One Billion Lives and Counting: The Future of China’s Health Care Policy

By Kaela Cote-Stemmermann (SCR ‘18)


China is currently in the middle of reforming its healthcare system, a decision that will affect over 1.3 billion people for years to come. Moving from historically state-sponsored care to market-oriented care and now to a combination of the two, China has struggled to find a structure that works for its diverse population. Public health problems carry important implications for political stability. Thus far, the Chinese Communist Party (CCP) has relied on performance-based legitimacy to secure its own political future. Only by constantly improving social welfare and economic growth does the CCP reinforce its own authority. However, China’s slowing economic growth means that the government can no longer ignore institutional failures, such as its healthcare system, that are beginning to bring its legitimacy into question.[1] With no institutional mechanism in place to address private grievances, increasing unrest over issues of medical impoverishment represent a threat to the CPP’s authority. Though China’s health care system has come a long way, there remain many challenges to overcome in order for China to compete with international standards and mitigate increasing discontent among Chinese citizens. Health insurance inequity, over-prescription of drugs, as well as environmental and food safety problems pose potential threats to China’s health care system and government stability. How the CCP resolves the issue of affordable health care and medical impoverishment could very well decide the fate of the CCP in China.




Mao’s State-Sponsored Health Care (1949-1978)

Before the 1949 Communist Revolution, China faced a health care crisis with fewer than 40,000 trained physicians serving a population of 540 million people.[2] The most affected area was the countryside, where physicians are lacking and health risks more pronounced. China’s poor health care was seen as a consequence of its poor economic success. In pre-communist China, healthcare was not seen as a right but as one’s personal responsibility. Therefore, Mao Zedong’s attempt to create a state-sponsored health care system was a divergence from China’s health care norm. In order to achieve the agricultural productivity promised in his 1958 campaign Great Leap Forward, Mao understood that accessible health care would be a necessary precursor. Thus, peasants received free health care in exchange for working in communes, and the profit from their labor supported China’s health infrastructure.[3]

Health care was such a contentious issue that after the launch of the Cultural Revolution in 1966 that Mao became directly involved in the policymaking process. This allowed for streamlined decisions and coordinated state-sponsored health care. Consequently, the number of doctors and care centers increased exponentially and were accompanied by large advancements in basic indicators of China’s overall population health. For example, from the late 1950’s to the mid-1980’s, average life expectancy rose from about 40 to 65 years.[4] These rapid accomplishments astounded even Mao and became a large source of legitimacy for the CCP; however, drawbacks of the system such as low quality, inefficiency, and financial strains raised questions of long-term sustainability. With Mao’s death, ensuing economic reforms led to the demise of the commune system. The Party’s state-sponsored health care system quickly came to an end.


Market-Oriented Health Care (1978-2008)

Under Deng Xiaoping, the government reduced its hand in all economic and social sectors, including healthcare. This turned the Chinese health care system on its head, shifting from a state-sponsored system into a market-oriented system. Economic development was prioritized, while the delivery of health care took a back seat. The breakdown of communes eliminated communal welfare funds, and effectively dismantled the rural health network, leaving millions uninsured. Deng’s radical economic changes, known as the “opening up and reform” (改革开放) , stripped away Mao’s communist policies that banned private enterprises and began to untie China’s economy from its government. These reforms were largely a success, increasing overall productivity in manufacturing, business, and infrastructure. However, the reforms also caused health care organizations to start acting like for-profit institutions, leading to higher costs and resource waste. Even the World Bank, a fierce opponent of government intervention, predicted that China’s health care system would become riddled with difficulties if left to the free market. Indeed, a 1988 survey found that, “more than 87 percent of the rural population had no health insurance of any kind”.[5] This caused enormous resentment among the rural population who were now left with no protection against the cost of illness.

This for-profit mindset had serious consequences in terms of the quality of care that patients received. Physicians began to act like entrepreneurs in a capitalist world, seeking to make profits off of patients in various ways, such as drugs or expensive treatments. This shows that not only did the market based system fail to provide healthcare equality; it also incentivized moral hazards that could seriously affect the lives of patients. The results of these reforms climaxed in the 2002 SARS outbreak, which “exposed the inadequacies of the public health protection system, and showed how government neglect had left the health system unprepared”.[6] The SARS outbreak resulted in 916 deaths, the majority of which were spread among the rural population, left uninsured by the new market based system.[7] A clear indication that China’s experiment with market based health care was not working.


Mixed Health Care (2008-Present)

Faced with widespread public discontent after the SARS outbreak, the government started to reinstated its role in health care in an attempt to build a more equitable and efficient system. China committed to spending an additional “CN¥850 billion [$125 billion] in the ensuing 3 years”[8] with the goal of providing affordable universal health care by 2020. The political intention behind this investment is clear, to mitigate brewing unrest and improve social stability by ensuring accessible health care. These recent reforms are commendable. For example, China’s investment in healthcare has lowered patients out of pocket costs by 30 percent in 12 years.[9] However, many weaknesses still exist and will continue to cause challenges and inequity within the health care system. These include the over prescription of drugs, rural and urban insurance inequity, and environmental issues.




