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Go East, Young Man?

by Brendon Nafziger, DOTmed News Associate Editor | March 08, 2010
Money Health
This report originally appeared in the February 2010 issue of DOTmed Business News

Is China's mega 850-billion-yuan health care stimulus plan, coupled with a massive population beginning to succumb to Western diseases, a miracle for U.S. medical device makers, or a mirage?

In the financially turbulent closing months of 2008, China launched a multi-trillion-yuan national stimulus plan to protect the country's economy from the global recession. The package calls for a whopping 850 billion yuan (as this went to press, about $124 billion) to build up China's medical infrastructure, especially its long-neglected health system in the countryside, where the bulk of the population lives.

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The ambitious plan aims to provide insurance coverage to 90 percent of the country's estimated 1.3 billion people by 2011, and then everyone by 2020. And as the now-insured population will need new health care centers, the stimulus package will pay for the construction of some 30,000-odd clinics and 2,000 county-level hospitals.

Predicted growth for the medical device market is, naturally, huge. By 2015, health care spending in China is expected to rival that of many Western countries, at 10 percent of GDP, according to Harry Glorikian, a partner at Scientia Advisors, who was able to share some findings from his report on China, due in late January.

Although massive outlays of cash mean there's a great market for device makers, picking it up won't be simple.

"China's a very complicated country, but of course in complication comes opportunity," Glorikian says. If it were easy, everybody would be doing it.

Shaking down savings, driving up demand

First, the grand goal of the stimulus plan is not to fill pockets of device companies, of course; it's to break up people's piggy banks. Only around 11 percent of Chinese have Western-style insurance coverage, according to Glorikian, and most sock away funds at great rates to pay for health care later in life. Chinese officials want to discourage this too-high savings rate and instead drum up consumption. Now that the government will take care of health care, the reasoning goes, people can free up cash for a new car or TV, to keep the economy purring.

"If every single older Chinese family starts to spend the money they save for their health care it will dramatically stimulate internal spending," Glorikian says.

But don't think the demand is just government-driven. As the Chinese get richer and more enter the middle class, more want top-flight medical treatments.

"You've got to remember that you've got a population now that's making more money. They're not at our income level, but they're making more than 10 years ago. These people want care, so they'll spend money to get care," says Glorikian.