china healthcare policy_study

China Healthcare Policy Study, 2011

Prepared for

Frost & Sullivan (Beijing)

April, 2011

1 @2011 Frost & Sullivan

Table of Content

Table of Content 1

Summary 2

1. China Aging, Healthcare and Wellbeing Market Overview 3

1.1 China Marco Economy and Healthcare Market Environment 3

1.1.1 China GDP Analysis (2006-2015E) 3

1.1.2 China per Capita GDP Analysis (2006-2015E) 3

1.1.3 China Total Annual Healthcare Expenditure (2006-2015E) 4

1.1.4 China Per Capita Healthcare Expenditure Ranks 9th

While U.S. Stands 1st

Among Weighty

Countries 4

1.1.5 China Total Healthcare Expenditure Ranks 8th while U.S. stands 1st among weighty

countries 5

1.2 The Raising Population & Extension of Life Expectancy 5

1.2.1 The Population in China is Rising 5

1.2.2 The Life Expectancy is Extending in China 6

1.2.3 The Aged Population in China is increasing at a Noticeable Speed 6

1.3 The Drivers for Healthcare Market 7

1.3.1 Major Drivers for the Healthcare Market Growth 7

2. Last Five Year Plan Review for Aging, Healthcare and Wellbeing 9

2.1 Major Policies, Regulations, Laws and Their Affects 9

2.1.1 Pathway of Chinese Healthcare System 9

2.1.2 New Healthcare Reform 2009-2011 9

2.2 Major Achievement of the 11th FYP 12

2.3 The Performance of Major Foreign Enterprise in These Areas 14

2.3.1 Foreign Enterprise have been Preparing for Entering Primary Care Market in China 14

2.3.2 Foreign Enterprises have Located Part of the R&D in China 14

3. The 12th FYP for Aging, Healthcare and Wellbeing 16

3.1 Latest Policies, Regulations, Laws for Aging, Healthcare and Wellbeing 16

3.2 The 12th

FYP Succeed the Core of 11th

FYP in Aging, Healthcare and Wellbeing 16

3.3 Forecast of the Potential Results by Those Policies, Regulations and Laws 17

4. New Business Opportunities for Foreign Enterprise in Aging, Healthcare and Wellbeing for the

Next 5 Years 18

4.1 Pharmaceutical Perspective 18

4.1.1 High-end market 18

4.1.2 Low-end market 18

4.2 Medical Device Perspective 19

4.3 Market Focus for Foreign Enterprises 19

Reference 21


Summary

Definition: the Five-Year Plan (FYP) is a series of economic development initiatives, which renews

every five years. The FYP is shaped by the Communist Party of China (CPC) through the Central

Committee and National Congresses.

This report aims to review the achievements in 11th FYP (2006-2010) and understand the

potential opportunities and challenges especially for foreign enterprises, brought by 12th FYP

(2011-2015) in Aging, Healthcare and Wellbeing in China. The 11th and 12th FYP together last 10

years, there are the guidelines for the China development in this 10 years. And they would have

significant impact on the Aging, Healthcare and Wellbeing in China. Understanding the FYP could

help our client to understand the market for decision making.


1. China Aging, Healthcare and Wellbeing Market Overview

1.1 China Marco Economy and Healthcare Market Environment

1.1.1 China GDP Analysis (2006-2015E)

According to the latest data from the International Monetary Fund (IMF), during the last five

years in China, the GDP is estimated to reach 5.75 trillion US dollars in 2010 compared with 2.71

trillion in 2006. In 2010, it was reported that China overtook Japan to be the No.2 country in GDP

among the world.

According to the latest forecast by the International Monetary Fund (IMF), in 2015, it is estimated

that the GDP of China would reach 9.98 trillion U.S. dollars.

1.1.2 China per Capita GDP Analysis (2006-2015E)

The China GDP per capital experienced a high speed growth in the last five years, from $2,064 in

2006 to estimated $4283 in 2010. According to the latest forecast by the IMF, in 2015, it is


estimated that the GDP per capita of China would reach 7,258 U.S. dollars.

1.1.3 China Total Annual Healthcare Expenditure (2006-2015E)

During the years of 2006-2010, The Total Annual Healthcare Expenditure in China experienced a

high speed increase, at a CAGR of 18.72%.

During the 12th Five Year Plan (2011-2015), the government would strength its investment in

healthcare services in the coming years, it is expected that the total annual healthcare

expenditure would continue to grow at least at the same rate of the past five years. Based on this

expectation, in 2015, the total annual healthcare expenditure in China is estimated to reach

$705.74 billion.

1.1.4 China Per Capita Healthcare Expenditure Ranks 9th While U.S. Stands 1st

Among Weighty Countries

According to the latest statistic data from WHO yearbook 2010, the per capita healthcare

expenditure in United States is US$7,285, first among weighty countries. China per capita

7,285

4,627 4,409 4,209 3,867 3,136 2,751 2,712

108 40

2007 Weighty Country Per Capita Healthcare Expenditure Ranking (US$)


healthcare expenditure in 2007 is US$108, which is much lower than those developed countries

listed in the graph. There is still a potential for increasing the healthcare expenditure per capita in

China.