Over-Prescription of Drugs

In the late 1970’s, the Deng Xiaoping administration effectively removed all financial support from hospitals. This incentivized hospitals and their employees to make up the loss by exploiting the profit margin of drug sales. By implementing no separation between the prescription and distribution of drugs, and setting the service prices of drugs below their actual costs, and failing to their prescription and distribution, the government created a clear moral hazard– resulting in the unnecessary prescription of drugs, introduction of expensive imported drugs, and even the facilitation of fake drugs.[10] These problems were particularly prominent in rural public health centers that relied on drug sales since they did not receive adequate resources from Beijing. Because profit margins are a main source of revenue for hospitals, accounting for over 50% of primary health facilities, health workers quickly took advantage of patient’s lack of knowledge.[11] Hsiao tells us that in the 1990’s, “74% of patients suffering from a common cold are prescribed antibiotics as are 79% of hospital patients – over twice the international average of 30%”.[12] This type of practice has dangerous consequences and can lead to drug resistance in patients, as well as other unpleasant side effects.


Rural and Urban Insurance Inequity

It is important to not only consider average health outcomes, but also their distribution. Throughout the 2000’s, inequality of health care and health insurance had become a major issue of debate and discontent. The way this issue gets resolved will be very important to China’s future, both in terms of its political system and ongoing process of modernization. The Chinese government’s 2008 plan for universal coverage failed to address the huge gap in access to healthcare between rural and urban populations. One reason for this inequality stems from the lack of government subsidies to rural areas following Deng’s reforms in the late 1970’s. During this time the healthcare services were funded solely through taxation, creating a substantial gap between urban and rural regions and unequal quality of care.

Rural citizens bear the majority of the health costs despite having the least ability to pay out-of-pocket fees. This discrepancy results in disproportionately high rates of child mortality and common adult illnesses in rural regions. Additionally, there is a large disparity in government spending across the country. For example, government spending in “Gansu, one of Chinas poorest provinces, amounted to just ¥46 [$6.80] per person… while spending in Shanghai and Tianjin, two of China’s richest provinces amounted to ¥218 [$32.50] and ¥253 [$37.70] respectively”.[13] Such discrepancies mean that major urban hospitals are able to expand and attract personnel, while draining resources from lower-level hospitals in the countryside.[14] This difference has worked to undermine the government’s efforts at upgrading the rural healthcare network after 2008. However, with the legitimacy of the government resting on increasing economic growth, there has been little incentive to invest in health care.


Environmental Safety Problems

Another challenge is the government’s failure to address significant risk factors such as environmental degradation and food safety. This lack of preventative care places greater pressure on China’s health structure. Following China’s rapid economic development came an increase in dangerous pollutants, subjecting Chinese citizens to significant health risks. The World Bank estimates that the costs of health care related to cancer and diarrhea associated with pollution was approximately $8 billion in 2003.[15] In 2012, “PM2.5 particulate pollutants…were linked to 670,000 premature deaths from strokes, lung cancer” and various other pollutant related illnesses.[16] The failure of the government to protect its citizens from basic health risks such as smog and water contamination will result in an increased demand for health care in coming decades, as well as increase public discontent.




This review of China’s health care history shows that its leadership has made significant mistakes but has also acted with decisiveness in correcting those errors. China’s willingness to experiment with different health care policies and infrastructures sheds light on possible ways that the Chinese government could increase the quality and equity of care within the health care system.


Aligning Incentive Structures

At the root of the previously mentioned challenges, lies a flawed and misaligned bureaucratic incentive structure that must be corrected. The government must clearly identify the public’s needs, and then work to incentivize the government bureaucracy, healthcare facilities, and physicians to work towards this public interest. Misalignment between the public interest and bureaucratic interests can easily result in corruption and the waste of resources. Incentives must be put in place, not only for local governments to invest in healthcare over the economy, but also for physicians to refrain from over-prescription and more equally distribute funds. Additionally, there must be a clear and defined way for China’s policy makers to monitor the behavior of policy implementers.


Mitigate Harmful Incentives

China must discourage corruption by raising the fees of drugs that are currently priced below cost, effectively diminishing the profit margin of drug producers.[17] Civic groups such as health based non-governmental organizations or religiously affiliated groups are well positioned to take up a role in the basic education of patients concerning these kinds of specific health care issues. This would reduce leeway for doctors to press unnecessary and expensive drugs onto patients. This goal could also be achieved by raising physician’s income, which would reduce the incentive for corruption and attract intellectual capital to the health field.


Reducing Environmental Health Risks

Equally as important is the government’s responsibility to limit countrywide health risks such as environmental degradation and food safety. The CCP needs to reevaluate and start placing citizen health and environmental challenges above economic gains. As the health costs increase so does social discontent, evidenced by increasing formal complaints, putting the country’s political stability at stake. On a smaller scale, the government should consider taking measures to limit individual health risks such as smoking, unhealthy diets, and alcoholism.[18] This can be achieved though educational campaigns and widespread advertising.


