I just booked my fourth trip to China this year. Each time I go I visit orthopedic distributors, tour hospitals, talk to Chinese heads of U.S. companies, Chinese CEOs. Last time I even gowned up and observed a case.
While it may be cliché to say, it is no less true that China is big. Huge, actually. That fact hits every new visitor square between the eyes.
Chinese buildings are big and aspirational—extra tall, wide and topped off with a flourish. Chinese trains are new, fast and look like bullets. Cities are muscular, broad and crowded.
Suzhou, a satellite city to Shanghai, has 14 million people and is considered a 2nd tier city. By that measure, New York City with its 8 million residents would also be a 2nd tier city in China.
China’s 1.3 billion people live in 22 provinces and 5 autonomous regions. But they are on the move—160 million Chinese have left their home province and migrated to cities, mostly. That would comparable to 50% of every American moving.
Staying with that same number—160 million Chinese are 60 years of age or older—and therefore entering the prime age for orthopedic products and services.
160 Million and Growing
The total populations of Japan and Russia do not reach 160 million. In the U.S., the number of men and women over 60 years of age is 57 million (U.S. Census estimate for 2010)—which is less than one-third the number of 60 year-olders in China.
In the U.S., approximately 136 people out of every 100, 000 have a total knee operation. About 60 of every 100, 000 have a hip operation. The vast majority of these patients are over 60 years old and the underlying cause of hip or knee replacement correlates positively with age—and capacity to pay. (Source: Epidemiology of Knee and Hip Arthroplasty: A Systematic Review§ Jasvinder A. Singh*, 1, 2, 3, 4 The Open Orthopaedics Journal, 2011, 5, 80-85.)
In China, aging and wealth are growing faster than anywhere else in the world. Here’s a statistic that should put starch in your shorts. The size of China’s elderly population (60 years and older) will increase by 100 million in just 15 years (from 200 million in 2015 to 300 million in 2030).
Source: Wikimedia and Tim HippsThree hundred million grandfathers and grandmothers with aching and arthritic joints. It’s as if the entire U.S. population was elderly.
One Million Millionaires
In parallel with this aging is an astonishing rise in wealth. According to the Boston Consulting Group, Inc. (BCG) there are more than one million millionaires in China. Specifically, says Tjun Tang, a partner at BCG in Hong Kong, the number of millionaire households jumped 31% in 2011 to 1.11 million. But, “this grossly underestimates true overall wealth in China, ” says Tang since it excludes works of art, fine wines and yachts, a growing class of assets among China’s wealthier class.
One consistent theme we hear from every healthcare professional we meet in China is that the government is reallocating resources and priorities toward healthcare and pensions. Culturally, we also hear, this is an imperative and is entirely consistent with both modern China and traditional Chinese culture.
An Aspirant Great Power
In March 2011, China’s National People Congress approved a new Five Year Plan (the twelfth overall) covering 2011 to 2015. Each Five Year Plan sets the key priorities for China. These are more than simple government documents—they are blueprints for industry, society and government. And they reflect China’s complicated political, social and economic cross currents.
James Fallows, who has lived in China for many years and is one of the more prolific western writers about China writes: “The country’s successes over the past three decades arise mainly from allowing more and more of its people to apply ideas, ambitions, and energies in ways that benefit themselves and their families, and that build the national economy at the same time. To take the next step in its development, it [China] will have to alter that equation in subtle but significant ways, by granting broader scope to individual ambition than has been possible through the Communist Party’s decades in control.”
The current Five Year Plan seems to be moving in the direction Fallows is pointing to. Its new focus is not only on the quantity of industrial output but also the quality of life—sustainability and equality are the key overall themes. Chinese Premier Wen Jiabao, in announcing the details of the plan said:
In some places, I have seen, urban construction is very fast, but as you walk along, you see shabby rural streets and housing, and some farmers are still hard pressed to pay the schools the 100-yuan heating fees for their kids. Therefore, I tell local officials, wouldn’t it be better if we construct fewer high buildings and spend the funds expanding the urban scale on raising living standards?
Life Sciences as a Chinese Strategic Industry
In the new Five Year Plan China’s leaders designated seven “Strategic Emerging Industries” (SEIs) to fund and support. Healthcare is one of them—specifically drug, device and biologic supplies and patient healthcare delivery systems.
China is investing billions to upgrade its healthcare infrastructure. Thousands of new hospitals and clinics are being built around the country. The purpose of this infrastructure investment is to provide universal access to healthcare. Currently, Chinese hospitals receive very little central funding, and are forced to make profits from drug sales and medical treatment in order to cover costs. The new Five Year Plan has a strategy for changing that.
China’s drug and device distribution system is highly fragmented with thousands of small local distribution enterprises. That, China’s leaders think, is part of the problem. The new Five Year Plan promotes healthcare consolidation by suggesting creation of one or two Tier One companies with national scope capable of generating RMB100bn ($15 billion) in annual sales.
Then, the plan continues, create 20 Tier Two regional companies with revenues of RMB10bn ($1.5 billion). Ultimately, the central planners hope, these companies will form larger distribution networks with better delivery times and lower costs.
Central Planning/Aggressive Capitalism
Think about it, the Chinese government is promoting large, private company consolidation and wealth creation. China is certainly a beguiling mix of central government planning and aggressive capitalism.
A large part of the new Five Year Plan is a program to fund product, service and distribution development at private medical device, pharma and healthcare service companies.
China wants to build a healthcare product and service base that is the equivalent of anything anywhere else in the world. By doing so, its leader’s think, China can simultaneously develop an economic engine of the future, while improving the quality of life of its citizens.
China’s huge investment into R&D and direct intervention in the national healthcare system is meant to eventually stimulate Chinese-derived treatments and technology. Until then, the demand will continue to grow rapidly for premium priced western brands. But someday, don’t be surprised to see advanced Chinese medical technologies.
Orthopedics and Capitalism, China Style
Chinese medical product and service companies now trade on the New York Stock Exchange. We visited one such firm on our last visit. We met with its top executives, more than half of whom were transplants from the U.S., Canada and the UK. English was the designated language of the company. We met in a 400, 000 square foot, beautiful facility that would be the envy of ANY pharmaceutical or bio-tech firm in the U.S. or Europe and it was compliant with the strictest regulations from the EU and USA.
China, I think, is focusing its ambitions on itself and looks to the West, generally, for resources with which to ensure that its individuals and families realize some basic dreams—that grandparents live in reasonable health, that students get the most education possible and that every family achieve a level of bourgeois comfort.
These goals should be instantly recognizable to any American. And, for 300 million future elderly, middle class China-resident patients, none of these goals will be possible without the intellectual know-how, products and services of this industry we inhabit. All of which spells an almost unimaginable future for orthopedic products and services in China.
