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Practical Guide to China’s Healthcare Market

China’s aging population, along with an increasing health awareness, is one of the main factors behind the significant growth of the healthcare industry in the country. Revenue in the healthcare market is projected to reach US$19.07 billion in 2023, with an expected annual growth rate (CAGR 2023-2027) of 8.83%, resulting in a projected market volume of US$26.75 billion by 2027.

According to Statista, the number of users is expected to amount to 442.8 million by 2027, with an average revenue per user (ARPU) of US$59.61.

In 2021, China’s healthcare market generated RMB 10 trillion (approx. US$1.5 trillion) in total revenue, making it the world’s second largest.

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Faced with an aging population, the Chinese government has made the development of the healthcare sector a top priority. Authorities are eager to meet the growing demand for superior healthcare and services, creating interesting opportunities for businesses and investors looking

to provide innovative and high-quality products and services. Companies in different parts of the supply chain, including drug R&D, equipment production, caregiving, and niche areas such as biotech, digital healthcare, MedTech, and AI healthcare, will be able to benefit from numerous opportunities.

However, China’s healthcare market is heavily regulated, with strict compliance requirements and intense competition.

To succeed in this booming sector, foreign investors must understand the evolving needs of Chinese consumers and the pertinent industry policies and regulations.

China’s healthcare sector is among the largest and fastest-growing industries in the country.

Currently, the government is tackling significant challenges, such as an aging population and unequal access to healthcare in various regions.

Addressing these issues will require substantial investment in expanding and improving healthcare resources and capabilities, presenting significant growth potential for both domestic and foreign firms.

The “Healthy China 2030” initiative, one of the government’s main blueprints for developing the healthcare industry, estimates the market to reach a value of RMB 16 trillion (approx. US$2.4 trillion) by 2030.

Pharmaceuticals (including biopharmaceuticals), medical devices and equipment, and healthcare services are the largest segments in the industry.

China's healthcare system is supervised by three separate government departments. The National Health Commission (NHC) is responsible for supervising medical institutions and medical services, the Ministry of Human Resources and Social Security is responsible for formulating the basic healthcare insurance system and policy and for managing healthcare insurance funds, and the National Medical Products Administration (NMPA) oversees drug and medical equipment registration and supervision.

According to the National Medical Products Administration (NMPA), the sale of seven major categories of pharmaceutical products – western medicine, Chinese patent medicine, Chinese medicinal materials, medical equipment, chemical reagents, glass instruments, and others – reached RMB 2.61 trillion (approx. US$404.5 billion) in 2021, a realized compound annual growth rate (CAGR) of 5.4% since 2017.

Research from consulting firm Roland Berger, quoted by the Ministry of Commerce (MOFCOM), states that China represents the second-largest medical devices market in the world after the US. In 2022, the market size reached RMB 958.2 billion (approx. US$142.4 billion), maintaining a seven-year CAGR of 17.5%.

The industry is also becoming increasingly consolidated as it is growing, adds the Berger report. Chinese medical device companies above a designed size (those with a main annual business income of at least RMB 20 million (approx. US$3 million)) accounted for 60% of the industry in 2022. That year, there were also over 163 public medical device companies, almost double the number three years prior.

China’s medical device industry is divided into four main sectors: equipment, such as instruments, utensils, and materials; high-value consumables; low-value consumables; and in-vitro diagnostics. Of these, medical equipment accounted for 60% of the market in 2021, exceeding RMB 500 billion (approx. US$77.5 billion).

A market report from research firm Frost & Sullivan states that China’s medical device industry accounted for around 23.2% of the global market in 2020. Between 2020 and 2025, the industry is expected to grow at a CAGR of 10.9%, and then slow to a CAGR of 6.6% between 2025 and 2030. By 2030, the market is expected to be valued at RMB 1.7 trillion (US$278 billion).

