China’s demographic landscape is rapidly changing, and the government has responded by launching ambitious social and health service reforms to meet the changing needs of the country’s 1.3 billion people. This week, officials approved a five-year plan to develop a comprehensive nationwide social security network.

Karen Eggleston, the Asia Health Policy Program (AHPP) director and a Stanford Health Policy fellow, discusses the success of China’s health care reforms—including its recently established universal health care system—and the long road still ahead.

Why is the overall health and wellbeing of China’s population important globally?

There are many reasons why the health of China’s citizens matters within a larger global context. On the most basic level, China represents almost 20 percent of humanity. But it is also a major player in the world economy and it depends on having a healthy workforce, especially now that its population is aging more. The government’s ability to meet the needs of its underserved citizens contributes to a more productive and stable China, and works towards closing the huge gaps we see in human wellbeing across the world.

China also potentially offers a model for other developing countries, such as India, that may want to figure out how to make universal health coverage work at a tenth of the income of most of the countries that have put it into place before.

What are some of the biggest changes in China’s health care system since 1949?

One of the most significant changes is that China has achieved very basic universal health insurance coverage in a relatively short period of time.  

Throughout the Mao period (1949–1978) there was a health care system linked to the centrally planned economy, which provided a basic level of coverage via government providers with a lot of regional variation. When economic reform came in 1980, large parts of the system—particularly financing for insurance—collapsed. The majority of China’s citizens were uninsured during the past few decades of very rapid social and economic development.

China’s overall population is changing quite dramatically, which means it has different health care needs, such as treating chronic disease and caring for an increasingly elderly population. The central government is trying to establish a system of accessible primary care—a concept that China’s barefoot doctors helped to pioneer but that fell into disarray—and health services that fit these new needs. 

How does China’s basic health care system work? Are there segments of the population still not receiving adequate coverage and care?

China has had a system where people can select their own doctors. Patients usually want to go to clinics attached to the highest-reputation hospitals, but of course, when you are not insured you almost always by default go to where you can afford the care. “It is difficult to see the doctor, and it is expensive” has been the lament of patients in China, so an explicit goal of the health care reforms has been to address this.

The term “universal coverage” has different definitions. China initially put in place a form of insurance that only covers 20 or 30 percent of medical costs for the previously uninsured population, especially in rural areas. Benefits have expanded, but remain limited. As with the previous system, disparities in coverage still exist across the population. China not only has a huge population with huge economic differences, but within that there is a large migrant worker population. It is a challenge to figure out how to cover these citizens and how to provide them with access to better care. The government is quite aware there are segments of the population not receiving equal coverage, and it continues to strive to resolve the issue.  

What are the greatest innovations in China’s health care system in recent years?

One of the most remarkable things China has achieved is really its new health insurance system. Even if the current coverage is not particularly generous it is nearly universal, and mechanisms are put in place each year to provide more generous coverage. China is also working on strengthening its primary care and population health services, infusing a huge sum of government money into these efforts. It is the only developing country of its per-capita income that has achieved such results so far.

Interestingly, a lot of people assume China achieved its universal coverage by mandate, while in fact the central government did so by subsidizing the cost for local governments and individuals. This reduces the burden, for example, on poorer rural governments and residents, and is one innovative way China is trying to eliminate the disparity in access to care.

Eggleston has recently published a working paper on China’s health care reforms since the Mao era on the AHPP website, as well as an article in the Milken Institute Review.

Gordon Liu, a Chinese government advisor on health care and the executive director of Peking University’s Health Economics and Management Institute, spoke at Stanford on May 29 on the future of China’s health care system.

Full text available at YaleGlobal.

Children of China's Future – Part II

Aging population and poverty require stronger investment in China’s rural youth

Karen Eggleston, Jean Oi, Scott Rozelle, Ang Sun, Xueguang Zhou

YaleGlobal, 14 March 2012

Poor education mortgaging the future? Students in a Gansu province school, where many are anemic (top); another class room in Loess Plateau. (Top Photo: Adam Gorlick)

DINGXI PREFECTURE: Wang Hongli, 8 years old, lives in a remote rural village on the Loess Plateau in one of China’s poorest and most agricultural provinces, Gansu. His prospects for living the good life are as bleak as the landscape. He is not on track to become part of China’s emerging middle class, the free-spending, computer-savvy, person-of-the-world often featured in the western media.