1.1.5 China Total Healthcare Expenditure Ranks 8th while U.S. stands 1st among

weighty countries

Total Healthcare Expenditure is estimated by the formula: = Per Capita Healthcare Expenditure *

Estimated Population based on the official data.

For the total healthcare expenditure in 2007, U.S. still ranked first with US$2,194 billion, which is

larger than the sum of healthcare expenditure of all the other countries in the graph. The large

population base in China contributes to the rising rank of total healthcare expenditure which was

US$143 billion. With such a large population in China, the total healthcare expenditure have a

great potential to increase in the future.

1.2 The Raising Population & Extension of Life Expectancy

1.2.1 The Population in China is Rising

2,260

351 347 295 235 182 147 143 110 45

2007 Weighty Country Total Healthcare Expenditure Ranking (US$ Billion)


Currently China is the country with the biggest population in the world, with estimated 1.341

billion people in 2010, according to the IMF database.

Although the population is expected to increase, the speed of increasing is getting lower due to

the low natural birth rate in China. As a result of the China family planning program named ‘One

Child Policy’ which aims to control the population, the natural increase rate of China population

experienced a decreasing in the previous decades, from 11.87 ‰ in 1980 and down to 5.05‰ in

2009.

1.2.2 The Life Expectancy is Extending in China

With the development of economy and healthcare services in China, the life expectancy has been

rising steadily in the past three decades. According to the United Nation forecast, the life

expectancy in China could still rise but at a relatively slower speed than the previous decades in

the coming 40 years; and will almost hit 80 in 2050.

With lower birth rate and extended life expectancy in China, it is widely believed that China is

stepping into an aged society.

1.2.3 The Aged Population in China is increasing at a Noticeable Speed

According to the international standard, a country with either 10%+ of population over 60 or 7%+

of population over 65 would be considered as an aging country. According to the National Bureau

of Statistics of China, China stepped into an aging country with 7% of population over 65 years

old in 2000, and this percentage has been continuously rising.


The forecast made by the Organization for Economic Co-operation Development (OECD) suggests

that the aging trend of China population will speed up in the next decades. In 2020, it is

estimated that 11.61% of China total population could be people with over 65 years old.

Normally, an aging society could lead to an increase in needs for medical services which could

boost the healthcare industry. When people get old, they are normally fragile to diseases, and old

people consume more drugs than younger. According to our secondary research, in Japan which

is an aged society, around 80% of the total healthcare expenditure was spent on people over 65.

1.3 The Drivers for Healthcare Market

1.3.1 Major Drivers for the Healthcare Market Growth

Increasing Healthcare Expenditure

The increasing healthcare expenditure suggests an increasing market scale for healthcare. The

total annual healthcare expenditure in China almost doubled from 2007 to 2010, and is still

increasing with a double-digit growth. And in recent years, the government at all levels invests

more than ever on healthcare services.

7.70% 7.82% 7.94% 8.07% 8.23% 8.41% 8.60%8.84%

9.11%9.45%

9.85%10.30%

10.78%11.24%

11.66%

7%

8%

9%

10%

11%

12%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Percentage of 65+ years old population in China 2006-2020E


Increasing Percentage of Healthcare Expenditure Counts for GDP

Although the total healthcare expenditure counts only around 5% of the total GDP in China, this

percentage continuous to grow in the past years. Compared with western developed countries,

this 5% is relatively low; with the development of economy, there is still a great potential for

increasing the healthcare expenditure’s percentage in GDP.

Growing and aging population

The growing population enlarges the total patient pool for healthcare market in China. And China

is also facing an aging society, unfortunately, diseases especially chronic diseases affect older

adults disproportionately, and as a result of aging population, China will be increasingly pressured

to handle a growing sick population.

Increasing Disposable Income

With the development of national economy, according to the Statistic Year Book 2010, the

disposable income for citizens has been continuously increasing for the past decades. With

increasing disposable income, people care more about their health condition which could leads

to increasing spending on medical services.


2. Last Five Year Plan Review for Aging, Healthcare and Wellbeing

2.1 Major Policies, Regulations, Laws and Their Affects

2.1.1 Pathway of Chinese Healthcare System

From 1980s to 2009, China government has tried several attempts for healthcare reform, from

planned economy to market economy, and new healthcare service models and so on. However, in

2005, Chinese MoH had to admit that the healthcare reform in the past failed to achieve what

was expected. And under this condition, in 2009, the government started a new healthcare

reform attempt.

