In thinking about how to approach China’s healthcare space, the two fundamental things to always keep in mind are that (1) China’s government expenditure is highly decentralized; and that this contrasts with government revenue collection, which is highly centralized. As a consequence, in thinking about healthcare in China, we need to disabuse ourselves of the notion that there is a “Central Planner”. Healthcare in China is almost exclusively local.
Not only do the consequences of this dual-nature model directly influence the opportunities available to foreign investors in China’s healthcare market, they also set the basic parameters for evaluating investment opportunities once they present themselves.
China is popularly thought of as a “Centralized” nation-state for a variety of reasons, which are widely talked about and easy to find for anyone interested, and which I won’t go into here. For our purposes, the important thing to know is that there is a popular conception of China that presents the country as an orderly top-down administrative super-organ that can do anything on a whim if it so pleases. China’s system does, in fact, allow for a flexibility to carry out big changes that is unmatched by other economies of similar size. But this flexibility is arguably greater for projects where the primary factor that influences success or failure is the mass mobilization of labor and marshaling of resources, and where dependence on sub-national governments for anything other than oversight is minimal.
Therefore, the ability to create big changes in little time does not necessarily extend to areas of the economy dependent on the intense involvement of sub-provincial level government officials in areas of management and revenue collection, and where success is dependent on instituting changes in organization management culture. This latter category includes both education and healthcare, neither of which exhibit the characteristics of uniformity that the “Centralized” label applies, or that popular conceptions would imply (i.e. the Gaokao is not necessarily an equal opportunity for all across China, and, in fact, heavily favors students in the biggest cities). Nevertheless, in public health school courses across the country in the US (it was certainly true in my public health and health system courses at the University of Michigan and at Duke University) China’s healthcare system is often described as a “Single Payer” system.
The connotation “Single Payer” in America at least, is that a Central planner of some sort meticulously administers and pays for the costs of the entire system. But the reality is that China is a multi-payer system, in large part funded and, in reality, managed by sub-provincial and sub-city governments (see chart below). And, the majority of China’s hospitals and other institutions that provide healthcare services are managed by these sub-provincial governments.
Specifically, in the social sector, sub-national governments account for around 90% of all spending, which encompasses all spending in the health sector (Brixi et al.,
The problem for these local governments, and from the perspective of residents who have to decide whether or not to access care at the Township or County level healthcare access is points, is that the initial allocation of funds given to the Provincial governments is distributed by a cascade method, and by the time it gets to the Township and County level there is a funds shortfall. As a result, hospitals and CHCs are underfunded.
This is significant for investors because while China has opened up the healthcare sector to foreign investment, that opening comes with a very important caveat – the health sector is opened in areas that are perceived as having a shortfall of public funds and therefore need a shot in the arm from private investors. As a result of China’s highly decentralized resource expenditure, as described above, and the resultant impact on local government, also described above, those opportunities earmarked for foreign investment, are largely going to be at the sub-provincial level, and as a result, will largely involve Class I and Class II hospitals, of between 20 and 500 beds, give or take.
One of the lesson’s of America’s hospital building heyday after