China has spent the equivalent of $180 billion since 2009 to transform its health-care system. By 2010, the percentage of the population covered by three principal insurance programs had more than tripled from 2003. For the first time, more than 800 million people, 99 percent of a rural population that includes migrant workers, have access to basic insurance.

“The sheer increase of the population covered is an enormous achievement,” said Lawton Robert Burns, professor of health-care management at the University of Pennsylvania's Wharton School.

On the flip-side, extending insurance to all China's citizens is getting rapidly more expensive. Rising incomes and an aging population have led to an explosion of diabetes, heart disease, cancer and other chronic conditions associated with rich diets and a sedentary lifestyle.

Disease Burden
China may host almost a third of the world's diabetes sufferers, according to a report published last week in the Journal of the American Medical Association. Based on projections from the most comprehensive nationwide survey for diabetes ever, there are 114 million adult sufferers, 22 million more than previously estimated.

Health spending per person is already increasing about 11 percent a year. That's the fastest pace in the Asia-Pacific region and more than triple the speed of countries in the Organization for Economic Co-operation and Development, according to Mark Pearson, head of health for the Paris-based agency representing the world's richest nations. Government spending on health was $155 per person in 2011, from $19 in 2002, according to WHO data.

The government needs its reforms to work. Instead of spending on flat-screen televisions, denim jeans and handbags, Chinese are squirreling away savings to pay for anticipated health expenses

Eoin Treacy's view As per capita income increases and the pace of everyday life accelerates both demand for and the capacity to pay for snack foods trends higher. This has been of particular benefit for companies such as Coca Cola, Mondalez International, Nestle and others. The corollary is that the side effects of consuming higher quantities of sugar, salt and fat lead to side effects such as diabetes and obesity among other ailments.

China faces a challenge in its attempts to animate the domestic savings rate. Many people regularly save 30% of their income to allow for medical and retirement expenses. One of the primary aims of extending healthcare provision to the masses is to mitigate the need to save so much of one's income; thus freeing up capital to spend on consumer goods and services. However, the pace with which medical costs are surging highlights the difficulty of providing a first world medical system when first world diseases become more prevalent.

The measures taken to date against Western pharmaceutical companies suggest efforts are being made to curtail profiteering as the system develops. However, healthcare is nonetheless a significant growth industry for China. The CSI 300 Healthcare Index has pulled back from its August peak and is now testing the region of the 200-day MA and the upper side of the underlying range. A clear upward dynamic would confirm the return of demand in this area.

This link to Comment of the Day on August 30th 2012 highlighting a detailed report on pharmaceuticals, comments on diabetes and a review of related shares may be of interest to subscribers.