Done right, China’s healthcare reforms could boost the economy and more

Beyond a corruption crackdown, a structural reconfiguration of the healthcare system would unleash the consumption long suppressed by the need to save for costly medical bills
It would also build confidence, improve social stability, boost the government’s standing and, perhaps, even encourage births

Winston Mok

Published: 4:34pm, 12 Sep 2023

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If there is an area in which the US and China can compete for the productive benefit of their citizens, it is healthcare. The rival powers have healthcare sectors with much that needs fixing. While their problems are shaped by different causes, they have this in common: the highly unequal delivery of healthcare.

Although the US spends more than 18 per cent of its gross domestic product on healthcare, far above many other countries, it was ranked last out of 11 of the world’s richest countries in a 2021 Commonwealth Fund survey of healthcare systems. Among the rich countries the fund studied, the US was the only one without universal healthcare.

In contrast, more than 95 per cent of China’s population has basic medical insurance while health spending makes up just 7 per cent of its gross domestic product. The government was responsible for an estimated 27 per cent of national healthcare expenditure in 2021 – about 1.9 per cent of GDP.

To make sense of this level of government health spending, we can look at Australia, whose healthcare system ranked third in more than one survey. Australia’s health spending was 10.7 per cent of its GDP in 2020-21 – about 50 per cent higher than China’s. But over 70 per cent of this health expenditure came out of government funds, comprising about 7.5 per cent of GDP. Compared to China, as a proportion of the economy, the government in Australia spent almost four times as much on the health of its people.

There are plenty of healthcare role models in Asia, such as South Korea, Japan, Singapore and Taiwan – which was recently ranked as having the best healthcare in the world in a magazine survey of 110 countries and territories. Taiwan delivers its universal single-payer healthcare services primarily through the private sector.

Mainland China’s nominally public hospitals receive limited government funding and doctors are woefully underpaid. Over time, corruption became endemic. As exposed in the recent medical sector anti-corruption crackdown, the most egregious abuses were often the taking of kickbacks, such as for ordering big-ticket medical equipment.

A crowded hospital waiting area at West China Hospital of Sichuan University in Chengdu, Sichuan, one of China’s oldest and largest hospitals, on April 8, 2019. Photo: Shutterstock

Besides a lack of transparency and oversight, there are structural reasons for this state of corruption. Without adequate funding from the government, better medical security, or high enough fees, the shortfall must be covered somehow.

And the system is too concentrated in the large public hospitals, which also dispense most of the medicine. In Australia, for example, only about 40 per cent of health spending went to hospitals.

In China, a reconfiguration of healthcare roles and responsibilities to better involve lower-tier hospitals, community clinics and pharmacies may deliver more effective services and check abuses.

Beijing is aware of the problem and its crackdown on corruption in healthcare is the latest in a slew of initiatives aimed at tackling chronic livelihood issues, including education and housing.

Its crackdown on private tuition was hardly a resounding successes. Tutors continue to operate informally and the affluent continue to buy their services. If anything, education has become less equal; the masses lose access to affordable private tuition as centres closed and millions of well-paid jobs in the sector vanished.

Similarly, the property market crackdown stalled a key engine of growth, leaving local governments struggling to make ends meet and property developers facing bankruptcy.

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But unlike tuition centres and property developers, pharmaceutical companies, despite suffering from falling share prices, are unlikely to face the same crushing financial pressure. They just need to be subject to government checks to make sure they are not colluding in the exploitation of patients.

If any lesson is to be learned from China’s earlier crackdowns, it is that a sudden and harsh brake is seldom effective in addressing a complex social problem. Beyond an anti-corruption campaign in the healthcare sector, China needs coordinated structural reforms.

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A systematic redesign must take place to realign the interests of healthcare providers and patients. The illicit profits captured by administrators, senior doctors and healthcare suppliers – including pharmaceutical and medical device companies – must be redistributed to patients and doctors fairly and transparently, while wastage in the system is eliminated.

A pivotal element for success would be greater state funding of the healthcare sector, particularly an increase in healthcare investments in rural areas. With many local governments in financial distress, this may not seem the right moment to increase fiscal spending. But this is an investment that will yield many benefits: stimulating demand, building confidence, improving social stability, boosting the government’s standing and, perhaps, even encouraging births.

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China’s economic recovery is contingent on rejuvenated demand – which will not materialise merely at the government’s exhortations, amid low public confidence in social security. China’s extraordinary high household savings are restraining its consumption, and healthcare is increasingly important as society ages.

Compared to the diminishing returns of building ever more infrastructure, investing in healthcare would yield much better social and economic returns. It would unleash the latent demand long suppressed by the need to save for the high costs of healthcare. It could also be a key engine of new employment – of recalibrated, well-paid jobs for health professionals.

Doctors, who have extraordinary power over their patients, are expected to have the highest ethical standards. That the profession has become systematically corrupt is a sign of social malignancy.

At the core are not a few bad apples but fundamental flaws in the system’s architecture. Beyond delivering more effective healthcare, the moral fabric of China’s society is at stake in the reform of its healthcare system.

Winston Mok, a private investor, was previously a private equity investor