Increased healthcare spending boosts pharma but not confidence
China’s health-care related stocks rose after the government approved broad guidelines to increase spending of the health-care system.
China Renji Medical Group (HK:0648), a medical device lessor, surged 39.47 percent. Vital Pharmaceutical Holdings (HK:1164), a medicine developer and manufacturer, climbed 15.53 percent.
Renhe pharmacy Co. (SZ:000650), a traditional Chinese medicine manufacturer, surged 10 percent. Jilin Zixin Pharmaceutical Industrial Co.(SZ:002118) added 6.03 percent.
The State Council, China’s cabinet, in January approved a plan to spend an extra RMB 850 billion ($124 billion) by 2011 to provide basic health-care services throughout the country, including expanding medical insurance coverage for rural and urban residents.
The reform aims to provide medical care for all citizens by 2020. However details have yet to be released and previous indications to introduce "gatekeeper" primary care systems and state supply of basic drugs were not expanded on today. This suggests the government is either shying away from deeper reform or is unable to reach an early agreement between different ministries.
China’s total spending on health care in 2008 was RMB 1.2218 trillion, according to estimates from the Ministry of Health. That includes government, insurance and private spending - and accounts for 4.06 percent of GDP. Government contribution made up RMB 282.6 billion, or 23.13 percent.
Governmental spending will increase 36.68 percent to RMB 341.6 billion in 2009. China’s pharmaceutical industry will benefit from the proposals since demand will increase as more people gain access to healthcare while no plans have yet been annouced to cap drug prices.
At present the proposals do not look convincing enough to make a large difference to the spending habits of China's rural citizens, who must currently save money in order to afford major operations and illnesses. But the news looks nice for pharma companies.
More details to be released at a future date may indicate further structural reforms to improve effiicency of total health spending and reduce medical professionals reliance on revenues from pharma companies.
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