As China’s overall GDP growth rate slows as a result of the country’s transition from an investment-driven growth model, the health care sector remains a bright spot. The sector’s growth potential is obvious from looking at China’s per capita health care expenditures, which is one-third of the global average and massively lower than that of developed countries.
Per capita health care expenditures (USD):
Source: The World Bank
The sector’s potential is being unleashed by multiple factors, including demographic change, rising incomes and improving insurance coverage. The government is playing a key role, having now extended basic medical insurance coverage to 99% of the population. That said, there is still immense potential for investors as government health care spending remains well below the global average, and 80% of the insured population receives an annual government subsidy of only $50.
As the government attempts to move to a more consumption-driven economy, strengthening the social safety net and reducing out-of-pocket health care expenditures will remain a key focus. Overall, China health care spending is expected to grow at a mid-teens annual rate over the coming years. We anticipate the exchange-listed health care companies will grow even faster, aided by consolidation of an extremely fragmented industry. (For example, the top 10 Chinese drug manufacturers hold a combined 15% market share compared to over 40% cumulative market share for the top 10 global drug producers.)
Total health care expenditures in China (RMB bn)
Source: National Healthcare and Family Planning Committee, UBS estimates
While most of our investments to date have been concentrated in pharmaceutical production and distribution, over time we see more opportunities emerging within health care services as the government gradually liberalizes the industry and encourages more private investment.
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