Improving Rural Insurance System

One of the most pressing factors that must be addressed is the rural insurance system. While some health economists recommend providing equal health services to all people regardless of their ability to pay, this seems like an unrealistic approach in the case of China. The government would be better off focusing on building a system that ensures basic health services and drugs to everyone while reducing out-of-pocket costs. Improving the fiscal transfer system, which disperses funds from the central government to the provinces, may contribute towards this goal. Instead of general transfers, the government should implement more targeted transfers to poor provinces based on income, as well as mortality rates and doctor-patient ratios. This would allow local hospitals to get the resources they need while still being able to adjust for provincial differences. Additionally, migrant workers’ insurance plans should be attached to their place of employment rather than their residency.[19]


Rewarding Quality of Care

More generally, China must create a reward system for health care providers that is based on the quality of care rather than quantity.[20] Thus far, China’s health care goals have largely been focused on the amount of resources put into the health care system, when they should be focused on the actual outcomes. By focusing on how to transform inputs into effective services, China will maximize funding and prioritize the needs of patients. Ultimately, the Chinese people must hold their government and the bureaucracy accountable for improving the quality and accessibility of health care, reducing environmental hazards, and improving efficiency. Direct pressure from Chinese citizens will force the government to take a step back and reevaluate the health care system, ultimately giving it the priority it deserves. By adopting these reforms, China has the potential to deliver effective health care to one in every six people in the world.

In the past decade, China has made considerable strides towards affordable and equitable access to health care. Considering China’s size and heterogeneous environment, these reforms represent an impressive accomplishment. Despite these strides, the Chinese health care system faces many challenges, which, if untended has the potential to create social instability. Such inadequacies have taken a large toll on the Chinese economy and spending habits of Chinese citizens. A study done by China’s leading economists estimated that in 2005 alone, disease cost more than five billion working days, totaling ¥2.4 trillion ($296 billion) in lost economic activity.[21] By 2035, China’s health care spending would account for 9.1% of its GDP.[22] Additionally, enormous health care costs are deterring Chinese people from spending, causing them to become a community of savers rather than consumers. As this will hinder the future growth of the economy, it is clear that the consequences of a faulty health care system go beyond a simple moral responsibility and hold potential negative outcomes for the entire nation.

China has the potential to become an exemplary model of healthcare reform, and how the CCP decides to deal with such a complex issue could determine the international reputation of China, as well as its political stability. However, if reforms are not implemented soon, the future of health care in China is grim. In the coming years, China will face an aging population that will cause an increase in the demand for accessible care. China’s aged 65 and over population will rise from 140 million today to 230 million by 2030.[23] An expanding middle class will likely take advantage of its resources to demand better quality health care. Simultaneously, worsening environmental hazards will increase the amount of pollution related illnesses, stirring public discontent. While many of these events are inevitable, the policies that the Chinese Communist Party decides to take in the near future will affect how efficiently China’s health care system will meet this rising need.




[1] William C. Hsiao, “The Political Economy of Chinese Health Reform,” Health Economics, Policy and Law 2, no. 3 (2007): 241-247.

[2] Vikki Valentine, “Health for the Masses: China’s ‘Barefoot Doctors,” NPR, last modified November 4, 2005,

[3] Yanzhong Huang, “The Sick Man of Asia,” Foreign Affairs, November-December 2011, 119-136.

[4] Ake Blomqvist and Jiwei Qian, Health Policy in China: a Compatative Perspective (Singapore: World Scientific Publishing, 2014)

[5] Huang, “Sick Man”, Id.

[6] Winnie Chi-Man Yip, William C. Hsiao, Wen Chen, Shanlian Hu, Jin Ma, and Alan Maynard, “Early Appraisal of China’s Huge and Complex Health-care Reforms,” The Lancet 379, no. 9818 (2012): 833-842,

[7] Huang, “Sick Man”, Id.

[8] Yip et al, Id.

[9] The World Bank, “Deepening Healthcare Reform in China,” World Bank, last modified June 22, 2016,

[10] Blomqvist, “Health Policy in China”, Id.

[11] Yip et al, Id.

[12] William C. Hsiao, “The Political Economy of Chinese Health Reform,” Health Economics, Policy and Law 2, no. 3 (2007): 241-247.

[13] Robert Wagstaff, Adam Stephen, WangShiyong, and LindelowMagnus, “Reforming China’s rural health system,” The World Bank, July 21, 2009.

[14] Huang “Sick man”, Id.

[15] The World Bank, “Cost of Pollution in China: Economic Estimates of Physical Damages,” World Bank (2007):

[16] Yanzhong Huang, “Tackling China’s Environmental Health Crisis,” Council on Foreign Relations, last modified May 14, 2015,

[17] The World Bank, “Financing Health Care: Issues and Options For China,” China 2020 Series (1997),

[18] Huang, “Sick Man”, Id.

[19] Yip et al, Id.

[20] World Bank, “Deepening Healthcare”, Id.

[21] Huang, “Sick Man”, Id.

[22] The World Bank, “Deepening Healthcare Reform in China,” World Bank, last modified June 22, 2016,

[23] The World Bank, “Deepening Healthcare”, Id.

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