2.1.2 New Healthcare Reform 2009-2011

In 2009, the Chinese State Council formally announced a new healthcare reform plan named

‘Implementation Plan for Deepening Pharmaceutical and Health System Reform 2009-2011. The

government planned to invest US$ 123 billion (RMB 850 billion) from 2009 to 2011. From the

government perspective, it mainly aims to improve the affordability and accessibility of

healthcare service for patients, to solve the widely criticized problems: ‘expensive medical bills

and difficult access to quality medical services’.

The New Healthcare Reform would mainly focus on the following issues:


Basic Level Healthcare Services

In China, people preferred to visit those renowned hospitals (often Tier 3-A), as they believe they

could get the best and reliable treatment. Therefore, it is uncommon to find that those renowned

hospitals often are overloaded, while other hospitals may have few patients. And it is one of the

main reasons for difficulty to get access to medical services; patients have to wait days, weeks

before get treatment as they rush to the same hospitals.

The New Healthcare Reform aims to direct the patients from those renowned hospitals to

primary care. One of the solutions is to enhance the quality of primary cares, develop the

primary healthcare service network, to build more community health center and health station,

primary care hospitals.

Basic Healthcare Insurance System

There are mainly three types of basic medical insurance in China named, New Rural Cooperative

Medical Scheme (NRCMS), Basic Medical Insurance for Urban Employees (BMIUE) and Basic

Medical Insurance for Urban Residents (BMIUR).

Traditionally in China, the major basic healthcare insurance is the BMIUE, which is jointly paid by

the employees and employers. Despite those employees, there is relatively few basic medical

insurance for the people living in rural area and unemployed, children, aged people. For those

people, without reimbursement, the healthcare fees are relatively high. Therefore, the

government later provided two new basic healthcare insurance to cover those people: the

NRCMS and BMIUR.

The New Healthcare Reform aims to extend the coverage of NRCMS (targets at people living in

rural areas) and BMIUR (targets at children, aged people, and unemployed in urban areas) to

increase the affordability of the targeted population.

Also by setting higher reimbursement rate in primary care than in Tier 2, Tier 3 hospitals, the

insurance system helps encourage patients getting treatment from primary cares.

Essential Drug System


Traditionally in China, after the drug is made by manufacturers and before it is sold to patients,

there are some distributors and hospitals between them. In order to gain margin from selling

drugs, they have to raise the price for drugs. And this is one of the reasons causing the expensive

fees for medical services in China.

The Essential Drug System (EDS) aims to lower the price by reducing the middleman, and setting

ceiling price for drugs in the Essential Drug Lists which update every 3 years. According to the EDS,

the provincial government is responsible for holding public bidding, purchasing, and delivering

the drugs to hospitals directly. This could lower the drug price as it reduces the middleman.

In the EDS, the government tried to extend the ‘zero mark up’ for drug sales in basic level

hospitals. The ‘zero mark up’ means that the basic level hospitals would sell certain medicine

with no margins to patients, and the lost margin would be reimbursed by the government. The

drugs in the ‘zero mark up’ list vary in different regions. According to our research, the

government has tried some pilots in certain cities’ community hospitals. Take Beijing for instance;

in 2010 there are more than 500 drugs which has been implemented with ‘zero mark up’ in

Beijing community hospitals.

Equitable Public Health Service & Public Hospital Reform

In the New Healthcare Reform, it plans to reduce the gap of public healthcare services in urban

and rural areas, and implement the public hospital reform.

For equitability, it aims to provide equal access of public health services in rural and

urban areas.

For hospital reform, it aims to separate the supervision and operation of hospitals.

In the 11th FYP, the New Healthcare Reform has the major impact on the China healthcare market,

partly because that the major hospitals are government managed. The government polices have

direct impact on hospitals. The following section would introduce the China hospitals system

briefly.

In China, the healthcare services are mainly based on government managed public hospitals.

Currently in China, 90% of total hospitals are public hospitals which are under the MoH,

provincial health bureau, or municipal health bureau, the rest are private hospitals


The government encourages the development of private hospitals and clinics. However, the

process is very slow.

Public hospitals are further divided into 3 different tiers by China Ministry of Health (MoH) with

tier 1 being the lowest tier and tier 3 as the top tier in terms of facility, level of service provided

and type of hospital administration. Military and teaching hospitals are usually tier 3 hospitals,

and corporate hospitals are usually tier 2 hospitals.

Considering the current healthcare market situation and the polices in China, there are mainly

those following achievement as we observed in the 11th FYP in healthcare.

2.2 Major Achievement of the 11th FYP

Increased Basic Medical Insurance System

The coverage of basic medical insurance has been extended to cover the majority of the civilians

in China. According to the MoH, in the end of 2010, the population covered by the New Rural

Cooperative Medical Scheme (NRCMS) had reached 835 million with 95% coverage, which means

that NRCMS has become the medical insurance program which covers the biggest population in

the world. According to the Ministry of Human Resources and Social Security of the People's

Republic of China, it is estimated that at the end of 2011, the urban medical insurance (both

Basic Medical Insurance for Urban Employees (BMIUE) and Basic Medical Insurance for Urban

Residents (BMIUR)) will cover 90% of the target population, and the number of people covered

will be 440 million.

