China's Healthcare System Thrives Despite Slowing Economy

China's economic growth is slowing, but the country is well on the way to increasing access to healthcare.

By and + More

Mr. Hahn is director of economics at the Smith School, University of Oxford and chief economist at the Legatum Institute. Mr. Passell is a senior fellow at the Milken Institute and the economics editor of the Legatum Institute's Democracy Lab. They are co-founders of Regulation2point0.org, a web portal on regulatory policy.

As has been widely reported, China's economy has stumbled in the last few months, with Beijing struggling to sustain 8-percent-plus growth in the teeth of falling demand for its exports and an overhang of domestic debt that has exposed the inefficiency of its capital markets. Less reported—but probably as important to the stability of Chinese society and the political legitimacy of its self-perpetuating leadership—the government is busy juggling priorities to manage inequality in a country that is now home to over 100  billionaires.

To this end, it has quietly embarked on ambitious healthcare reform designed to reconcile old notions of social justice with the realities of China's hybrid mix of cowboy capitalism and lumbering state-owned enterprise. While it's a bit early to say for sure, the tea leaves suggest that China will pull it off.

[See a collection of political cartoons on the economy.]

Public health, ironically, constituted one of the few unqualified successes of Maoism. Mao's "barefoot doctors"—minimally trained medical workers with secondary school educations—offered vaccinations, the occasional antibiotic, and lessons on how to keep microorganisms out of the drinking water to hundreds of millions living at the margins of subsistence. The payoff: Chinese life expectancy at birth increased by a quarter-century between the revolution and 1980—the most rapid improvement ever documented.

But the system was largely abandoned after Deng Xiaoping (allegedly) declared that "to get rich is glorious." Urban healthcare, organized around politically protected state-owned enterprises, largely remained intact in the market reforms of the early 1980s. However, most of the hundreds of thousands of government-run clinics in rural villages were shuttered or privatized.

Judging by the numbers, public health did not go to seed along with the system. Rural households with access to treated drinking water rose from 56 percent in 1990 to 85 percent in 2010, while access to improved sewage systems rose from 15 percent to 56 percent. Meanwhile, the reduction in infant mortality nationwide from 50 per thousand in 1980 to just 16 per thousand in 2010, and the parallel increase in life expectancy from 67 years to 73, would have been arithmetically impossible without great improvements in the countryside. Rural incomes increased sufficiently to cover the costs of better care without aid from the commissars.

[See a collection of political cartoons on healthcare.]

But the fact that the rising tide carried all boats doesn't mean that some boats weren't carried a lot higher than others. Employees of state-owned enterprises have always enjoyed the benefits of medical insurance, along with easier access to far-superior urban hospitals. More generally, living standards are much higher in cities than in the countryside, meaning that urbanites can buy better care when they need it. And as the rural-urban income gap (along with the even more pronounced gap between the bottom and top ends of the national income distribution) has widened, the pressure for reform has grown.

Beijing has come through—or at least is en route—with an approach to healthcare that borrows from both single-payer systems (think Canada and the United Kingdon) and U.S.-style private care. Over the last decade, it has ordered provincial governments to fill in the holes in the delivery system left when Deng exorcized Mao. In practice, that means clinic-based primary care is organized like a British-style national health service for 1.3 billion, while more sophisticated services are financed through a combination of voluntary (but subsidized) insurance and the mandatory insurance that already comes as a perquisite of employment in the shrinking (but still large) state-owned enterprise sector.

Universal coverage, incidentally, is no mere dream. More than 95 percent of Chinese are already insured—presumably because provincial officials offer both the carrot of subsidies and the stick of official displeasure for the uncooperative.

[Read the U.S. News Debate: Should Congress Interfere with China's Currency Policies?]

China's hybrid medical care is still a work in progress. Insurance coverage is broad, but very shallow—kidney dialysis and MRIs won't be coming to the sticks anytime soon. And the delivery system is riddled with inefficiencies. Costly hospitals are way too often used when cheap clinics would do, and the government has yet to figure out how to convince patients to change their behavior.  Meagerly-paid Chinese doctors prescribe far too many drugs because they get a piece of the action. Perhaps most important, the government doesn't seem to have found the will or way to prevent the predictable increases in chronic diseases as longer-lived, increasingly affluent citizens smoke more, eat more, and discover the joys of the sedentary life.

But think about it. China's per capita income (in terms of purchasing power) is just $9,000. Yet it already has a healthcare system that delivers better care to a larger portion of its population than a dozen countries with twice the living standard. No wonder the tough old commies who still run the place have managed to keep their jobs.

  • China’s Scary Financial System
  • Check out Economic Intelligence on Twitter at @EconomicIntel.
  • Check out U.S. News Weekly: an insider's guide to politics and policy.