Hongli is a pseudonym. His parents work in a faraway industrial zone, coming home for only three weeks at Chinese New Year. His grandmother takes care of him and his siblings on the weekends, and during the week he lives in a dorm, three to a bed with 36 other students in an unheated room 4 by 4 meters.

Hongli suffers from iron-deficient anemia, but neither his family nor his teacher knows he is sick. Even if his anemia is discovered and treated by the researchers who have documented 30 percent anemia among children in poor rural areas, it likely will recur after he finishes the study, with furnished dietary supplements. Despite educational pamphlets, he’ll likely revert to a diet of staple grains and bits of pickled vegetables.

Unsurprisingly, Hongli’s grades are not good. In China’s competitive school system, he has only a slight chance of attending high school, much less college. In China’s future high-wage economy, all Hongli can hope for is a menial job in the provincial capital, Lanzhou, or as a temporary migrant elsewhere. Without urban permanent residency, hukou, he will have limited access to urban social services. He may suffer chronic unemployment, or resort to the gray economy or crime. He also may never marry – one of the millions of “forced bachelors” created by China’s large gender imbalance.

In China’s future high-wage economy,  all the rural poor can hope for is menial jobs in a provincial capital.

Hongli is not alone. In fact, he’s one of 50 million school-age youth in China’s vast poor rural hinterlands. Recent studies by Stanford and Chinese collaborators show that 39 percent of fourth-grade students in Shaanxi Province are anemic, with similarly high rates elsewhere in the northwest; up to 40 percent of rural children in the poor southwest regions, e.g., Guizhou, are infected with intestinal worms. Millions of poor rural students throughout China are nearsighted, but do not wear glasses.

Because China’s urbanites have fewer children, poor rural kids like Hongli represent almost a third of China’s school-aged children, a large share of the future labor force. These young people must be healthy, educated and productive if China is to have any chance of increasing labor productivity to offset the shrinking size of its aging workforce.

Many observers presume that China’s growth will continue unabated, drawing upon a vast reservoir of rural labor to staff manufacturing plants for the world. In fact, to a considerable extent, China’s rural areas have already been emptied out, leaving many villages with only the old and the very young. The growth of wages for unskilled workers exceeds GDP growth.

Better pay should be good news for poverty alleviation. However, rising wages push up the opportunity cost of staying in school – especially since high school fees, even at rural public schools, are among the highest in the world.

It’s myopic to allow rural students to drop out of junior high and high school – mitigating the current labor shortage, but mortgaging their futures. Recent studies demonstrate that eliminating high school tuition – or reducing the financial burden on poor households – improves junior high achievement and significantly increases continuation on to high school. Yet unlike many other developing countries, China does not use incentives to keep children in school, such as conditional cash transfers. The public health and educational bureaucracies also do not proactively cooperate to remedy nutritional and medical problems – including mental health – that school-based interventions could address cost effectively.

Less than half of youth in China’s poor rural areas go to academic high school; less than 10 percent head to college.

The educational system, based on rote memory and drill, doesn’t teach children how to learn. The vocational education system is ineffective. Instead, China’s schools tend to focus resources on elite students. Tracking starts early, and test scores are often the sole criterion for success. A recent comparative study documents that China’s digital divide, with lower access to computers in poor rural areas, is among the widest in the world.

China’s government is increasing expenditures for school facilities and raising teacher salaries. However, these steps are far from adequate. During South Korea’s high growth, almost all Korean students finished high school. Today, less than half of youth in China’s poor rural areas go to academic high school, and the percent going to college remains in the single digits.

Greater investment in public health and education for the young people in China’s poor rural areas is urgent. If the government waits 10 years, it may be too late to avert risks for China’s stability and sustained economic growth.