The reimbursement rate has been raised to lower the financial burden for patients. The

governments of all levels have been continuously increasing its investment in basic medical

healthcare insurance. Although the reimbursement rate varies in different regions, the

reimbursement rate for getting treatment in primary cares is often as high as 60%-80%.

Construction of Primary Healthcare Service

During the last FYP, the Central Party invested 55.84 billion RMB specific for supporting the

project of construction of nearly 50,000 healthcare organizations. A healthcare networks with

5,500 community health center and 230,000 community healthcare stations have been set up

initially. More than 1100 Tier 3 hospitals in urban areas built partnership with 2139 county

hospitals to support and cooperate with each other, to help training and improving the services in

basic hospitals.

Building of Essential Drug System

Formally started from 2009, The EDS is an ongoing project which aims to provide guidelines for

prescribing, safe and affordable medicines. During the 11th FYP, there are 307 types of drug listed

in the EDL, and the price of all these drugs in the list has been administrated by the government.

The EDL helps lower the price of drugs inside the list. According to Mao Zhang, the party

secretary of MoH, there was an average of 30% decrease of medicine price in regions with EDL.


Summary of 11th FYP in Aging, Healthcare and Wellbeing

In the 11th FYP, the criticized problem as ‘expensive medical bills and difficult access to quality

medical services’ for citizens has been mitigated in a certain extent.

Pharmaceutical Market

The China pharmaceutical market has experienced a rapid growth in the 11th FYP. According to

our research, the total China Pharmaceutical market size was RMB 358.68 billion in 2009 which

doubled that of RMB 177.21 in 2006.

Currently in China, the competition in China pharmaceutical market is relatively fierce, as many

multinational pharmaceutical giants and numerous local companies in this market. There are

both original drugs and generic drugs in the market, and normally the price for original drugs is

much higher than generic drugs’. Original drugs are mainly belongs to the Multi-national

pharmaceutical companies, while domestic companies mainly focus on the generic drugs. It’s

reported that 97% of the drugs from domestic companies are generic drugs. Compared with

foreign pharmaceutical companies’ billions of dollars investment in R&D, few local companies

could afford such expenditures, the R&D ability for China pharmaceutical companies is relatively

poor.

Medical Device Market

As the 3rd Largest medical device market in the world, China market size was RMB 162 billion in

2009, growing at a steady double –digital annual growth rate. However, the China medical device

market counts only around 5% of the world medical device market. There is still great potential

for the medical device market in the future.

The high-end medical device market is mainly dominated by foreign enterprises in China. The

majority of the domestic companies still remain in low-technology section. The major advantage

for domestic medical device is the relatively cheaper price, compared with foreign companies’

products. However, in recent years, domestic companies like Mindray (2006, as the first China

medical device company IPO in New York,), Yuye, have enjoyed a rapid growth in this market,

they have suggests strong ability in R&D.

The healthcare market for primary care has experienced a high speed growth. The construction

of community healthcare center, primary cares in rural and western regions helps build a

healthcare network for easy accessibility for patients. And following by the construction of

primary cares, there is an increasing need for both medical device, and drugs in those primary

cares. Due to the polices which aims to direct the patients from Tier 3-A hospitals to primary

cares, the patients has increased noticeably for primary cares.

Foreign companies have already pay attention to the primary care market in the 11th FYP. In the

following session, we will introduce their performance in these areas.


2.3 The Performance of Major Foreign Enterprise in These Areas

2.3.1 Foreign Enterprise have been Preparing for Entering Primary Care Market in

China

During the 11th FYP, due to development of primary cares, foreign companies pay more attention

on the basic level healthcare services in order to extend their market shares. They have tried

either to localize its products for primary cares, or work with government to increase its

awareness, or to build sales channel in level 3, level 4 cities and even rural places. Take the

following companies for instance:

1. In May, 2008 Bayer signed a cooperation with the MoH, officially launched a 3 years project

named ‘China' community health promotion’. It aims to raise the awareness and reliability of

community health services, improve community health workers’ skills, and promote

standardization of the construction of community health services, through promoting,

training and technical development.

2. In 2008, GE signed a contract with Shinva Medical Instrument CO., LTD. found a joint venture

mainly aims to provide medical image products targeting at rural and community hospitals.

3. In 2009, Carestream chose to cooperate with the MoH and Ningxia Hui Autonomous

Regional Government for ‘Pilot Program for Rural Medical Informatization’ in which

Carestream will provide digital remote imaging solutions for basic level hospitals in Ningxia

region to help the pilot projects.

