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China Healthcare Policy Study, 2011

Prepared for

Frost & Sullivan (Beijing) April, 2011

Table of Content
Table of Content Summary 1. China Aging, Healthcare and Wellbeing Market Overview 1.1 China Marco Economy and Healthcare Market Environment 1.1.1 China GDP Analysis (2006-2015E) 1.1.2 China per Capita GDP Analysis (2006-2015E) 1.1.3 China Total Annual Healthcare Expenditure (2006-2015E) 1.1.4 China Per Capita Healthcare Expenditure Ranks 9 While U.S. Stands 1 Among Weighty Countries 1.1.5 China Total Healthcare Expenditure Ranks 8th while U.S. stands 1st among weighty countries 1.2 The Raising Population & Extension of Life Expectancy 1.2.1 The Population in China is Rising 1.2.2 The Life Expectancy is Extending in China 1.2.3 The Aged Population in China is increasing at a Noticeable Speed 1.3 The Drivers for Healthcare Market 1.3.1 Major Drivers for the Healthcare Market Growth 2. Last Five Year Plan Review for Aging, Healthcare and Wellbeing 2.1 Major Policies, Regulations, Laws and Their Affects 2.1.1 Pathway of Chinese Healthcare System 2.1.2 New Healthcare Reform 2009-2011 2.2 Major Achievement of the 11th FYP 2.3 The Performance of Major Foreign Enterprise in These Areas 2.3.1 Foreign Enterprise have been Preparing for Entering Primary Care Market in China 2.3.2 Foreign Enterprises have Located Part of the R&D in China 3. The 12th FYP for Aging, Healthcare and Wellbeing 3.1 Latest Policies, Regulations, Laws for Aging, Healthcare and Wellbeing 3.2 The 12 FYP Succeed the Core of 11 FYP in Aging, Healthcare and Wellbeing 3.3 Forecast of the Potential Results by Those Policies, Regulations and Laws 4. New Business Opportunities for Foreign Enterprise in Aging, Healthcare and Wellbeing for the Next 5 Years 4.1 Pharmaceutical Perspective 4.1.1 High-end market 4.1.2 Low-end market 4.2 Medical Device Perspective 4.3 Market Focus for Foreign Enterprises Reference
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Summary
Definition: the Five-Year Plan (FYP) is a series of economic development initiatives, which renews every five years. The FYP is shaped by the Communist Party of China (CPC) through the Central Committee and National Congresses. This report aims to review the achievements in 11th FYP (2006-2010) and understand the potential opportunities and challenges especially for foreign enterprises, brought by 12th FYP (2011-2015) in Aging, Healthcare and Wellbeing in China. The 11th and 12th FYP together last 10 years, there are the guidelines for the China development in this 10 years. And they would have significant impact on the Aging, Healthcare and Wellbeing in China. Understanding the FYP could help our client to understand the market for decision making.

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1. China Aging, Healthcare and Wellbeing Market Overview 1.1 China Marco Economy and Healthcare Market Environment
1.1.1 China GDP Analysis (2006-2015E)

According to the latest data from the International Monetary Fund (IMF), during the last five years in China, the GDP is estimated to reach 5.75 trillion US dollars in 2010 compared with 2.71 trillion in 2006. In 2010, it was reported that China overtook Japan to be the No.2 country in GDP among the world. According to the latest forecast by the International Monetary Fund (IMF), in 2015, it is estimated that the GDP of China would reach 9.98 trillion U.S. dollars.

1.1.2 China per Capita GDP Analysis (2006-2015E)

The China GDP per capital experienced a high speed growth in the last five years, from $2,064 in 2006 to estimated $4283 in 2010. According to the latest forecast by the IMF, in 2015, it is
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estimated that the GDP per capita of China would reach 7,258 U.S. dollars.

1.1.3 China Total Annual Healthcare Expenditure (2006-2015E)

During the years of 2006-2010, The Total Annual Healthcare Expenditure in China experienced a high speed increase, at a CAGR of 18.72%. During the 12th Five Year Plan (2011-2015), the government would strength its investment in healthcare services in the coming years, it is expected that the total annual healthcare expenditure would continue to grow at least at the same rate of the past five years. Based on this expectation, in 2015, the total annual healthcare expenditure in China is estimated to reach $705.74 billion.

1.1.4 China Per Capita Healthcare Expenditure Ranks 9th While U.S. Stands 1st Among Weighty Countries

2007 Weighty Country Per Capita Healthcare Expenditure Ranking (US$)

7,285 4,627 4,409 4,209 3,867 3,136 2,751 2,712 108 40

According to the latest statistic data from WHO yearbook 2010, the per capita healthcare expenditure in United States is US$7,285, first among weighty countries. China per capita
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healthcare expenditure in 2007 is US$108, which is much lower than those developed countries listed in the graph. There is still a potential for increasing the healthcare expenditure per capita in China.

