North Head’s Robert Magyar and Jennifer Pearl examine the challenges and opportunities provided by China’s burgeoning healthcare sector and the complex environment within which it operates
Improving the quality of healthcare and deepening ongoing healthcare reform remain top priorities for the Chinese government. This was clearly stated during the recent annual full session of China’s National People’s Congress. The government’s active shaping of and participation in the sector can complicate the work of corporations that are manufacturing drugs and medical devices and providing healthcare services.
However, dynamic growth in the healthcare market also provides a broad range of opportunities to those who are attentive and attuned to market and policy trends. In this article, we summarize the most recent developments affecting the healthcare sector and give guidance on how to build them into corporate strategies to enhance business opportunities.
Economic, demographic, and health challenges shape China’s healthcare landscape
China’s economy is slowing, but the healthcare industry is growing due to rising incomes, national demographic trends and health challenges. Overall economic growth fell to 6.7% in 2016, the slowest in 26 years. In contrast, the healthcare industry’s growth rate was 10.3% YOY in 2016H1.
Factors fueling healthcare growth and demand include urbanization, an aging population, non-communicable diseases, and increasing government expenditures. Healthcare challenges accompanying these trends include increased pressure on Basic Medical Insurance (BMI) funds, overcrowded public hospitals, shortage of medical services and personnel, and healthcare quality issues.
China’s national plans and healthcare reform policies heavily impact the market
The government is working to address these challenges through healthcare reform aimed at controlling medical expenditures and improving healthcare quality. Innovation and healthcare system development are government priorities, as demonstrated in China’s annual legislative meetings, the 13th Five-Year Plan, and Healthy China initiative.
In August 2016, President Xi Jinping named health as a strategic national priority, calling to develop the healthcare system and ensure food and drug safety. This advanced healthcare reforms that first began in 2009. Major policies leading up to and following the speech have aimed to improve health and increase the quality and coverage of healthcare services in China.
Healthcare was also amply covered at China’s March 2017 Two Sessions, which are the annual meetings of the National People’s Congress (NPC) and Chinese People’s Political Consultative Conference (CPPCC). This year’s NPC focused on further developing existing policy to deepen healthcare reform and improve the quality of China’s healthcare system. Key healthcare takeaways from the NPC are:
- Healthy China 2030 will be the guiding theme for healthcare reform;
- Government expenditures on healthcare will continue to increase. China will invest RMB 1.4 trillion (USD 200 billion) in healthcare in 2017, up 6% from 2016;
- China will advance reform by establishing five basic healthcare systems, including a tiered medical system, modern hospital management system, universal health coverage system, drug provision guarantee system, and a comprehensive supervision system.
Healthy China, first introduced in 2008, has become the umbrella for all of China’s healthcare reforms. The Healthy China 2030 plan was released in October 2016 to guide China’s healthcare development for the next 15 years.
Other key policy documents also give great importance to the development of healthcare industry: the 13FYP includes healthcare in key national innovation strategies; Made in China 2025 aims to upgrade and automate China’s manufacturing to boost innovation, quality, and labor productivity, with biomedicine as one of 10 focus sectors; and the Internet Plus initiative aims to leverage networked technologies to integrate and upgrade the service and manufacturing sectors, including healthcare.
China is advancing other policies that will impact the healthcare industry
During the 2017 Two Sessions, China’s leadership also outlined approaches to fiscal, monetary, foreign investment, and science and technology innovation policies that will affect profits and opportunities for the healthcare industry.
Given the slowing economy, government growth expectations now aim for 6.5% growth in 2017. More fiscal outlays will be directed to tax cuts and fee reductions for businesses. Leaders signaled continuation of making the RMB exchange rate “more market-determined” and the Chinese currency will likely continue to lose value against the USD in 2017. Meanwhile, China has promised to improve China’s foreign investment environment, and a recent State Council policy expands market access and allows local governments to introduce investment incentives.
Premier Li Keqiang’s annual government work report called for accelerating R&D and commercialization of strategic industries such as biopharmaceuticals. China will develop industrial clusters in these fields and the government will establish a National Strategic Industry Development fund to promote research and commercialization of these and other technologies. The State Administration for Industry and Commerce (SAIC) also announced some new measures to protect IPR.
There are opportunities for healthcare companies in China, if they can navigate the economic and healthcare reform policies affecting the market.
Healthcare shows opportunity in China, but the government plays the most important role in the industry. Therefore, government relations and positioning with stakeholders can heavily impact business outcomes. Companies can only successfully navigate the complexities of this market by developing robust policy monitoring, government relations, stakeholder engagement, and strategic communications that are aligned with business development strategies.
Most importantly, companies need to prove their value to the government. They may do so by aligning their business objectives with the 13th Five-Year Plan and Healthy China 2030, to improve the wellbeing of Chinese citizens.
Companies can position themselves as partners to the government by supporting innovation and by creating platforms for engagement with government and potential business partners.
This can include partnering with domestic firms to advance R&D and investing in R&D and innovation centers in Beijing and Shanghai. A recent example of public-private cooperation to create a sustainable and stable environment for innovation was the March 2017 International Pharmaceutical Innovation Forum (IPIF 2017), which was initiated by industry association RDPAC (R&D-based Pharmaceutical Association Committee) and hosted together with the Nanjing Municipal Government and the Industrial Culture Development Center (ICDC) under the Ministry of Industry and Information Technology (MIIT).[i] IPIF 2017 led to a significant consensus by 10 international and domestic industry associations on accelerating China’s integration into the global innovation system. This was reflected in a shared declaration and the launch of the Coalition for Pharmaceutical Innovation, a strategic platform to maintain regular communications with government and industry stakeholders.
Healthcare companies can also help China to improve healthcare quality and patients’ access to care. They may work to advance healthcare professionals’ training, while sharing expertise on innovative therapies and treatment safety. By supporting the development of supplemental insurance, companies may also help advance patient access to care.
Overall, China’s healthcare reforms underscore the importance of a robust public affairs program and the need for regular communications with government stakeholders, as well as an in-depth understanding of government objectives. Opportunities abound, but only the well prepared will manage to benefit from them.[ii]
[i] North Head has actively supported RDPAC in the preparation and execution of IPIF 2017.
[ii] Policy and data analysis for this article was done by North Head’s in-house research team. If you have any questions regarding the information used in this article, please don’t hesitate to contact the authors at email@example.com and firstname.lastname@example.org