China is home to one of the world’s largest healthcare industries. With total healthcare expenditures reaching US$594 billion in 2015, the Asian country was the world’s second-biggest healthcare market. By 2020, China’s total healthcare expenditure is expected to hit US$1.1 trillion.
What are some of the driving factors in the growth of the healthcare sector in China, and how can investors benefit from the healthcare boom?
It might be surprising to know that China has an aging population.
According to the China Statistics Yearbook, people over 65, numbering at 130 million, accounted for nearly 10% of the country’s population in 2013, up from 7.6% in 2004. By 2053, it is expected that seniors will make up 35% of the total population.
Source: Bloomberg data (as of 31 December 2016)
As the Chinese population ages, demand for medical services should rise.
Rising income levels
According to McKinsey, China’s middle class is forecast to reach 550 million by 2022 and comprise 75% of urban households. McKinsey uses an income range of RMB 75,000 to RMB 280,000 per year to define the middle class.
With rising income levels, the Chinese will have greater access to healthcare knowledge and have an increased ability to pay for healthcare-related costs. On the flip side, as incomes rise, people tend to embrace urban living, causing disease profiles to shift towards diseases more commonly seen in cities, like heart disease and diabetes. These, in turn, increase the demand for healthcare.
As people in China become richer and gain more healthcare knowledge, demand for medical care could become more diversified and complex. Patients will be more concerned about privacy and require private-class wards, driving the growth of premium health care.
Furthermore, patients might become proactive and go for screening tests to detect diseases early, rather than wait until illnesses get worse. These emerging trends could lead to an expansion of the healthcare system’s scope and reach.
Injecting growth into your portfolio
There are many ways to invest in the healthcare sector in China. Investors can choose to buy individual shares listed in China and Hong Kong, or decide to invest in exchange-traded funds related to the healthcare sector.
Some of the healthcare sub-sectors investors could look into include nursing homes, private hospitals, pharmaceuticals, medical equipment producers, biotechnology firms, traditional Chinese medicine, healthcare IT, and private insurance providers.
The Foolish takeaway
Investors should not ignore China’s healthcare sector. There are plenty of growth opportunities in the industry. Healthcare demand is expected to increase due to an aging population, a rising middle class, and citizens who become more discerning. Investors who wish to partake in the growth of China’s healthcare industry can choose to invest in individual shares or diversify their exposure instantly by investing in an exchange-traded fund tracking a healthcare index.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.