1.1.5 China Total Healthcare Expenditure Ranks 8th while U.S. stands 1st among weighty countries

2,260 351

2007 Weighty Country Total Healthcare Expenditure Ranking (US$ Billion)

347

295

235

182

147

143

110

45

Total Healthcare Expenditure is estimated by the formula: = Per Capita Healthcare Expenditure * Estimated Population based on the official data. For the total healthcare expenditure in 2007, U.S. still ranked first with US$2,194 billion, which is larger than the sum of healthcare expenditure of all the other countries in the graph. The large population base in China contributes to the rising rank of total healthcare expenditure which was US$143 billion. With such a large population in China, the total healthcare expenditure have a great potential to increase in the future.

1.2 The Raising Population & Extension of Life Expectancy


1.2.1 The Population in China is Rising

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Currently China is the country with the biggest population in the world, with estimated 1.341 billion people in 2010, according to the IMF database. Although the population is expected to increase, the speed of increasing is getting lower due to the low natural birth rate in China. As a result of the China family planning program named One Child Policy which aims to control the population, the natural increase rate of China population experienced a decreasing in the previous decades, from 11.87 in 1980 and down to 5.05 in 2009.

1.2.2 The Life Expectancy is Extending in China

With the development of economy and healthcare services in China, the life expectancy has been rising steadily in the past three decades. According to the United Nation forecast, the life expectancy in China could still rise but at a relatively slower speed than the previous decades in the coming 40 years; and will almost hit 80 in 2050. With lower birth rate and extended life expectancy in China, it is widely believed that China is stepping into an aged society.

1.2.3 The Aged Population in China is increasing at a Noticeable Speed


According to the international standard, a country with either 10%+ of population over 60 or 7%+ of population over 65 would be considered as an aging country. According to the National Bureau of Statistics of China, China stepped into an aging country with 7% of population over 65 years old in 2000, and this percentage has been continuously rising.

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Percentage of 65+ years old population in China 2006-2020E


12%
10.78% 11.24% 10.30% 8.84% 9.11% 9.45% 9.85%

11.66%

11% 10% 9% 8% 7%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 8.60% 8.23% 8.41% 7.94% 8.07% 7.70% 7.82%

2016

2017

2018

2019

2020

The forecast made by the Organization for Economic Co-operation Development (OECD) suggests that the aging trend of China population will speed up in the next decades. In 2020, it is estimated that 11.61% of China total population could be people with over 65 years old. Normally, an aging society could lead to an increase in needs for medical services which could boost the healthcare industry. When people get old, they are normally fragile to diseases, and old people consume more drugs than younger. According to our secondary research, in Japan which is an aged society, around 80% of the total healthcare expenditure was spent on people over 65.

1.3 The Drivers for Healthcare Market


1.3.1 Major Drivers for the Healthcare Market Growth

Increasing Healthcare Expenditure The increasing healthcare expenditure suggests an increasing market scale for healthcare. The total annual healthcare expenditure in China almost doubled from 2007 to 2010, and is still increasing with a double-digit growth. And in recent years, the government at all levels invests more than ever on healthcare services.
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Increasing Percentage of Healthcare Expenditure Counts for GDP Although the total healthcare expenditure counts only around 5% of the total GDP in China, this percentage continuous to grow in the past years. Compared with western developed countries, this 5% is relatively low; with the development of economy, there is still a great potential for increasing the healthcare expenditures percentage in GDP. Growing and aging population The growing population enlarges the total patient pool for healthcare market in China. And China is also facing an aging society, unfortunately, diseases especially chronic diseases affect older adults disproportionately, and as a result of aging population, China will be increasingly pressured to handle a growing sick population. Increasing Disposable Income With the development of national economy, according to the Statistic Year Book 2010, the disposable income for citizens has been continuously increasing for the past decades. With increasing disposable income, people care more about their health condition which could leads to increasing spending on medical services.

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2. Last Five Year Plan Review for Aging, Healthcare and Wellbeing 2.1 Major Policies, Regulations, Laws and Their Affects
2.1.1 Pathway of Chinese Healthcare System

From 1980s to 2009, China government has tried several attempts for healthcare reform, from planned economy to market economy, and new healthcare service models and so on. However, in 2005, Chinese MoH had to admit that the healthcare reform in the past failed to achieve what was expected. And under this condition, in 2009, the government started a new healthcare reform attempt.

