of 2014, acquisitions and mergers in the health care industry in China totaled over 11 billion USD, an increase of 13% from the same time period in 2013.

What does this increased investment mean?

While facts and figures show that investment is increasing in China, the question many are asking is, “Why?” We have found that there are two reasons why. The first being the way Chinese investors generally prefer to invest - they look for untapped markets that have the potential for a high return on investment. Right now, this is the health care sector, which has seen explosive growth in demand with relatively lower levels in growth of supply. In short, to many, it is an opportunity.

The second reason is the public system itself and recent government intervention. Over the past couple of decades, the government has been making efforts to ensure that all citizens in China have access to health care, and now states that between 90 and 99% of citizens have insurance. However, this has not guaranteed the ability for all people to access health care. Those who do go to the public hospitals usually face long wait times, and facilities run as if they were profit oriented. This means that doctors over-prescribe medicine, refuse to treat people, accept bribes, etc. In other words, the system offers a highly variable quality of treatment and, in some ways, can be seen as corrupt.

The Chinese government has recently acknowledged this and has taken commendable steps to improve the situation. One of the biggest of these has been the relaxing of foreign investment rules. In the past, foreign interests could only invest or own a maximum of 70% of a foreign hospital. Now, the government is trialling 100% foreign owned hospitals in 7 cities.

To date, this project has been somewhat successful with a number of new hospitals and centers being opened, and offering higher quality care.

It is liberalization like this that has prompted increased investment from the foreign and private sector, which, in turn, can help spur an increase in the overall quality of the system.

How will this impact health insurance?

Of course, with increased investment in the health care sector, a number of other related industries will also be influenced. Pierre de Mirman, Country Manager at Pacific Prime China, explains how the health insurance industry will be impacted by this increased investment: “Investment in health care, hospitals, and clinics in China should increase competition between medical facilities, which should result in a stabilization of health care costs across the board. As a direct result of this, we should also see a decrease in rapid inflation, which has been present the past few years, because rates at international private facilities will need to be kept competitive if the facilities are to remain profitable and attract patients. In short, this is good news for China.”

He continued, “When it comes to insurance, this increased investment should help the insurance industry to stabilize premiums and increases in the long run, as insurance companies should receive better deals from hospitals. Beyond that, better technology and healthcare means a healthier population and, therefore, less exposure for health insurers.”

To learn more about the health insurance industry in China, and how Pacific Prime China can help you find the best premiums for you and your business, contact us today.

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