|China $125 Billion Health Spending Spurs GE, Philips Sales Boon|
|Monday, 01 March 2010 23:59|
Tags national health insurance system - GE Healthcare China - Philips Electronics - MRN - Migrant Resource Network - China
Wang Huijuan and her husband braved an overnight train ride to Beijing from Anhui province to see a doctor about her ailing intestines. The clinic back home could only take her temperature and blood pressure.
“They don’t have the equipment or expertise to treat more serious illnesses,” said Wang, who shivered in the cold as she waited in vain last week to see a physician at Beijing Xiehe Hospital. “We’ll come back at 4 a.m. tomorrow.”
The 10,000 yuan ($1,460) in life savings the couple brought to pay their costs may become an expense of the past after the Chinese government spends $125 billion to start a national health insurance system. The benefits will be felt beyond the sick as General Electric Co. and Philips Electronics NV compete to sell imaging equipment and household savings are freed up to buy clothes and cars.
More than 300 million Chinese are without health insurance, the World Bank says, and the remaining 1 billion have only partial coverage. In part to pay for those costs, Chinese save about one-quarter of their income each year and have accumulated as much as $5 trillion, said Stephen Green, chief China economist for Standard Chartered Bank Plc in Shanghai.
Unlocking those savings is key to China’s plan to shift its economic drivers from exports and investment to domestic consumption after the global crisis and a 16 percent export decline in 2009 laid bare the country’s vulnerability to swings in external demand.
“If they want to broaden out the economy they have got to be serious about building the social safety net,” said Stephen Roach, Hong Kong-based Chairman of Morgan Stanley Asia and author of “The Next Asia,” in an interview. “Health care is absolutely critical in accomplishing that.”
The Politburo, China’s top decision-making body, called for that transformation to be sped up this year, the official Xinhua News Agency reported after a meeting of the group chaired by President Hu Jintao. The Feb. 22 meeting discussed the report that Premier Wen Jiabao will deliver March 5 at the National People’s Congress, in which the government will outline policy initiatives for 2010.
More spending also would appease China’s trading partners, which are on the receiving end of a trade surplus that reached $196 billion last year, more than Malaysia’s gross domestic product.
In addition to GE Healthcare China and Philips Healthcare China, the $41 billion being spent to build 31,000 hospitals and equip them with diagnostic and imaging equipment may benefit Chinese companies. Among them: imaging manufacturer Mindray Medical International Ltd. and vaccine maker Sinovac Biotech Ltd.
China’s focus on health care is spurring private deals. Eli Lilly & Co.’s venture-capital arm paid almost $15 million last year for about 15 percent of privately held CITIC Pharmaceutical Ltd., a drug-distribution company.
Fidelity Asian Ventures, the Asia venture-capital unit of Bermuda-based Fidelity International, in 2008 took a stake in Shanghai-based China NovaMed Pharmaceuticals.
Indianapolis-based Eli Lilly sees pharmaceutical distribution opportunities in the interior, where incomes are lower, as well as on the urban east coast, Darren Carroll, the company’s vice-president for new ventures, said in a phone interview.
China’s pharmaceuticals market, including nutritional products and consumer drugs, will more than double to $110 billion by 2015 from $44 billion in 2008, Credit Suisse AG estimated in a November 2009 report.
Vicky Chen, who manages the $80-million closed-end China Healthcare Partnership Fund under the auspices of Martin Currie Investment Ltd., favors equipment and device makers that sell to lower-cost health providers.
She has held Shenzhen-based Mindray, whose shares have risen 113 percent in the past 12 months, since the fund was launched in July 2008.
Chen on February 2 increased her stake in Beijing-based Sinovac, the first company to have its H1N1 vaccine approved in China, during a secondary share sale. Sinovac shares have risen 472 percent in the past 12 months. It and Mindray are listed in New York.
Chen’s fund was up 81.4 percent in the first 11 months of 2009, the most recent period available.
“Government initiatives have lent tremendous support to the sector,” Chen said from Shanghai. “That is really opening up the market for subsectors, especially medical devices and equipment.”
At the depths of the economic crisis, China’s GDP growth rate fell to 6.1 percent in the first quarter of 2009 compared with the year earlier, its lowest level in a decade. Growth rebounded to 8.7 percent for the year, thanks largely to government investment in infrastructure in a $586-billion stimulus plan unveiled in November 2008.