2.1.2 New Healthcare Reform 2009-2011


In 2009, the Chinese State Council formally announced a new healthcare reform plan named Implementation Plan for Deepening Pharmaceutical and Health System Reform 2009-2011. The government planned to invest US$ 123 billion (RMB 850 billion) from 2009 to 2011. From the government perspective, it mainly aims to improve the affordability and accessibility of healthcare service for patients, to solve the widely criticized problems: expensive medical bills and difficult access to quality medical services. The New Healthcare Reform would mainly focus on the following issues:

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Basic Level Healthcare Services In China, people preferred to visit those renowned hospitals (often Tier 3-A), as they believe they could get the best and reliable treatment. Therefore, it is uncommon to find that those renowned hospitals often are overloaded, while other hospitals may have few patients. And it is one of the main reasons for difficulty to get access to medical services; patients have to wait days, weeks before get treatment as they rush to the same hospitals. The New Healthcare Reform aims to direct the patients from those renowned hospitals to primary care. One of the solutions is to enhance the quality of primary cares, develop the primary healthcare service network, to build more community health center and health station, primary care hospitals. Basic Healthcare Insurance System There are mainly three types of basic medical insurance in China named, New Rural Cooperative Medical Scheme (NRCMS), Basic Medical Insurance for Urban Employees (BMIUE) and Basic Medical Insurance for Urban Residents (BMIUR). Traditionally in China, the major basic healthcare insurance is the BMIUE, which is jointly paid by the employees and employers. Despite those employees, there is relatively few basic medical insurance for the people living in rural area and unemployed, children, aged people. For those people, without reimbursement, the healthcare fees are relatively high. Therefore, the government later provided two new basic healthcare insurance to cover those people: the NRCMS and BMIUR. The New Healthcare Reform aims to extend the coverage of NRCMS (targets at people living in rural areas) and BMIUR (targets at children, aged people, and unemployed in urban areas) to increase the affordability of the targeted population. Also by setting higher reimbursement rate in primary care than in Tier 2, Tier 3 hospitals, the insurance system helps encourage patients getting treatment from primary cares. Essential Drug System
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Traditionally in China, after the drug is made by manufacturers and before it is sold to patients, there are some distributors and hospitals between them. In order to gain margin from selling drugs, they have to raise the price for drugs. And this is one of the reasons causing the expensive fees for medical services in China. The Essential Drug System (EDS) aims to lower the price by reducing the middleman, and setting ceiling price for drugs in the Essential Drug Lists which update every 3 years. According to the EDS, the provincial government is responsible for holding public bidding, purchasing, and delivering the drugs to hospitals directly. This could lower the drug price as it reduces the middleman. In the EDS, the government tried to extend the zero mark up for drug sales in basic level hospitals. The zero mark up means that the basic level hospitals would sell certain medicine with no margins to patients, and the lost margin would be reimbursed by the government. The drugs in the zero mark up list vary in different regions. According to our research, the government has tried some pilots in certain cities community hospitals. Take Beijing for instance; in 2010 there are more than 500 drugs which has been implemented with zero mark up in Beijing community hospitals. Equitable Public Health Service & Public Hospital Reform In the New Healthcare Reform, it plans to reduce the gap of public healthcare services in urban and rural areas, and implement the public hospital reform. For equitability, it aims to provide equal access of public health services in rural and urban areas. For hospital reform, it aims to separate the supervision and operation of hospitals. In the 11th FYP, the New Healthcare Reform has the major impact on the China healthcare market, partly because that the major hospitals are government managed. The government polices have direct impact on hospitals. The following section would introduce the China hospitals system briefly. In China, the healthcare services are mainly based on government managed public hospitals. Currently in China, 90% of total hospitals are public hospitals which are under the MoH, provincial health bureau, or municipal health bureau, the rest are private hospitals

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The government encourages the development of private hospitals and clinics. However, the process is very slow. Public hospitals are further divided into 3 different tiers by China Ministry of Health (MoH) with tier 1 being the lowest tier and tier 3 as the top tier in terms of facility, level of service provided and type of hospital administration. Military and teaching hospitals are usually tier 3 hospitals, and corporate hospitals are usually tier 2 hospitals. Considering the current healthcare market situation and the polices in China, there are mainly those following achievement as we observed in the 11th FYP in healthcare.