GE HealthCare, Siemens, and Phillips are the main players in the medical device market. However, the market share of foreign companies has gradually fallen from 80% to 70% in the decade leading up to 2019 and is expected to fall further as domestic companies catch up with international competition.

At the end of 2021, there were over one million healthcare institutions in China, 8,013 more than in 2020. Among these, there were 36,570 hospitals, an increase of 1,176 from 2020, of which 11,804 were public and 24,766 were private. There was an average of two hospitals for every 100,000 residents. This number is expected to increase to three for every 100,000 residents in 2022 and 2023, according to Statista.

Meanwhile, revenue from hospitals reached US$580 billion in 2021, an increase of 12.9% from the previous year. Revenue is expected to reach almost US$1 trillion by 2027, growing at a CAGR of 7.57%.

In 2021, people visited hospitals and medical institutions an average of six times, according to China’s National Health Commission (NHC). Most of these visits were made to public hospitals. A total of 3.27 billion visits to public hospitals were registered that year, accounting for around 84.2% of total visits. Meanwhile, there were 610 million visits to private hospitals, around 15.8% of the total.

Over the past two decades, China’s healthcare spending has grown significantly. In 2021, total expenditure reached RMB 7.6 trillion (approx. US$1.2 trillion), and accounted for 6.5% of the annual GDP, a slight decrease from 2020 when total healthcare was 7.1% of GDP.

Of this, government spending decreased slightly by 5.6% year-on-year, while both social and personal expenditure increased by 12% and 5% year-on-year, respectively.

The reason for the decrease in government expenditure and increase in social expenditure could be due in part to the fact that 2021 saw less prevalence of COVID-19, meaning less spending on treatment and prevention as compared to 2020. Meanwhile, the COVID-19 pandemic also increased demand for commercial healthcare as people’s awareness of health issues grew, which could reflect the increase in social spending.

Total spending per capita in 2021 reached RMB 5,248 (approx. US$813.4), up from RMB 5,111 (approx. US$740) in 2020.

China’s healthcare expenditure has a lot of room to grow, as it is still below that of many high-income nations. In South Korea, healthcare expenditure in 2021 accounted for 8.8% of GDP, while Germany and France stood at 12.8% and 12.4%, respectively.

Healthcare expenditure per capita is also significantly below that of high-income countries; Germany’s healthcare expenditure per capita in 2021 was US$7,383, while South Korea’s was US$3,914.

It is expected that the Chinese government increases the healthcare budgets over the next decade as the aging and increasingly wealthy population require more healthcare services and infrastructure.

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Social expenditure will also have a major role in China’s future healthcare market. According to securities firm China Merchants Securities, commercial health insurance will reach between RMB 2 trillion (approx. US$297.2 billion) and RMB 3.4 trillion (approx. 505.2 billion) by 2030. The China Banking and Insurance Regulatory Commission (CBIRC) informed that in 2021, it was around RMB 880.4 billion (approx. US$136.5 billion).

Though the healthcare industry in China has come a long way, except for main urban regions, the country still suffers shortages of medical professionals, institutions, and pharmaceuticals.

In 2021, there were almost 14 million people working in the healthcare industry, an addition of

around 508,000 people from 2020. Of these, 60.6% were working in hospitals, 31.7% in primary healthcare facilities, village clinics, outpatient departments, and 6.9% in specialized public healthcare institutions.

But among the healthcare professionals, 4.3 million were practicing doctors (including assistant doctors) and just over 5 million were registered nurses. There were around 3.04 doctors and 3.56 nurses for every 1,000 people. In 2011, there were 1.8 practicing doctors and 1.7 registered nurses per 1,000 people.

The World Health Organization (WHO) recommends a 2.5 minimum number of medical professionals per 1,000 people.

There is a clear discrepancy in the distribution of doctors and nurses across the country. In 2021, there were 3.7 practicing physicians for every 1,000 people in urban areas, versus just 2.4 in rural areas. For nurses, the difference was even bigger, standing at 4.6 and 2.6, respectively. This is a significant concern especially because smaller cities and towns tend to have older populations, and younger workers leave for the cities.

