Demographic trends present some interesting challenges to global economies -- as well as profitable opportunities for us investors. There's the lack of population growth in Japan and retiring baby boomers in the U.S., for example. Now it seems we can add China to the list.
China, too?
According to an article in last week's The Economist, which references United Nations data on aging trends, China can expect to see an ever-greater portion of retirees dominate its population.
With approximately 11% of its population over 60, this ancient country can still be considered "young." But according to U.N. data, it will age more quickly than Mexico, Brazil, and other emerging countries with young populations. Using the U.N.'s medium-case scenario, China's over-60 crowd is expected to account for 30% of its population by 2050. By comparison, about 17% of the U.S. population is over 60, and by 2050 the number is projected to increase to 27%.
This puts China in a unique position. It is still an emerging country that needs to continue developing its infrastructure, education systems, and economy, but it needs to quickly take on the developed-economy requirement of committing greater resources to health care and social services for an aging population.
China is already on the case
The government, of course, already has its eye on the growing need for health-care and general social safety nets. In April, it announced broad details of a plan to tackle health care. The first part calls for 850 billion yuan ($124 billion) in spending through 2011 to cover the introduction of a basic drug plan, improved access to health services, and upgrades to state-run hospitals. The longer-term plan has broader goals reaching to 2020 and calls for universal health care.
Where the health-care spending is likely to go
The plan doesn't get into specifics, but if you take an aging population and assume a government commitment to improving health care, it's not a huge leap to assume big pharma is positioned to benefit. In theory, GlaxoSmithKline
Making a mint in China won't be so easy, though. Right now, its domestic drug market is like most emerging markets', which is to say it's still focused on generics. So a company like Novartis
For this reason, investors need to consider that domestic players will play a role, offering the best returns because they're generally much smaller. But digging through their product offerings, balance sheets, and management is essential homework in order to reduce risk.
The good news is there are many companies in the health-care space in China that trade on U.S. exchanges, so we have access to some of this big-money potential. Here's a small sample of the industries and companies available:
|
Company |
Industry / Products |
|---|---|
|
3SBio |
Generic Biopharmaceuticals |
|
China Medical Technologies |
Medical Devices and Supplies |
|
Tongjitang Chinese Medicines |
Traditional Chinese Medicine, Supplements |
Digging in and doing research
China's health-care plans are still in the early stages, but history shows that health-care spending tends to ramp up quickly as emerging economies develop. Based on the U.N. population growth assumptions, it looks like China will need to quickly make this transition, too.
The growth potential in health care is one reason our Motley Fool Global Gains team is headed back to China this week to meet with some promising companies we've identified through our research. If you're interested in hearing about what we find, you can sign up to receive all of our free real-time dispatches from the field simply by providing your email address in the box below.