2.2 Major Achievement of the 11th FYP


Increased Basic Medical Insurance System The coverage of basic medical insurance has been extended to cover the majority of the civilians in China. According to the MoH, in the end of 2010, the population covered by the New Rural Cooperative Medical Scheme (NRCMS) had reached 835 million with 95% coverage, which means that NRCMS has become the medical insurance program which covers the biggest population in the world. According to the Ministry of Human Resources and Social Security of the People's Republic of China, it is estimated that at the end of 2011, the urban medical insurance (both Basic Medical Insurance for Urban Employees (BMIUE) and Basic Medical Insurance for Urban Residents (BMIUR)) will cover 90% of the target population, and the number of people covered will be 440 million. The reimbursement rate has been raised to lower the financial burden for patients. The governments of all levels have been continuously increasing its investment in basic medical healthcare insurance. Although the reimbursement rate varies in different regions, the reimbursement rate for getting treatment in primary cares is often as high as 60%-80%. Construction of Primary Healthcare Service During the last FYP, the Central Party invested 55.84 billion RMB specific for supporting the project of construction of nearly 50,000 healthcare organizations. A healthcare networks with 5,500 community health center and 230,000 community healthcare stations have been set up initially. More than 1100 Tier 3 hospitals in urban areas built partnership with 2139 county hospitals to support and cooperate with each other, to help training and improving the services in basic hospitals. Building of Essential Drug System Formally started from 2009, The EDS is an ongoing project which aims to provide guidelines for prescribing, safe and affordable medicines. During the 11th FYP, there are 307 types of drug listed in the EDL, and the price of all these drugs in the list has been administrated by the government. The EDL helps lower the price of drugs inside the list. According to Mao Zhang, the party secretary of MoH, there was an average of 30% decrease of medicine price in regions with EDL.
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Summary of 11th FYP in Aging, Healthcare and Wellbeing In the 11th FYP, the criticized problem as expensive medical bills and difficult access to quality medical services for citizens has been mitigated in a certain extent. Pharmaceutical Market The China pharmaceutical market has experienced a rapid growth in the 11th FYP. According to our research, the total China Pharmaceutical market size was RMB 358.68 billion in 2009 which doubled that of RMB 177.21 in 2006. Currently in China, the competition in China pharmaceutical market is relatively fierce, as many multinational pharmaceutical giants and numerous local companies in this market. There are both original drugs and generic drugs in the market, and normally the price for original drugs is much higher than generic drugs. Original drugs are mainly belongs to the Multi-national pharmaceutical companies, while domestic companies mainly focus on the generic drugs. Its reported that 97% of the drugs from domestic companies are generic drugs. Compared with foreign pharmaceutical companies billions of dollars investment in R&D, few local companies could afford such expenditures, the R&D ability for China pharmaceutical companies is relatively poor. Medical Device Market As the 3rd Largest medical device market in the world, China market size was RMB 162 billion in 2009, growing at a steady double digital annual growth rate. However, the China medical device market counts only around 5% of the world medical device market. There is still great potential for the medical device market in the future. The high-end medical device market is mainly dominated by foreign enterprises in China. The majority of the domestic companies still remain in low-technology section. The major advantage for domestic medical device is the relatively cheaper price, compared with foreign companies products. However, in recent years, domestic companies like Mindray (2006, as the first China medical device company IPO in New York,), Yuye, have enjoyed a rapid growth in this market, they have suggests strong ability in R&D. The healthcare market for primary care has experienced a high speed growth. The construction of community healthcare center, primary cares in rural and western regions helps build a healthcare network for easy accessibility for patients. And following by the construction of primary cares, there is an increasing need for both medical device, and drugs in those primary cares. Due to the polices which aims to direct the patients from Tier 3-A hospitals to primary cares, the patients has increased noticeably for primary cares. Foreign companies have already pay attention to the primary care market in the 11th FYP. In the following session, we will introduce their performance in these areas.

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2.3 The Performance of Major Foreign Enterprise in These Areas


2.3.1 Foreign Enterprise have been Preparing for Entering Primary Care Market in China
During the 11th FYP, due to development of primary cares, foreign companies pay more attention on the basic level healthcare services in order to extend their market shares. They have tried either to localize its products for primary cares, or work with government to increase its awareness, or to build sales channel in level 3, level 4 cities and even rural places. Take the following companies for instance: 1. In May, 2008 Bayer signed a cooperation with the MoH, officially launched a 3 years project named China' community health promotion. It aims to raise the awareness and reliability of community health services, improve community health workers skills, and promote standardization of the construction of community health services, through promoting, training and technical development. 2. In 2008, GE signed a contract with Shinva Medical Instrument CO., LTD. found a joint venture mainly aims to provide medical image products targeting at rural and community hospitals. 3. In 2009, Carestream chose to cooperate with the MoH and Ningxia Hui Autonomous Regional Government for Pilot Program for Rural Medical Informatization in which Carestream will provide digital remote imaging solutions for basic level hospitals in Ningxia region to help the pilot projects.

