McKinsey Greater China

Healthcare in China: Entering promising and ‘uncharted waters’

February 2013 | By Franck Le Deu, Rajesh Parekh, Fangning Zhang, and Gaobo Zhou

China’s healthcare sector continues to develop at an astonishing rate: spending is projected to grow from $357 billion in 2011 to $1 trillion in 2020. From pharmaceuticals to medical products to consumer health, China remains among the world’s most attractive markets.

But for multinationals flocking to take advantage of the opportunities, long-term success is by no means assured. The bar to effective competition has recently been raised by increased government intervention and business complexity, as well as intensifying local competition. To paraphrase Vice Premier Li Keqiang, reform of the country’s health-care system has entered “uncharted waters.”

Yet still there is enormous opportunity and we remain optimistic about the overall outlook for China’s healthcare market. It remains a bright spot compared with the lackluster conditions healthcare companies contend with in many other countries. In five years, healthcare expenditures in China more than doubled—from $156 billion in 2006 to $357 billion in 2011—inching closer to 5 percent of the country’s GDP. Almost every health sector has benefited, from pharmaceuticals and medical devices to traditional Chinese medicine.

There are four primary reasons the demand for care will remain strong:

  1. A sicker population. Chronic conditions like diabetes and hypertension are proliferating rapidly as the population ages, as many more people move to cities, and as lifestyles change. The New England Journal of Medicine reported in 2010 that there were already 92 million diabetic patients and a further 150 million prediabetics in China. By comparison, the United States has almost 27 million diabetic patients. 
  2. An older and more urban population. The McKinsey Global Institute (MGI) projects that 61 percent of China’s inhabitants will live in urban areas by 2020, up from 52 percent in 2012, as 142 million people migrate from the countryside to cities. And the population of people aged 65 and older will almost double by 2030, to 223 million, from the current 122 million.
  3. A wealthier population. Growing insurance coverage and higher incomes is enhancing the ability of patients to pay. The urban middle-class population (defined by MGI as households with annual disposable income ranging from $7,000 to $27,000) is projected to increase from 29 percent of urban households in 2005 to 75 percent in 2020. The highest income groups are expected to jump from 1 percent to 7 percent.
  4. An under-diagnosed population. Many highly prevalent and burdensome conditions, such as cancer, depression, and respiratory illness, remain underdiagnosed and undertreated in China. Better and earlier diagnosis, as well as higher rates of treatment and compliance with therapies, will significantly expand the number of patients and improve the clinical benefits of drugs.


The size and sustained momentum resulting from these shifts have given China new prominence for multinational healthcare companies. For several leading pharma players, the country already ranks among the top three markets in total contribution to revenues. Others companies expect China to reach that ranking by 2015 and they already see it as their number-one contributor to absolute revenue growth. some medical-device and -equipment companies have built China businesses that now boast annual revenues of more than $1 billion and are still expanding rapidly.

Yet to continue to succeed at scale, multinationals will want to increase their investments across the value chain, step up their core capabilities, and explore creative ways of reaching new customer segments through partnerships. The right combination of these methods will allow multinationals to navigate the uncharted waters of healthcare in China successfully.

To read the rest of this report, download “Healthcare in China: Entering promising and ‘uncharted waters’,” (PDF–396 KB).