By Joseph Pategou
Despite slowing growth of GDP from 9.5% in 2011 to 6.7% in 2016, the Chinese economy remains a major driver of global growth. In terms of nominal GDP, China has the world’s second-largest economy. However, its slowing growth has had an impact on the companies’ profits and implies a necessity for enterprises to improve efficiency and reduce cost.
This situation has also impacted government resources. Slower growth of fiscal resources available has translated into less redistribution to the poor population of the country. According to the Organisation for Economic Cooperation and Development (OECD), Chinas economic performance has been driven by capital accumulation and has been supported by high savings.
The surge of China’s service economy
China is currently experiencing a major transformation and rebalancing of the economy from industry to services. In 2000, the industry represented more than 45% of Gross Domestic Product (GDP), while services represented less than 40%. Since then, this picture has been reshaped; in 2016, services represented more than 50% of GDP and industry less than 40%.
This transformation from manufacturing to services and from external to internal demand is driven by consumption and more inclusive growth. In other words, growth has become less dependent on external demand. Moreover, Chinese companies are increasingly involved in the production of added value objects. Resultingly, imports of services have been rising fast following the improvements in living standards. China put in place a reform in October of 2016 to strengthen foreign direct investment in services activities and reach international levels of openness.
Improving by the numbers
China’s economy has been supported for decades by a growing population which reached more than 1.3 billion in 2016 at a CAGR (Compound Annual Growth Rate) of 0.6%. The life expectancy of the population reached 75 years in 2016, 77 years for women. The social safety of the Chinese population has also improved over the years and has translated into a reduction of poverty. Income inequality also declined, with the Gini coefficient decreasing from 49 in 2008 to 46.5 in 2016. The rural population living in poverty fell from 30% in 2005 to 5.7% in 2015.
The Chinese government wants to get the millions of people comprising its rural population out of poverty by 2020. This will help China achieve one of the 17 United Nations Sustainable Development Goalsthe eradication of extreme poverty for all people everywhere by 2030. Extreme poverty is currently considered to be people living on less than $1.25 per day.
Sustaining ‘healthy’ growth
Despite the reduction in income inequality, the disposable income gap between the richest and poorest population in urban areas has barely narrowed. In some rural areas, the gap has even risen. This is in part due to a lack of the infrastructure needed to strengthen development.
To sustain its economic performance and attain all of its goals, China needs a healthier population. In the past decade, the health system has seen major improvements. The number of beds in healthcare institutions has risen from 2.83 per 1000 people in 2007 to 5.11 in 2015. Infant mortality has been cut in half, and life expectancy has increased. The expansion of health insurance coverage has enabled the improvement of access to healthcare for both rural and urban populations. Based on the figures from the OECD, the expansion of coverage in China is the largest expansion of insurance in human history.
Further steps towards a healthier China
However, there is still significant room for improvement. The number of quality healthcare professionals is limited, particularly in rural areas wherecontrary to urban areaschild mortality has increased. Migrant workers from rural areas continue to have difficulty with health insurance access; only 18% were covered by urban employee health insurance in 2014. Previously under the New Rural Cooperative Medical Scheme, rural workers were required to return to their place of origin to claim health insurance. To tackle this issue, the Chinese government has put in place a new reform which will enable patients to claim reimbursement regardless of the treatment location.
Making pension more practical
The multiplicity of pension schemes can be powerful at the regional level but contributes to the fragmentation of the health system at the national level. It often results in the misallocation of resources, and inequalities. The national systems for pensions need to become consistently available across the country. The government has made this an explicit goal, hoping to achieve universal pension coverage by 2020.
China will also need to adjust the pension age between men and women and in relation to life expectancy. The pension age in China is 60 years for men, 55 for women in white-collar jobs, and 50 for women in blue-collar occupations. These discrepancies have the potential to destabilise the system.
China is clearly experiencing a major transformation of its economy. However, in order to sustain this economic performance, the health system must be more efficient. Improvements in the health system will increase well-being and labour supply. In other words, the big challenges ahead for China is to create a strong and equitable healthcare system that supports increasing life expectancy and well-being of its workforces.
Joseph Pategou is a consultant specialising in the pharmaceutical industry at Wavestone.
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