2.3.2 Foreign Enterprises have Located Part of the R&D in China


Although the main body of the R&D for foreign enterprises are located in American and European, during the 11th FYP, foreign enterprises have started to put parts of the R&D in China. According to the data from China Association of Enterprises with Foreign Investment R&D-board Pharmaceutical Association Committee (RDPAC), during the 11th FYP, its 37 members invested over 20 billion RMB totally in China, with almost 1/3 in research. 1. In November 2006, Swiss Novartis announced a 100 million US dollars plan to set up a BioMedical research center in Shanghai, which would be the biggest pharmaceutical research center at that time. 2. In 2009, Novartis further announced a 1 billion US dollars plan for further investment in China. 3. In October 2008, Eli Lilly and Company set up its global research center Beijing branch. a) In later November, Lilly signed a contract with Hutchison China MediTech for research on new targeted anti-cancer medicine. 4. In October 2008, Sanofi-Aventis launched its research center in Beijing, which was the fourth largest research center for Sanofi globally. 5. In April 2009, Johnson & Johnson announced that it would build a new research center as the headquarters of research center in Asia region.

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Partly Due to the relatively cheap labor and price in China, foreign enterprises are trying to locate some functions of the R&D in China which could help them lower the costs for R&D globally.

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3. The 12th FYP for Aging, Healthcare and Wellbeing


3.1 Latest Policies, Regulations, Laws for Aging, Healthcare and Wellbeing
The 12th FYP generally follows the steps of the 11th FYP in aging, healthcare and wellbeing, to continue the unfinished job in the 11th FYP. According to Mao Zhang, the party secretary of MoH, the ultimate target of MoH in 12th FYP would be summarized in one sentence: To build a reliable medical healthcare system which cover citizen from both urban and rural areas in the coming five years. And this is exactly what the 11th FYP tried to achieve. In the 12th FYP, the government would still take further step implementing the New Healthcare Reform (2009-2011), and there are mainly four goals for the coming five years: 1. Improving the quality of medical service. a) This theme mainly covers strengthening regional healthcare services distribution, public healthcare service system construction, and primary cares construction especially in rural, middle and western regions, taking further steps in public hospital revolution, encouraging private investments in healthcare services. 2. Perfecting the medical insurance system to lower the finance burden for patients. a) Improving the coverage and reimbursement rate of medical insurance, and closer the gap between urban and rural medical insurance. 3. Preventing major diseases, and control the risk factors for health 4. Strength the governments administration on public health to ensure civilians health and safety. There are relatively few new directions in the latest policies, regulation, laws for aging, healthcare and wellbeing in the 12th FYP. The New Healthcare Reform will still be one of the major focuses for the government in the coming five years.

3.2 The 12th FYP Succeed the Core of 11th FYP in Aging, Healthcare and Wellbeing
For Healthcare and Wellbeing, the 12th FYP will continue the New Healthcare Reform which started from the 11th FYP, and it will still be one of the focuses for the government of all levels in the next five years. To taking further step in healthcare reform which is a continuous and ongoing project. To continuously improve the quality of healthcare services To build and perfect a medical insurance system which covers citizens from both urban and rural regions. To continuously extend the coverage of basic medical insurance To continuously raise the reimbursement rate for patients To continuously invest heavily on the construction of basic level hospital services, and this includes community healthcare center, county/town hospitals, and village healthcare station.
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To continuously increase the governments investment in public health and ensure the public health safety.

3.3 Forecast of the Potential Results by Those Policies, Regulations and Laws

Social Perspective
An Improved Basic Level Hospital Network Government would invest heavily for the constuction of primary cares in communities, western and rural areas, to build healthcare networks. With the development of healthcare networks, it would be easier for citizens to get access to healthcare services. A Better Medical Insurance System According to the 12th FYP, the mediacl insurance coverage will be further extended, planed to cover all citizen in 2020. Government would invest more in medical insurance for citizens to raise the reimbursement rate for patients. A Sound Essential Drug List The Essential Drug List would be further improved to better serve its orginal purpose in the 12th FYP. The zero mark up would be extended to more regions to lower the medicine price. The public bidding, purchasing for drugs by government could be further standardlized.

Market Perspective
From the market perspective, in the 12th FYP, the latest polices, regulations and laws with ongoing healthcare reform could continuously boost the healthcare market with rapid growth. According to our secondary research, while the global pharmaceutical market growth of 5-7 percent in 2011, China is estimated to have a growth of 25-27 percent in the coming years. The increasing government investment in improving the supply and demand side will benefit the pharmaceutical market significantly by increasing the drug consumption. Of the $123 billion provided by the New Healthcare Reform, it has been reported that more than $10 billion allocated solely for medical device purchases by hospitals and clinics in China. It is estimated that the China medical device market could also have a growth in the coming years at a CAGR of around 20%. Healthcare market will remain one of the hot spots for investment in coming years. According to our research, there are some local pharmaceutical and medical device companies either trying or planning to initiate public offerings to get financing for further expansion in this market. Many foreign healthcare companies would strengthen their investment in China for market expansion in the 12th FYP.
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4. New Business Opportunities for Foreign Enterprise in Aging, Healthcare and Wellbeing for the Next 5 Years 4.1 Pharmaceutical Perspective
4.1.1 High-end market

