China looks at healthcare to rebalance economy

Guo Yonggang from Xian in western China suffered serious spinal injuries last year in an accident while driving an agricultural vehicle.

His impoverished family scraped together 30,000 yuan ($4,400) for emergency treatment but cannot afford the additional 70,000 yuan for the surgery that might save the 20-year-old from permanent paralysis.

Stories like Guo’s, which was reported by state media, help explain the high savings rates that are one facet of the imbalances plaguing the world’s third-largest economy.

Households squirrel money away because China is too big and still too poor to provide comprehensive public services.

People have to fork out for hefty school fees. They know they will get at best a flimsy pension. And, if they are unlucky, they could face catastrophic medical bills.

So it is no wonder that between 1995, around which time state-owned firms stopped providing cradle-to-grave welfare, and 2008 the average urban household saving rate in China rose by 11 percentage points to about 28 percent of disposable income.

“It’s a long-term issue, and it can’t be solved overnight even though there’s huge determination,” central bank chief Zhou Xiaochuan said of the task of boosting welfare provision.

The good news is that Beijing is finally making some progress, especially in health care provision.

A long-awaited blueprint unveiled in April aims to provide universal access to essential health care by 2020 and to cover more than 90 percent of the population with some sort of basic medical insurance by 2011.

The government will allocate an extra 850 billion yuan for the scheme, which includes building 29,000 community clinics.

“If all that is planned is implemented it will be a major step forward,” said Vivek Arora, the International Monetary Fund’s chief representative in Beijing.

These and other steps to beef up social security would have an impact, but more needed to be done.

“To sustain a substantial increase in private consumption it’s going to be important to go further, to lessen the motivation for precautionary savings,” Arora said.


Private consumption contributed just 2.8 percentage points of China’s annual average GDP growth of 10.2 percent from 2000 to 2008. Spending growth was strong in fact, but investment was much stronger. As a result, the share of private consumption in GDP fell over the same period to just 35 percent from 46 percent.

For the world economy, which is counting on China to take up the spending slack created as indebted American consumers rebuild their savings, the stakes are high.

After Taiwan introduced comprehensive national health insurance in 1995, researchers found that the average level of household savings fell by 9 percent to 14 percent.

The problem is that even though insurance cover is being broadened, it will be far from extensive. People will still have to dig deep into their own pocket.

Since the New Rural Cooperative Medical Scheme (NRCMS) was launched in 2003, coverage has expanded to 830 million people and the average reimbursement rate of hospital bills has increased to 41 percent from 25 percent, according to Nie Chunlei, a Ministry of Health official.

In a new study of China’s rural health reforms, the World Bank said total out-of-pocket spending on healthcare in the countryside fell from 80 percent in 2004 to 69 percent in 2006.

But the report said the share financed out of pocket was unlikely to drop much below 60 percent.

Tan Zhonghe, a researcher with a think-tank under the Ministry of Human Resources and Social Security, said that by 2020 seeing a doctor ought no longer be a difficult and expensive business.

But he said that for now rural healthcare insurance was still very basic. Given the realities of rural China and peasants’ spending habits, it was hard to see much of an impact on consumption in the countryside.

“The schemes are not sufficient to prevent, only to relieve, poverty brought about by sickness,” he wrote in an email.


Cao Liqun, a Ministry of Agriculture researcher, added that the NRCMS program failed to live up to the propaganda.

“Yes, it covers a lot of people, but the money is too little to cover real medical expenses in rural areas,” he said.

Moreover, reimbursement procedures were too complicated; out-patient treatment, common in rural China, was usually excluded; and bills from non-local hospitals were not easy to claim back, Cao said.

“If China wants to improve healthcare in the countryside, government spending has to increase massively,” he said.

China spends almost 5 percent of GDP on health services, but the government accounts for less than a fifth of that, according to the United Nations Development Program.

Medical and health care takes up just 2.3 percent of this year’s central government budget, compared with 4.4 percent for education and 2.9 percent for environmental protection.

If China spends too little on health, the United States spends too much — a staggering 17.6 percent of GDP.

Yet in one respect China is grappling with the same conundrum as U.S. President Barack Obama. How do you expand medical insurance, thereby enabling people to make use of services they could not afford before, without encouraging doctors and hospitals to goldplate the treatment they prescribe?

“At this very moment the American government is struggling with exactly the same problem: the difficulty of paying providers in a way that encourages them to treat patients and do so well, but not in a way that encourages them to overtreat them. It’s very hard to get this right,” said Adam Wagstaff, a World Bank economist who was the main author of the report on China’s NRCMS.

Source: Reuters

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