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China's Getting Old Fast

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 (NYSE: GSK  ) , Pfizer (NYSE: PFE  ) , and Merck (NYSE: MRK  ) will be lining up to sell their wares, and some of them are already targeting more activity there.

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 (NYSE: NVS  ) and its generic company, Sandoz, probably makes more sense, as does following Pfizer's ongoing plan to sell more generic drugs. These are already large companies, though, so even with a sharper focus, it will take some time and effort before operations in China are a material part of operations for any big pharma firm.

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:


Industry / Products

3SBio (Nasdaq: SSRX  )

Generic Biopharmaceuticals

China Medical Technologies (Nasdaq: CMED  )

Medical Devices and Supplies

Tongjitang Chinese Medicines (NYSE: TCM  )

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.

Nathan Parmelee is co-advisor of Motley Fool Global Gains. He's looking forward to the trip to China, even if it means going a couple of weeks without taking his dog on its afternoon walk along the water. 3SBio is a Motley Fool Rule Breakers pick. Pfizer is a Motley Fool Inside Value selection. Novartis is a Global Gains selection. Nathan doesn't own any of the companies mentioned in this article. The Fool has a disclosure policy.

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