Consumer Health Trends in China

Several factors seem poised to spur further development in China’s market for Over-the-Counter (OTC) health products, but legislative and regulatory barriers to growth remain. Euromonitor International explores some of the key sources of increased opportunity, as well as possible obstacles.

Increases in affluence and the ageing population encourage self-medication

According to Euromonitor International data, China experienced the largest per capita income growth in the world over the period 2005-2010, leading to higher living standards across the population.

Unfortunately, this increased prosperity also led to greater urbanisation, altered diets, and more sedentary lifestyles, creating greater risk for obesity and chronic diseases, such as diabetes. In fact, in 2010 China had more diabetics than anywhere else in the world, with an even greater number of adults exhibiting early symptoms of the disease.

In addition, while China’s 2011 decennial census proved that the one-child policy successfully slowed overall population growth, it also showed a higher-than-anticipated proportion of retirees. Euromonitor International forecasts 15% growth in the over-65 population over 2010-2015, along with increases in life expectancy for both men and women.

The elderly population experiences similar health risks as those enumerated above, as well as others, such as osteoporosis and insomnia.

In 2009, in the midst of this increase in the at-risk population, the government introduced health reforms aimed at reducing medical costs, making an expansion in self-care a particularly attractive proposition.

Consumers can use OTC products both for prevention and as an alternative to costly hospital visits. The current market size and consumer attitudes also suggest great potential for growth in this area.

Though consumption of OTC items has grown each year over 2005-2010, current per capita consumption of OTC products is still relatively low—only about 25% of that of other moderately developed countries according to the China Nonprescription Medicine Association (CNMA).

In addition, more consumers are expressing openness to expanding their use of OTC treatments. A 2008 survey of urban and rural residents by the CNMA and Peking University found that 75% were willing to self-medicate for common ailments.

Regulatory complications make OTC market growth more constrained than it seems

In 2000, China implemented a prescription and OTC medicine classification system for over 5,600 Western and 3,500 Chinese patent medicines. The 2009 health reforms further isolated 307 medications as essential drugs, which are heavily subsidised such that hospitals must sell them at cost.

The reforms also stipulate that the public unified fund of basic healthcare insurance will only reimburse OTC drugs used during a hospitalization; outpatient self-medication must be funded with a personal account. Beyond all these regulatory concerns, there are branding and marketing restrictions on OTC products as well. All of these factors stifle growth in the OTC market.

Uncertainty about OTC insurance payments may discourage research and development and investment in OTC treatments, since new drugs will not be included in the healthcare insurance catalogue.

The insurance provision may also have unintended adverse effects on the goal of reducing overall healthcare costs. Consumers may neglect to use OTC medicines for preventive measures, increasing the likelihood of hospital visits, and may elect to go to a hospital when OTC self-care would be a viable alternative. In addition, few retail drugstores are eligible for insurance reimbursement—only 99 out of 3,000 in Beijing, for example, according to the CNMA.

Retail drugstores, especially chains, have the ability to regulate OTC prices by exploiting economies of scale, but chain development is inhibited, since only hospital and community healthcare agencies have wide insurance access.

The pricing policy for OTC medications only considers generic names; branded OTC products are not eligible for distinguished pricing, which discourages both quality and innovation. Moreover, the pricing components of the 2009 reforms force companies with branded products, particularly foreign multinationals, to compete with low-cost generics companies, largely domestic, for state contracts. Production costs, however, have been increasing, further threatening product quality and safety.

Many hospitals and grassroots healthcare agencies are harmed by the price controls, too. Prior to the 2009 reforms, a 15% drug mark-up was common; the zero percent mark-up for medicines on the essential drugs list cuts deeply into revenues that could cover other operational costs.