High-end Increasing disposable income for civilians Pharmaceutical Market Drivers Pharmaceutical companies invest heavily in targeted agents
It is estimated that the high-end pharmaceutical market, especially anti-cancer drugs would experience an increment in the coming years. 1. In recent years, it is observed that the incident rate of caners has risen. With the increasing patient pool for cancers, there will be an increasing need for anti-cancer drugs. a) According to our research, there are around 400,000 newly diagnosed lung cancer patients every year, and this number will increase to 1 million in 2025, and China will become the country with the largest lung cancer patients population in the world. b) Inside anti-cancer drugs, targeted agents for cancers have been a hot spot for those pharmaceutical giants in recent years. Sales for Glivec from Novartis, Tarceva from Roche, and Iressa from AstraZeneca all experienced a high speed growth in China. 2. With the increment of civilians disposable income, more and more people can afford the high price of high-end pharmaceutical products.

The increasing incident rate of cancers.

4.1.2 Low-end market

1. The construction of basic level healthcare services networks in primary cares could help improve the accessibility of healthcare services. 2. The development of the basic medical insurance system will mainly focus on the following perspectives: A) The extension of the coverage of basic medical insurance. B) The increasing of reimbursement rate for patients.
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It is not uncommon for people, especially with chronic diseases, chose to not visit hospitals for treatment due to their financial difficulty in rural and western areas. With the development these two perspectives, it is reasonable to predict that this could raise the affordability for patients, and there are more willing to visit hospitals to get treatment. Therefore, it is estimated that there will be an increasing need for low-end medicines in primary cares, especially for medicine for chronic diseases, such as hypertension, diabetes.

4.2 Medical Device Perspective


During the last five years, in order to optimize the regional healthcare resource distribution, the MoH announced several police mainly aims to strengthen the management of medical device purchasing for hospitals. 1. The centralized procurement is organized by government from national, provincial and municipal levels, while the provincial government acts the major organizer to implement the procurement. And all non-profit healthcare organizations hold by government, state-owned enterprise should participate in this centralized procurement. 2. According to these policies, hospitals who want to purchase large medical devices which price is over 5 million RMB (such as PET-CT, Knife, MM50, PTS, CT, MRI, DSA, SPECT) has to been approved by regulators before purchasing. As a consequence of these policies, those medical manufacturers offer a relatively new approach for selling large medical devices which are normally expensive to buy. According to Frost & Sullivan previous research, there are many manufacturers chose to invest the medical device in the hospitals which means the hospitals would get the device for free, and the hospitals would either need to purchase the suppliers from the specific manufacturers in order to use the device, or share the benefits by using these devices. a) Take the Gamma Knife for instance, the manufacturers could build a Gamma Knife center in a certain region, and sign contracts with hospitals inside this region which allow those hospitals to use the Gamma Knife for treatment. And the incomes for treatment would be share between the hospitals and the manufacturers. b) In recent years, there is an increasing bargain power for hospitals in this cooperating approach, as more and more companies imitate this business approach which leads to competition between manufacturers. It may be a future trend for large medical device manufacturers to cooperate with hospitals in this approach. Foreign companies for large medical device may consider this investing approach for cooperating with the hospitals.

4.3 Market Focus for Foreign Enterprises


Currently in China, due to the imbalance distribution of healthcare resource, the minority Tier 3 hospitals in cities are normally well equipped with lots of patients, while the majority hospitals in communities, rural and western regions are relatively poorly equipped with relatively less
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patients. This imbalance leads to a relatively big market in these hospitals in cities. And it is also the reason why those foreign pharmaceutical companies and large medical device manufacturers mainly focus on the Tier 3 hospitals in cities currently. The China New Healthcare Reform is trying to transform the current imbalance, however, Rome wasnt built in a day, it takes time for the government to implement those polices, the reform plan wont fundamentally eliminate this imbalance overnight or reshape the market landscape. Although, the potential market for the communities, rural and western hospitals is great, for foreign enterprise, it is suggested that the tier 3 hospitals in cities are still the market focus in the coming 5 years.