Surely China could easily address this problem? A third of Chinese were illiterate in the early 1960s; now, fewer than 5 percent are. By 2010, about 120 million Chinese had completed a college degree. Chinese also enjoy a relatively long life expectancy compared to India and many other developing countries, and basic health insurance coverage is almost universal.

But the pace of change and citizens’ expectations are higher as well. Most Chinese assume that basic nutritional problems and intestinal worms were eradicated in the Mao era. China’s mortality halved in the 1950s; fertility halved in the 1970s. As a result, China will get old before it gets rich. Population aging, rapid urbanization and a large gender imbalance represent intertwined demographic challenges to social and economic governance. The policy options are complicated, the constraints significant, the risks of missteps real and ever-present.

China’s prosperity depends on youth mastering skills to thrive in a technology-driven world.

Timely policy response is complicated by competition for resources – pensions, long-term care, medical care for the elderly and more – as well as significant governance challenges arising from a countryside drained of young people. The well-intentioned programs for what government regards a “harmonious society” create large unfunded mandates for local authorities. Attempts to relocate rural residents to new, denser communities provoke anger at being uprooted and skepticism that local authorities simply want to expropriate land for development.

Millions of migrant workers – like Wang Hongli’s parents – return to their rural homes during economic downturns. Urbanization weakens this capacity to absorb future economic fluctuations. Government efforts at “social management” – strengthening regulatory control of informal social groups and strategies for diffusing social tensions – expand the bureaucratic state, a central target of popular discontent.

Premier Wen Jiabao’s announcement of a 7.5 percent growth target – the lowest in two decades – has been expected. Future economic growth will moderate partly because of demographics, but mostly because productivity gains slow as an economy runs out of surplus rural labor and converges on the technological frontier. Costly upgrading of industrial structure will squeeze the government’s ability to deliver on its promise of a better future for all, stoking social tensions.

China’s stability and prosperity, and that of the region and the globe, depends on how well today’s youth master the knowledge and skills that enable them to thrive in the technology-driven globalized world of the mid-21st century. Resilient public and private sector leaders of the future must be able to think creatively. Therefore, China’s government should respond to population aging by acting now to invest more in the health and education of youth, especially the rural poor.

 

 

Nearly a year has passed since an earthquake triggered a tsunami that swept away entire communities on Japan’s northeastern coast, leading to a series of accidents at the Fukushima nuclear complex. Since the March 11 disaster, Japan is experiencing a growing sense of community, and it faces a potential opportunity for innovation in the energy industry and economy. Masahiko Aoki and Kenji E. Kushida discuss post-March 11 developments, and a related conference at Stanford scheduled for February 27.

Aoki is the Henri and Tomoye Takahashi Professor Emeritus of Japanese Studies, and director of the Japan Studies Program at the Shorenstein-Asia Pacific Research Center at Stanford University.

Kushida is the Takahashi Research Associate in Japanese Studies at Shorenstein APARC, and a Stanford graduate (BA ’01, and MA ’03).

One Year After Japan's 3/11 Disaster will bring together experts from Stanford, Japan, and Europe for a discussion of the major economic, political, energy, and societal challenges and growth in post-Fukushima Japan.   

Looking back a year later, what do you think are important lessons we can learn from March 11?

Masahiko Aoki: Japan has often faced disasters leading to the complete destruction of cities and enormous losses of life. In the last century alone, there was the great Tokyo earthquake of 1923; wartime damage in Hiroshima, Nagasaki, and other metropolitan areas; the Kobe earthquake of 1995; and so on. Each time, Japan rebuilt its life and infrastructure anew. Accepting the reality of a disaster and making efforts to rebuild is in a sense deeply embedded in Japan’s collective DNA. However, the March 11 disaster was not only just a natural disaster. People are now well aware that there were lots of elements of human and institutional error in terms of preparing for and coping with natural disasters. Recent geographical studies and historical documents reveal that large-scale earthquake-tsunami disasters comparable to March 11 have occurred four times in the last 4,000 years. It provides Japan with a good opportunity for thinking about how to build sustainable societies and cities.  