At the end of 2021, there were over 9.4 million beds across all types of medical institutions. This is almost double the number of 2011. Among them, 78.5% of beds were in hospitals, of which 70.2% were in public hospitals and 29.8% in private ones.

Although China’s medical resources have caught up with international levels, the availability of resources will continue to grow to keep up with demand of the aging population. Other wealthy nations with older populations, such as Japan and the US, are also experiencing shortages of medical resources.

In the past, as part of the local culture, elderly people were looked after by their families in China. However, as family sizes get smaller and couples decide not to have children, this option will not be available for many people.

The 14th Five-Year Plan for the Development of National Aging Undertakings and the Elderly Care Service System, released in 2021, states that there is a need to address various challenges with regard to elderly care services, including the low level of services available in rural areas, the insufficient supply of home and community elderly care and high-quality inclusive services, the shortage of professionals, especially nursing staff, and the lack of scientific and technological innovation and product support in the industry.

In 2022, population aged 65 years or older grew to 14.9%, compared to 9.1% in 2011. In contrast, the fertility rate declined from 11.93 per thousand people to 6.77 per thousand people in 2022.

This situation has far-reaching implications for Chinese society and will be an underlying driver for the growth of China’s healthcare market. Elderly citizens, with extended life expectancy, will require social support and healthcare coverage for longer, putting pressure on the healthcare industry.

But this is not the only factor behind the growing demand for health services. The 14th Five-Year Plan for National Health released by the National Development and Reform Commission (NDRC) in 2022, states that the incidence of chronic disease in younger individuals is rising, as is the need for long-term care.

Growing awareness of mental health and psychological disorders is increasing demand for specialized healthcare services and pharmaceuticals.

Wealthier Chinese citizens are demanding a higher standard of care and are putting more emphasis on improving quality of life. The high-end medical sector is experiencing rapid growth as premium healthcare insurance and services expand beyond high-net-worth individuals to the growing middle class, and from the large coastal urban centers to smaller cities.

The COVID-19 pandemic had a profound effect on China’s healthcare industry. Authorities had to immediately respond to the situation, increasing the country’s critical care capacity from 57,160 ICU beds in 2019 to 138,100 by the end of 2022. In addition, China has also seen growth in primary care facilities such as fever clinics, which serve as a first line of defense and help alleviate hospitals.

Another significant change brought about by the pandemic was the creation of the digital healthcare space, enabling existing platforms to expand their user base and motivating traditional healthcare institutions to offer online services to patients.

Faced with the risk of infection, the general population became aware of the importance of maintaining a healthy lifestyle, leading to increased demand for healthcare services and products, such as air purifiers, vitamins, probiotics, and health insurance covering critical illnesses and accidents.

On the other hand, the COVID-19 crisis required significant investment in infrastructure and frontline workers to prevent the spread of the virus, affecting funding for other areas of the healthcare system.

The healthcare industry in China was forced by the pandemic to face challenges, as well as opportunities to better serve the healthcare needs of its vast population.

The government’s strategy to solve this situation was to change policy. The “Healthy China 2030” initiative, created in 2016, is the government’s core agenda for the development of the healthcare industry and covers strategies for a broad range of objectives from reducing infant mortality rates to improving air pollution.

One of the core goals was for the healthcare service industry to reach a value of RMB 16 trillion (approx. US$2.4 trillion) by 2030. In 2022, the NDRC released the 14th Five-Year Plan for National Health, which builds upon the goals of Healthy China 2030 and sets a variety of health targets for 2025.

Besides this, the Chinese government also released several healthcare initiatives that focus on long-term disease prevention by improving overall health and well-being of the population.

These include the 14th Five-Year Plan Sports Development Plan, which aims to build and expand access to sport and fitness infrastructure to encourage exercise, and the 14th Five-Year Plan for the Protection and Development of Disabled People, which outlines measures for improving the quality of life for disabled people.