2.3.2 Foreign Enterprises have Located Part of the R&D in China

Although the main body of the R&D for foreign enterprises are located in American and European,

during the 11th FYP, foreign enterprises have started to put parts of the R&D in China. According

to the data from China Association of Enterprises with Foreign Investment R&D-board

Pharmaceutical Association Committee (RDPAC), during the 11th FYP, its 37 members invested

over 20 billion RMB totally in China, with almost 1/3 in research.

1. In November 2006, Swiss Novartis announced a 100 million US dollars plan to set up a

BioMedical research center in Shanghai, which would be the biggest pharmaceutical

research center at that time.

2. In 2009, Novartis further announced a 1 billion US dollars plan for further investment in

China.

3. In October 2008, Eli Lilly and Company set up its global research center Beijing branch.

a) In later November, Lilly signed a contract with Hutchison China MediTech for research

on new targeted anti-cancer medicine.

4. In October 2008, Sanofi-Aventis launched its research center in Beijing, which was the fourth

largest research center for Sanofi globally.

5. In April 2009, Johnson & Johnson announced that it would build a new research center as

the headquarters of research center in Asia region.


Partly Due to the relatively cheap labor and price in China, foreign enterprises are trying to

locate some functions of the R&D in China which could help them lower the costs for R&D

globally.


3. The 12th FYP for Aging, Healthcare and Wellbeing

3.1 Latest Policies, Regulations, Laws for Aging, Healthcare and Wellbeing

The 12th FYP generally follows the steps of the 11th FYP in aging, healthcare and wellbeing, to

continue the unfinished job in the 11th FYP. According to Mao Zhang, the party secretary of MoH,

the ultimate target of MoH in 12th FYP would be summarized in one sentence: ‘To build a reliable

medical healthcare system which cover citizen from both urban and rural areas’ in the coming

five years. And this is exactly what the 11th FYP tried to achieve.

In the 12th FYP, the government would still take further step implementing the New Healthcare

Reform (2009-2011), and there are mainly four goals for the coming five years:

1. Improving the quality of medical service.

a) This theme mainly covers strengthening regional healthcare services distribution, public

healthcare service system construction, and primary cares construction especially in

rural, middle and western regions, taking further steps in public hospital revolution,

encouraging private investments in healthcare services.

2. Perfecting the medical insurance system to lower the finance burden for patients.

a) Improving the coverage and reimbursement rate of medical insurance, and closer the

gap between urban and rural medical insurance.

3. Preventing major diseases, and control the risk factors for health

4. Strength the government’s administration on public health to ensure civilians’ health and

safety.

There are relatively few new directions in the latest policies, regulation, laws for aging, healthcare

and wellbeing in the 12th FYP. The New Healthcare Reform will still be one of the major focuses

for the government in the coming five years.

3.2 The 12th FYP Succeed the Core of 11th FYP in Aging, Healthcare and Wellbeing

For Healthcare and Wellbeing, the 12th FYP will continue the New Healthcare Reform which

started from the 11th FYP, and it will still be one of the focuses for the government of all levels in

the next five years.

To taking further step in healthcare reform which is a continuous and ongoing project.

To continuously improve the quality of healthcare services

To build and perfect a medical insurance system which covers citizens from both

urban and rural regions.

To continuously extend the coverage of basic medical insurance

To continuously raise the reimbursement rate for patients

To continuously invest heavily on the construction of basic level hospital services,

and this includes community healthcare center, county/town hospitals, and village

healthcare station.


To continuously increase the governments’ investment in public health and ensure

the public health safety.

3.3 Forecast of the Potential Results by Those Policies, Regulations and Laws

Social Perspective

An Improved Basic Level Hospital Network

Government would invest heavily for the constuction of primary cares in communities, western

and rural areas, to build healthcare networks. With the development of healthcare networks, it

would be easier for citizens to get access to healthcare services.

A Better Medical Insurance System

According to the 12th FYP, the mediacl insurance coverage will be further extended, planed to

cover all citizen in 2020. Government would invest more in medical insurance for citizens to raise

the reimbursement rate for patients.

A Sound Essential Drug List

The Essential Drug List would be further improved to better serve its orginal purpose in the 12th

FYP. The ‘zero mark up’ would be extended to more regions to lower the medicine price. The

public bidding, purchasing for drugs by government could be further standardlized.

Market Perspective

From the market perspective, in the 12th FYP, the latest polices, regulations and laws with

ongoing healthcare reform could continuously boost the healthcare market with rapid growth.

According to our secondary research, while the global pharmaceutical market growth of 5-7

percent in 2011, China is estimated to have a growth of 25-27 percent in the coming years.

The increasing government investment in ‘improving the supply and demand side will benefit the

pharmaceutical market significantly by increasing the drug consumption’. Of the $123 billion

provided by the New Healthcare Reform, it has been reported that more than $10 billion

allocated solely for medical device purchases by hospitals and clinics in China. It is estimated that

the China medical device market could also have a growth in the coming years at a CAGR of

around 20%.