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Reference The sources of the secondary data in this report are mainly the following organizations (sorted alphabetically): 1. Chinese State Council 2. Frost & Sullivan Database 3. Frost & Sullivan Secondary Research 4. International Monetary Fund Outlook Database 5. Ministry of Health of China 6. National Bureau of Statistics of China 7. Organization for Economic Co-operation and Development 8. United Nation Database 9. U.S. Census Bureau 10. World Health Organization Database

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UPDATE
China Age Distribution

The people of working age increased in the past decade in China. According to the China Census 2010, in 2010, the total population in China is 1.34 billion, with almost 0.92 billion people are between 15-60 years old, compared with 0.85 billion in 2000. However, the percentage of population aged 0-14 decreased from 22.90% to 16.60%, which means that in the future there will not be enough labor to fill the gap when the people currently in working age get older. The percentage of people at working age would decrease in the future. The percentage of population facing retirement in the coming future (aged 55-64) is rising, according to the forecast; the percentage of this population could reach 12% in 2020, compared with 10% in 2010, and almost hit 15% in 2025. While China is still a developing country, its aging degree enters into the ranks of developed countries. The acceleration of aging leaves big pressure on both the economy and the society. Under this situation, the total demand for aging people services is expected to rise to a higher level.

China Pension for Retired People According to the China laws, normally the retire age for male is 60, for female employee is 50, female cadre is 55. The actual retire age varies in different regions and companies; and we defined the population facing retirement as aged 55-64.
According to our research, China has a relatively low pension level. Since January, 2011, enterprises increased their pension by RMB 140 per capita to reach RMB 1340 per capita. Although the pension for retried people in developed provinces and cities is relatively high, the national average pension is no more than RMB1400. For some reasons, pensions for employees of the government and public institutions are 2-3 times more than those of employees of enterprises. Normally in China, the pension for retired people is related with the current average salary in specific region where the retired person lived, the formula is relatively complicated. In 2011, Shanghai introduced the indexation of monthly average contribution wage in accordance with the guidance of completing the basic pension payments of employees of enterprises in towns. Then, the pension level is connected to the contribution wage of the insured employees, which further embodies the principle-paying more and getting more-of the endowment insurance.
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Senior Centers and Services in China in 11th FYP On 29 January, 2008, China National Committee on Aging, National Development and Reform Commission, together with 8 other departments, published the Opinions on Comprehensively Advancing the Home-based Care. According to Opinions, all communities in China should build various and extensively covering home-based service network during the 11th FYP. On January 12, 2009, Beijing Civil Affairs Bureau together with other departments issued Opinions on Accelerating the Development of Senior Centers. It was the first one to specify the home-based care service. As was stated, multi-channel and various investment mechanisms would be set up with the support of policies to advance the socialized and industrialized development of home-based care service.
In cities like Beijing and Shanghai, there is one aged person out of five persons. And the current situation is that the occupancy rate of senior centers is low while many aged people cant find a place to live out their life. According to our secondary research that 40 percent of the beds in large cities like Beijing and Shanghai are in urban area while the other 60 percent in suburbs. As a result, demand exceeds supply in urban areas while there are 40 percent beds are vacant in suburbs. In urban areas, there are public welfare houses, gerocomiums, and private gerocomiums with tens to hundreds beds. But the housing conditions and the quality of life are quite bad. Since the public gerocomiums receive subsidy from the governments, their charge is relatively low which leads to overcrowded. In contrast, the upscale gerocomiumss occupancy rate is relatively low. The demand for gerocomiums, especially those with good quality and reasonable price, is relatively strong in urban areas.

China Gender Imbalance According to the China Census 2010, the gender imbalance in China has been mitigated in certain extent. The number of male: female in 2010 is 105.20: 100, which experienced a bit decrease in the past decade, compared with 106.30:100 in 2000. The gender imbalance in China are mainly resulted by many reasons, such as the conventional views that boys are better than girls, the undeveloped economy in certain regions, the ongoing family planning program, and others.
According to the research by the China census 2010, the gender imbalance varies in different regions, in certain regions normally with undeveloped economy, the problem get more serious. There is also an obvious difference between rural and urban areas, normally in rural area; the gender imbalance is much more serious. Due to the gender imbalance, there are mainly the following consequences: 1. it will squeeze the marriage gender, and lead to difficulties in matching, as there are more boys than girls, boys may find it difficult to find a girl to marry. 2. The imbalance would leads to barriers for producing the next generation due to difficulty in getting married. And finally this would leads to decrease in the total population. 3. This imbalance would have impacts on the society, it may could leads to increase in sexual crime. 4. The excess male labors could increase the competition in employment.

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China Digitizing Information in Healthcare in 12th FYP (1)


In the 12th FYP, the China government has identified the healthcare informationization as one of the key objectives for development. It aims to construct the medical information system based on the electronic medical records, and regional health information services platform based on citizens health documents. It also encourages the infrastructure and information construction for county hospitals, and development of information construction in primary cares including rural medical services.