Authorities have also promoted investment in this area. The Catalogue of Industries Encouraged for Foreign Investment has continued to increase the number of items related to healthcare, adding new medical fields, such as R&D and production of drugs for rare diseases and special drugs for children, manufacturing of dental implant systems for implant repair in patients with bone loss, manufacturing of hearing aid and cochlear implants, postpartum maternal and child services in maternity centers, and rehabilitation institutes for autistic children, among others.

Foreign-invested medical institutions wishing to enter the Chinese market should refer to the latest Special Administrative Measures (Negative List) for the Access of Foreign Investment, which restricts foreign investment in medical institutions to the form of a Sino-foreign equity joint venture.

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Foreign capital or equity is generally not allowed to exceed 70 per cent in foreign-invested medical institutions. However, service providers from Hong Kong, Macau and Taiwan are permitted to establish wholly owned hospitals in some provinces and municipalities in mainland China.

The Interim Measures for Administration of Sino-Foreign Joint Venture and Contractual Joint Venture Medical Institutions further stipulate the minimum total investment amount, the minimum percentage of Chinese capital or equity and the maximum term of operations of Sino-foreign joint venture medical institutions. In addition, the local Medical Institution Organization Plan should also be complied with when establishing foreign-invested medical institutions.

The Chinese healthcare market presents an abundance of opportunities, and with the right strategies, companies can position themselves to take advantage of the market’s potential and contribute to the country’s healthcare development.

The eCommerce healthcare market is another booming area of the industry, which focuses on the sale of over-the-counter (OTC) pharmaceutical products, which can be purchased without a medical prescription, via a digital channel.

Besides medicines, this market segment also includes nutrition food, dietary supplements as well as medical products for private use (e.g., blood pressure monitors, disinfectants, and dressings), but it excludes the sale of prescription drugs.

The relevance of this sector lies in its ability to offer consumers a vast selection of products at competitive prices, with the added convenience of home delivery. It also enables brands and retailers to reach customers across different geographies and demographics, expanding their customer base and sales potential.

The increasing popularity of online shopping, the rise of direct-to-consumer brands, and the growing emphasis on preventive health and wellness are the driving factors behind the growth of the eCommerce health market in recent years.

Successful eCommerce health businesses include Vitacost, which specializes in vitamins and supplements, and Peloton, which offers fitness equipment and live and on-demand workout classes. Additionally, online marketplaces like Amazon and Walgreens have expanded their health and wellness offerings, providing consumers with more online options.

The eCommerce market for healthcare consists of eight different areas:

Analgesics: over-the-counter natural and synthetic non-opioid analgesics (only in approved low doses) like Paracetamol, Ibuprofen, Aspirin, Diclofenac, and other pain-relieving preparations.

Cold & Cough Remedies: over-the-counter natural and synthetic agents to relieve cough, expectorants and sore throat remedies, cold remedies, and preparations against flu-like infections.

Digestive & Intestinal Remedies: over-the-counter natural and synthetic digestive agents and remedies against gastrointestinal complaints.

Hand Sanitizer: foam, gel or liquid-based sanitizing agent that is applied on hands for removing various disease-causing pathogens.

Incontinence market: adult diapers.

Skin Treatment: natural and synthetic medical skin treatment products like antibacterial preparations, acne treatment agents, antifungals.

Vitamins & Minerals: food supplements like multivitamin preparations, minerals, vitamins, tonics, and cod liver oil.

Other Health Care products: bedpans, first aid items, nutrition food, hearing aids, biometric monitors, and medical tests.

Key players in the market are companies like Amazon, JD, Tmall, Taobao, Walmart and Costco.

The medical and healthcare industries are highly regulated with respect to advertising and promotional activities, including interactions between specific entities and individuals.

In addition to general regulatory requirements, advertisements for medical services, drugs and medical devices are all subject to special requirements including prior review as specified in the Advertising Law and the Anti-Unfair Competition Law.


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