Healthcare market will remain one of the hot spots for investment in coming years. According

to our research, there are some local pharmaceutical and medical device companies either trying

or planning to initiate public offerings to get financing for further expansion in this market. Many

foreign healthcare companies would strengthen their investment in China for market expansion

in the 12th FYP.


4. New Business Opportunities for Foreign Enterprise in Aging, Healthcare

and Wellbeing for the Next 5 Years

4.1 Pharmaceutical Perspective

4.1.1 High-end market

It is estimated that the high-end pharmaceutical market, especially anti-cancer drugs would

experience an increment in the coming years.

1. In recent years, it is observed that the incident rate of caners has risen. With the

increasing patient pool for cancers, there will be an increasing need for anti-cancer

drugs.

a) According to our research, there are around 400,000 newly diagnosed lung

cancer patients every year, and this number will increase to 1 million in 2025,

and China will become the country with the largest lung cancer patients’

population in the world.

b) Inside anti-cancer drugs, targeted agents for cancers have been a hot spot for

those pharmaceutical giants in recent years. Sales for Glivec from Novartis,

Tarceva from Roche, and Iressa from AstraZeneca all experienced a high speed

growth in China.

2. With the increment of civilians’ disposable income, more and more people can afford

the high price of high-end pharmaceutical products.

4.1.2 Low-end market

1. The construction of basic level healthcare services networks in primary cares could help

improve the accessibility of healthcare services.

2. The development of the basic medical insurance system will mainly focus on the following

perspectives:

A) The extension of the coverage of basic medical insurance.

B) The increasing of reimbursement rate for patients.

•The increasing incident rate of cancers.

•Increasing disposable income for civilians

•Pharmaceutical companies invest heavily in targeted agents

High-end Pharmaceutical Market Drivers


It is not uncommon for people, especially with chronic diseases, chose to not visit hospitals for

treatment due to their financial difficulty in rural and western areas. With the development these

two perspectives, it is reasonable to predict that this could raise the affordability for patients, and

there are more willing to visit hospitals to get treatment.

Therefore, it is estimated that there will be an increasing need for low-end medicines in primary

cares, especially for medicine for chronic diseases, such as hypertension, diabetes.

4.2 Medical Device Perspective

During the last five years, in order to optimize the regional healthcare resource distribution, the

MoH announced several police mainly aims to strengthen the management of medical device

purchasing for hospitals.

1. The centralized procurement is organized by government from national, provincial and

municipal levels, while the provincial government acts the major organizer to implement the

procurement. And all non-profit healthcare organizations hold by government, state-owned

enterprise should participate in this centralized procurement.

2. According to these policies, hospitals who want to purchase large medical devices which

price is over 5 million RMB (such as PET-CT, γ Knife, MM50, PTS, CT, MRI, DSA, SPECT) has to

been approved by regulators before purchasing.

As a consequence of these policies, those medical manufacturers offer a relatively new approach

for selling large medical devices which are normally expensive to buy. According to Frost &

Sullivan previous research, there are many manufacturers chose to invest the medical device in

the hospitals which means the hospitals would get the device for free, and the hospitals would

either need to purchase the suppliers from the specific manufacturers in order to use the device,

or share the benefits by using these devices.

a) Take the Gamma Knife for instance, the manufacturers could build a Gamma Knife center

in a certain region, and sign contracts with hospitals inside this region which allow those

hospitals to use the Gamma Knife for treatment. And the incomes for treatment would be

share between the hospitals and the manufacturers.

b) In recent years, there is an increasing bargain power for hospitals in this cooperating

approach, as more and more companies imitate this business approach which leads to

competition between manufacturers. It may be a future trend for large medical device

manufacturers to cooperate with hospitals in this approach.

Foreign companies for large medical device may consider this investing approach for

cooperating with the hospitals.

4.3 Market Focus for Foreign Enterprises

Currently in China, due to the imbalance distribution of healthcare resource, the minority Tier 3

hospitals in cities are normally well equipped with lots of patients, while the majority hospitals in

communities, rural and western regions are relatively poorly equipped with relatively less


patients. This imbalance leads to a relatively big market in these hospitals in cities. And it is also

the reason why those foreign pharmaceutical companies and large medical device manufacturers

mainly focus on the Tier 3 hospitals in cities currently.

The China New Healthcare Reform is trying to transform the current imbalance, however, ‘Rome

wasn’t built in a day’, it takes time for the government to implement those polices, the reform

plan won’t fundamentally eliminate this imbalance overnight or reshape the market landscape.

Although, the potential market for the communities, rural and western hospitals is great, for

foreign enterprise, it is suggested that the tier 3 hospitals in cities are still the market focus in

the coming 5 years.