Hospital Information System In recent years, hospitals in China are taking step in setting up Hospital Information System (HIS). According to our previous research, more than 90% of hospitals in Beijing has their own HIS, primary targeted at financial, administrative, and management applications and are usually highly customized.
However, only around 20-30% hospitals stepped further for Clinical Information Systems (CIS). CIS provides clinical solutions in the various departments of a hospital. These solutions are very specific to the departments and are customized to meet their unique needs. However, many of the clinical solutions are part of an integrated hospital-wide solution.

Regional Information System Regional Health information Network has become one of the focuses of hospital information construction in recent years. RHIN is relatively a new idea compared with HIS, which aims at building a platform to integrate the HIS between different hospitals in the same region.
It aims to share and exchange information between hospitals (such as community hospitals and level 3 hospitals), to help solve the problem of difficulty in getting medical treatments and improve efficiency. There are currently many pilots regions with ongoing integration of RHIN, such as Shanghai Changning district, Minghang district.

Smart Card The MoH has already listed the promoting of IC card into the plan of healthcare informationization. In the plan, the MoH encourages the usage of IC card and Radio Frequency Identification (RFID) technology in areas of health care, public health, medicine, blood and so on.
MoH would work with the banks and Ministry of Human Resource and Social Security to conduct research on the general mode and standard of using medical smart cards. Those cards could contain the information of personal ID, social security, medical insurance, healthcare and financial services.

Hand Hold Devices In China, there are some ideas of integrated portable medical device, which mainly relies on the major breakthrough in smart phone to help achieve portal medical devices. And this still remain in the idea level without available products.

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There may be market opportunities for hand hold device which has different probes for monitoring temperature, blood pressure, and blood glucose.

E-health E-Health is not only a technology or service, but also a living philosophy and a new way to live a health life. E-Health comprehensively applies information and communication technology to medical and health care, especially to precaution, diagnosis, treatment, follow-up, recovery and health promotion. It is an inter-discipline subject of IT, medical science, public hygiene, management and sociology. And it aims at integrating and utilizing the medical and health resources to improve the public health.
So far there have been pilot cities, such as Foshan City, Guangdong Province. The first phase of regional health information platform in Foshan City will be completed in two years. When it is completed, citizens will get a health care card and the One-Card policy will be realized, which helps to build the database of citizens health records. Furthermore, Information Systems of Foshan Citizen E-Health Service, Foshan Digitalized Hospital, and Foshan Public Hygiene will be launched. So is the Community Health Information System. And the infrastructure of the health information network will be completed, too.

Possible Business Opportunities in the 12th FYP


For aging services The health care industry in China is at the sleeping phase. Take senior centers as an example. Till the end of 2009, there are 38,060 various welfare institutions for the elderly and 2,662,000 beds in the country. When it is divided by the aged population, there are only 23.6 beds available per 1000 aged people. Contrarily, 50 to 70 beds are available in developed countries. As for the foreign investment, Japanese nursing industry is entering into the Chinese market. They target at the rich, set up senior centers and nursing centers (nursing homes), train nursing staff and output Japan-like nursing services.
There may be business opportunity for the foreign enterprises in providing elderly services. Most of Chinese-run houses for the elderly just meet the elders needs of living places and are unable to meet the elders higher level of demand. So a complete health care system should cover these three systems- life care service, medical service and long-term nursing service-to meet the aged peoples (who are in different physical conditions) needs of all aspects.

Medical Services Perspective Hospitals According to the MoH, more than 80% of the hospitals are dominated by the governmental, non-profit public hospitals. But, the government actually encourages private healthcare services. There may be potential opportunities for foreign enterprise in China medical services, although the foreign capital has been limited to set up a joint venture with no more than 70% of the capital for entering this market. Currently there are over 30 joint-venture clinics and medical
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centers running mainly located in Level1 cities like Beijing, Shanghai and Guangzhou. Foreign healthcare services, such as United Family Hospitals, mainly target at foreigner, people with high incomes, as they provide customized services with advanced devices. For foreign enterprise, one of the major problems is to recruit staff, competing with the public hospitals for professionals.

Physical Checkup Currently in China, physical checkup is dominated by physical department of major public hospitals. However, with the rising disposable incomes and concern of health, the private checkup centers has experienced a booming the 11th FYP, and would expect to maintain a high speed growth in the 12th FYP.
Although the China private physical checkup market is dominated by domestic companies, foreign physical checkup centers have their own segmented market. Foreign physical checkup center, like MJ health from Taiwan (which claimed as one of three biggest physical checkup companies) has two branches in China located in Beijing and Shanghai, mainly target at high-end market, offering customized and high quality healthcare checkup for its members.

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