China overtook Germany as the world’s largest exporter of goods last year, shipping $1.2 trillion. Its $143.4-billion trade surplus with the U.S. and $108.5-billion surplus with the European Union, according to China Customs data, have prompted leaders in those countries to press Beijing to allow the yuan to appreciate.
The currency has been kept at about 6.83 to the U.S. dollar since July 2008. Already the world’s third-largest economy, China will overtake Japan this year, the International Monetary Fund says.
Consumer spending accounts for 35 percent of China’s GDP, a percentage that has barely changed since the government made it a priority in the 2006-10 five-year plan. In the U.S., the world’s largest economy, consumption represents about two-thirds of GDP.
“It’s simply fragile to depend on other countries to have demand,” said Standard Chartered China economist Jinny Yan in a telephone interview from Shanghai. “China cannot rely on exports to drive growth.”
While China accounts for 20 percent of the world’s population of 7 billion people, it is responsible for just 3 percent of global consumption. The U.S., with about one-fifth of all global consumer spending, has just 5 percent of the global population, according to 2008 data compiled by Bloomberg.
The Chinese government said in April that it would earmark $125 billion between 2009 and 2012 in additional health-care spending as part of a plan to offer universal basic health-care coverage by 2020. Two-thirds will go toward broadening access to health care for migrant workers, the unemployed and the elderly who aren’t covered by work-related plans.
U.S. Health Care
The initiative comes as President Barack Obama is trying to extend health coverage to 31 million uninsured Americans by requiring them to get insurance and penalizing large employers that don’t offer it.
In China, some progress to help the likes of Wang is under way, thanks to a government program to keep a lid on the cost of drugs. Last August the government placed a cap on reimbursement prices for 307 essential drugs used in rural hospitals and community health-care centers.
In November, it announced another 770 drugs would be included in the price controls. That could let consumer drug costs fall as much as 12 percent, Goldman Sachs Group Inc. analyst Du Wei said in a Dec. 18 report.
China’s leaders have emphasized for years the need to improve the country’s health system as part of a broad goal of addressing the divide between urban and rural income levels.
At the National People’s Congress in Beijing in March 2007, at a time when China’s GDP was growing by almost 12 percent, Premier Wen described the economy as “unbalanced, unsustainable, uncoordinated and unsustainable.”
Iron Rice Bowl
The patchwork health system has its roots in the 1990s as China, embracing a market economy, abandoned what was called the “iron rice bowl” system of guaranteed lifelong jobs and benefits. State hospitals, which still account for about 90 percent of medical services, became self-funding, inducing physicians to overprescribe drugs and tests.
China trails in health-care delivery: Its spending per person was just $121 in 2007, according to the Ministry of Health. The U.S. spent $7,290 and Germany $3,588 in the same year, according to a November 2009 report by the Organization for Economic Cooperation and Development.
That spending has been concentrated in urban areas.
“In the big cities there are state-of-the art hospitals that can handle any complex disease as well as any big hospital in a fully developed country,” said Marcelo Mosci, CEO of GE Healthcare China, which expects its China sales to exceed $1 billion in 2010.
GE Healthcare declined to disclose its 2009 revenue for China, where GE Chief Executive Officer Jeffrey Immelt visited at least twice in the past year, according to publicly available information. Fairfield, Connecticut-based GE doesn’t disclose his schedule.
Shai Dewan, a spokesman for Amsterdam-based Royal Philips Electronics, said in an e-mail that last year China surpassed North America as the biggest market for its most advanced CT scanner, which provides three-dimensional imaging of the brain.
Outside the major urban centers, where 800 million people live, a different picture emerges.
“Village clinics and township health centers are sometimes not very inviting,” John Langenbrunner, the World Bank’s lead economist for health in Beijing said during a phone interview. “You see very elderly people, stroke victims and people who are clearly vulnerable with no money.”
The 10,000 yuan that Wang Huijuan, 47, and her husband, Ding Xuejun, are spending for transport, rent and doctors in Beijing is more than five times what they earn each year from farming corn, wheat and soybeans.
“The local clinic is for minor sicknesses like colds,” Wang said, noting that the doctor in their village of Xidijiu, now 60, began practicing medicine at the age of 14.