Reference

The sources of the secondary data in this report are mainly the following

organizations (sorted alphabetically):

1. Chinese State Council

2. Frost & Sullivan Database

3. Frost & Sullivan Secondary Research

4. International Monetary Fund Outlook Database

5. Ministry of Health of China

6. National Bureau of Statistics of China

7. Organization for Economic Co-operation and Development

8. United Nation Database

9. U.S. Census Bureau

10. World Health Organization Database


UPDATE

China Age Distribution

The people of working age increased in the past decade in China. According to the China

Census 2010, in 2010, the total population in China is 1.34 billion, with almost 0.92 billion people

are between 15-60 years old, compared with 0.85 billion in 2000. However, the percentage of

population aged 0-14 decreased from 22.90% to 16.60%, which means that in the future there

will not be enough labor to fill the gap when the people currently in working age get older. The

percentage of people at working age would decrease in the future.

The percentage of population facing retirement in the coming future (aged 55-64) is rising,

according to the forecast; the percentage of this population could reach 12% in 2020, compared

with 10% in 2010, and almost hit 15% in 2025. While China is still a developing country, its aging

degree enters into the ranks of developed countries. The acceleration of aging leaves big pressure

on both the economy and the society. Under this situation, the total demand for aging people

services is expected to rise to a higher level.

China Pension for Retired People

According to the China laws, normally the retire age for male is 60, for female employee is 50,

female cadre is 55. The actual retire age varies in different regions and companies; and we

defined the population facing retirement as aged 55-64.

According to our research, China has a relatively low pension level. Since January, 2011,

enterprises increased their pension by RMB 140 per capita to reach RMB 1340 per capita.

Although the pension for retried people in developed provinces and cities is relatively high, the

national average pension is no more than RMB1400. For some reasons, pensions for employees

of the government and public institutions are 2-3 times more than those of employees of

enterprises.

Normally in China, the pension for retired people is related with the current average salary in

specific region where the retired person lived, the formula is relatively complicated. In 2011,

Shanghai introduced the indexation of monthly average contribution wage in accordance with

the guidance of completing the basic pension payments of employees of enterprises in towns.

Then, the pension level is connected to the contribution wage of the insured employees, which

further embodies the principle-“paying more and getting more”-of the endowment insurance.


Senior Centers and Services in China in 11th FYP

On 29 January, 2008, China National Committee on Aging, National Development and Reform

Commission, together with 8 other departments, published the ‘Opinions on Comprehensively

Advancing the Home-based Care’. According to Opinions, all communities in China should build

various and extensively covering home-based service network during the 11th FYP. On January 12,

2009, Beijing Civil Affairs Bureau together with other departments issued Opinions on

Accelerating the Development of Senior Centers. It was the first one to specify the home-based

care service. As was stated, multi-channel and various investment mechanisms would be set up

with the support of policies to advance the socialized and industrialized development of

home-based care service.

In cities like Beijing and Shanghai, there is one aged person out of five persons. And the current

situation is that the occupancy rate of senior centers is low while many aged people can’t find a

place to live out their life. According to our secondary research that 40 percent of the beds in

large cities like Beijing and Shanghai are in urban area while the other 60 percent in suburbs. As a

result, demand exceeds supply in urban areas while there are 40 percent beds are vacant in

suburbs. In urban areas, there are public welfare houses, gerocomiums, and private gerocomiums

with tens to hundreds beds. But the housing conditions and the quality of life are quite bad. Since

the public gerocomiums receive subsidy from the governments, their charge is relatively low

which leads to overcrowded. In contrast, the upscale gerocomiums’s occupancy rate is relatively

low. The demand for gerocomiums, especially those with good quality and reasonable price, is

relatively strong in urban areas.

China Gender Imbalance

According to the China Census 2010, the gender imbalance in China has been mitigated in

certain extent. The number of male: female in 2010 is 105.20: 100, which experienced a bit

decrease in the past decade, compared with 106.30:100 in 2000. The gender imbalance in China

are mainly resulted by many reasons, such as the conventional views that boys are better than

girls, the undeveloped economy in certain regions, the ongoing family planning program, and

others.

According to the research by the China census 2010, the gender imbalance varies in different

regions, in certain regions normally with undeveloped economy, the problem get more serious.

There is also an obvious difference between rural and urban areas, normally in rural area; the

gender imbalance is much more serious.

Due to the gender imbalance, there are mainly the following consequences:

1. it will squeeze the marriage gender, and lead to difficulties in matching, as there are more boys

than girls, boys may find it difficult to find a girl to marry.

2. The imbalance would leads to barriers for producing the next generation due to difficulty in

getting married. And finally this would leads to decrease in the total population.

3. This imbalance would have impacts on the society, it may could leads to increase in sexual

crime.

4. The excess male labors could increase the competition in employment.


China Digitizing Information in Healthcare in 12th FYP (1)

In the 12th FYP, the China government has identified the healthcare informationization as one

of the key objectives for development.

It aims to construct the medical information system based on the electronic medical records,

and regional health information services platform based on citizen’s health documents.

It also encourages the infrastructure and information construction for county hospitals, and

development of information construction in primary cares including rural medical services.