Kenji Kushida: Big shocks always cause big changes, and the type of change depends on the kind of shock. With March 11, there was the human tragedy of people literally getting washed away. It also raised the question of how to restructure energy markets, which is an area where outcomes in Japan can affect worldwide restructuring. This particular shock then is triggering a whole set of fairly slow moving, but very transformative changes that could take place over the next few years.

What trends are we seeing in Japan’s energy industry now, and what are the implications for Japan’s future energy policy?

Aoki: When I flew into Tokyo the day after the great earthquake, the city was quite dark. But by the summertime, it was not only lit up, but there was a blue hue to the light—this was due to the wide adoption of energy-efficient LED lighting. Even with the nuclear plants down and 25 percent of the electric capacity gone, there were no major blackouts thanks to energy-saving measures. This kind of incident motivates people to explore ways to innovate the energy industry. For example, Japan’s energy-efficient auto industry took off in the late 1970s in reaction to the Oil Shock.

Japan’s energy industry is currently run by regional monopolies. Tokyo Electric Power Company (TEPCO), for example, monopolizes everything from power generation to retail distribution. In the past, there had been an attempt to break up the different parts of the power monopolies into separate entities. But only a bit of reform was made because of very strong resistance from TEPCO. Now TEPCO is on the verge of insolvency, so Japan has a very good chance to restructure its power industry. People are again starting to think about breaking up the regional monopolies and about innovation, which several experts will discuss during our conference.

Kushida: We will also draw on Stanford’s being in California to think about how to prevent Enron-style market manipulation and rolling blackouts from happening in Japan. A lot of it has to do with the rules and regulations that create an energy market. In the tsunami-devastated areas of Japan, there is also a tremendous opportunity for ground-up investment in new forms of energy. Silicon Valley technologies and companies can help design the next generation of renewable, sustainable energy systems in those areas.
In Japan, there is a sense that people have rediscovered their ties to one another after the disaster.

-Masahiko Aoki, Director, Japan Studies Program

During the recovery, many Japanese citizens demonstrated a remarkable strength and collaborative spirit. Has this changed?

Aoki: Annually on New Year’s Day in Japan, a high-level Buddhist priest writes the calligraphy for a word representing the spirit of the people. This year he wrote “絆”—“bond” (kizuna)—signifying the ties both among Japan’s citizens, and between Japanese and the generous help and aid that poured in after March 11.

In Japan, there is a sense that people have rediscovered their ties to one another after the disaster. Before March 11, there was some worry that young people were not so concerned about others and about tradition. Many young people now want to become volunteers, and there is also a better sense of community.

What has the impact been on Japan’s economy, and what are the prospects for recovery?

Aoki: There is an increasing awareness that Japan cannot sustain the same kinds of export-oriented, manufacturing-based industrial structures it has over the past decades.

Since 2007, Japan’s net foreign exchange receipts from royalties, investments, and the like have exceeded those from trade. The economic structure is becoming less export oriented, so the March 11 disaster might trigger the acceleration of a more domestic-oriented economy. It might also lead to an increase in foreign direct investment, prompted in part by population aging and partly by appreciation of the yen. Japan will become more domestic market oriented, while at the same time more internationally active. A lot next year depends on what will happen with Europe’s economy, but otherwise the prospect for Japan’s GDP is not bad because of reconstruction demand.

Kushida: Recovering from March 11 presents a potentially more productive experience than the 2008 global financial crisis. In 2008, Japan’s exports dropped dramatically for a few months and then there was a sharp recession that recovered quickly. There was not a whole lot that people or companies could do, other than adjust to the potential decline. March 11 provides more opportunities for innovation at the company and individual level. 

As it is finding growth in the domestic market, Japan has been criticized lately for being “inward-looking.” But two things from this latest crisis are contributing to looking outward a little more. One is the sense of vulnerability and transience, so strengthening Japan’s economic base becomes a much more urgent matter. The second is that in the aftermath of the euro crisis, the very strong yen has also led to a huge move toward outward acquisitions that are becoming integrated with the domestic economy.