Prognosis good for China health industry
Demographic trends expected to fuel accelerated growth in patients and revenue
China’s health care industry is poised for a growth spurt as expanding insurance coverage and an increasingly ageing population fuel an increase in patient numbers, according to HSBC analysts.
Total industry revenue, based on reported revenue of A-share-listed health care companies, has grown in double digits every year since 2009. But the growth rate has increased only twice during that time: in 2009 and 2012, when inpatient and outpatient numbers both jumped by more than 10 per cent.
“Patient numbers is a coincident indicator of industry growth,” HSBC analyst Zhijie Zhao wrote in an October 16 report drawing on data from the National Bureau of Statistics, the Ministry of Human Resources and Social Security and the National Health and Family Planning Commission.
Hengrui, Huahai, Kanion, Shanghai Pharmaceuticals are our top picks with buy ratings
Medical expense reimbursement outflow from government-sponsored medical insurance has been a major driver of patient numbers since its introduction in 2007. The Urban Basic Medical Insurance scheme has taken the urban coverage rate to around 80 per cent from sub-30 per cent in 2006, while the New Rural Cooperative Medical Insurance scheme has lifted the rural coverage rate to 95 per cent. The two schemes accounted for around 30 per cent of the country’s health care spending last year.
With the basic schemes approaching saturation, they have little more growth to yield. But in August the government announced the supplementary Medical Insurance for Severe Disease Scheme, which it says will provide at least 50 per cent additional expenses coverage on top of the basic schemes by the end of the year.
“This new scheme is essentially a secondary reimbursement and should drive the growth of reimbursement outflow in 2016,” Zhao wrote.
The HSBC report also identifies China’s ageing population as a past driver of patient numbers and health care revenue, noting that demographic data shows the current aged growth rate at a five-year high and moving towards a 10-year high by the end of the decade.
“We believe the two peaks [in patient numbers] reflect two spikes in the growth of the ageing population in 2006 and 2011, which, in our view, show with a lag of one to two years on in-patient growth,” Zhao wrote.
So although the growth in patient numbers trickled to just 3 per cent in the first five months of this year, HSBC analysts forecast a rebound next year which would provide health care stocks with a substantial boost.
“Hengrui, Huahai, Kanion, Shanghai Pharmaceuticals are our top picks with buy ratings,” Zhao told the South China Morning Post. “All of them have enjoyed solid growth recently. They should benefit even more so if patient growth stages a modest recovery in 2016.”
Expected gains in the pharmaceuticals sector might be constrained by drug cost control – which had also acted as a brake on overall industry growth in recent years, he said, while firms producing medical devices and providing hospital services should see greater benefits from an industry rebound.