Hospital Information System

In recent years, hospitals in China are taking step in setting up Hospital Information System (HIS).

According to our previous research, more than 90% of hospitals in Beijing has their own HIS,

primary targeted at financial, administrative, and management applications and are usually

highly customized.

However, only around 20-30% hospitals stepped further for Clinical Information Systems (CIS). CIS

provides clinical solutions in the various departments of a hospital. These solutions are very

specific to the departments and are customized to meet their unique needs. However, many of

the clinical solutions are part of an integrated hospital-wide solution.

Regional Information System

Regional Health information Network has become one of the focuses of hospital information

construction in recent years. RHIN is relatively a new idea compared with HIS, which aims at

building a platform to integrate the HIS between different hospitals in the same region.

It aims to share and exchange information between hospitals (such as community hospitals and

level 3 hospitals), to help solve the problem of difficulty in getting medical treatments and

improve efficiency. There are currently many pilots regions with ongoing integration of RHIN,

such as Shanghai Changning district, Minghang district.

Smart Card

The MoH has already listed the promoting of IC card into the plan of healthcare

informationization. In the plan, the MoH encourages the usage of IC card and Radio Frequency

Identification (RFID) technology in areas of health care, public health, medicine, blood and so on.

MoH would work with the banks and Ministry of Human Resource and Social Security to conduct

research on the general mode and standard of using medical smart cards. Those cards could

contain the information of personal ID, social security, medical insurance, healthcare and

financial services.

Hand Hold Devices

In China, there are some ideas of integrated portable medical device, which mainly relies on the

major breakthrough in smart phone to help achieve portal medical devices. And this still remain

in the idea level without available products.


There may be market opportunities for hand hold device which has different probes for

monitoring temperature, blood pressure, and blood glucose.

E-health

E-Health is not only a technology or service, but also a living philosophy and a new way to live a

health life. E-Health comprehensively applies information and communication technology to

medical and health care, especially to precaution, diagnosis, treatment, follow-up, recovery and

health promotion. It is an inter-discipline subject of IT, medical science, public hygiene,

management and sociology. And it aims at integrating and utilizing the medical and health

resources to improve the public health.

So far there have been pilot cities, such as Foshan City, Guangdong Province. The first phase of

regional health information platform in Foshan City will be completed in two years. When it is

completed, citizens will get a health care card and the One-Card policy will be realized, which

helps to build the database of citizens’ health records. Furthermore, Information Systems of

Foshan Citizen E-Health Service, Foshan Digitalized Hospital, and Foshan Public Hygiene will be

launched. So is the Community Health Information System. And the infrastructure of the health

information network will be completed, too.

Possible Business Opportunities in the 12th FYP

For aging services

The health care industry in China is at the “sleeping” phase. Take senior centers as an example.

Till the end of 2009, there are 38,060 various welfare institutions for the elderly and 2,662,000

beds in the country. When it is divided by the aged population, there are only 23.6 beds available

per 1000 aged people. Contrarily, 50 to 70 beds are available in developed countries. As for the

foreign investment, Japanese nursing industry is entering into the Chinese market. They target at

the rich, set up senior centers and nursing centers (nursing homes), train nursing staff and output

Japan-like nursing services.

There may be business opportunity for the foreign enterprises in providing elderly services. Most

of Chinese-run houses for the elderly just meet the elder’s needs of living places and are unable

to meet the elder’s higher level of demand. So a complete health care system should cover these

three systems- life care service, medical service and long-term nursing service-to meet the aged

people’s (who are in different physical conditions) needs of all aspects.

Medical Services Perspective

Hospitals

According to the MoH, more than 80% of the hospitals are dominated by the governmental,

non-profit public hospitals. But, the government actually encourages private healthcare services.

There may be potential opportunities for foreign enterprise in China medical services, although

the foreign capital has been limited to set up a joint venture with no more than 70% of the

capital for entering this market. Currently there are over 30 joint-venture clinics and medical


centers running mainly located in Level1 cities like Beijing, Shanghai and Guangzhou.

Foreign healthcare services, such as United Family Hospitals, mainly target at foreigner, people

with high incomes, as they provide customized services with advanced devices. For foreign

enterprise, one of the major problems is to recruit staff, competing with the public hospitals for

professionals.

Physical Checkup

Currently in China, physical checkup is dominated by physical department of major public

hospitals. However, with the rising disposable incomes and concern of health, the private

checkup centers has experienced a booming the 11th FYP, and would expect to maintain a high

speed growth in the 12th FYP.

Although the China private physical checkup market is dominated by domestic companies,

foreign physical checkup centers have their own segmented market. Foreign physical checkup

center, like MJ health from Taiwan (which claimed as one of three biggest physical checkup

companies) has two branches in China located in Beijing and Shanghai, mainly target at high-end

market, offering customized and high quality healthcare checkup for its members.

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