One of the biggest industries in the world is pharmaceuticals. Its market size numbers in the trillions of dollars. The pace of its growth doesn’t seem to be slowing down. Pharmaceuticals are expected to rise even higher. And it will be powered by China’s growing middle class.
Last year, in October, China overtook the US in terms of the size of each country’s respective middle classes. China’s middle class population reached 109 million. This was 18.5% above the US’s total.
Source: Credit Suisse
Since the early 2000s, China has added 43.4 million middle class adults to their growing population. The US has only added just over half this number, 22 million, by comparison. By 2022, McKinsey suggests more than 75% of China’s urban consumer base will earn 60,000–229,000 renminbi a year (US$9,000–$34,000).
It might not seem like much to us. But the average wage in China is around 57,361 renminbi annually. This means that more than 75% of urban consumers will earn at a minimum over and above the average wage today.
This growth in China’s middle class is fuelling growth across various industries. One Australian industry capitalising on this is healthcare. A major health expo is expected to be held in Melbourne mid-2016. The expo will attract more than 400 Chinese pharmacy owners.
The goal for Chinese pharma owners will be to strike as many deals as possible. Australian companies involved in vitamins and other healthcare related products believe the expo will be a huge opportunity. They will all be trying to tap into China’s hugely expansive healthcare market.
Chairman of the China Medical Pharmaceutical Material Association, Ma Shoujun, stated:
‘This is not like the way Chinese delegations are traditionally done – come here, have a look, talk and then nothing happens. This time something will happen, contracts will be signed – business to business. And the business will be ongoing. We want to form partnerships.’
Mr Ma’s association represents 240,000 pharmacy outlets. They’re at the frontline of China’s healthcare industries. And they’re estimated to be worth $1.6 trillion.
That’s right — not billion, but trillion.
The pharmacy outlets are looking to source vitamins, infant formula, health drinks, lamb’s wool and allergy resistant bedding.
And, in addition to these products, Mr Ma said they may be looking to adopt something else from Australia. The Chemist Warehouse model could be revolutionary in China. Under its model, a majority of products get sold over the counter. But in China, the complete opposite has been used for years now.
Around 70% of products in Chinese pharmacies are sold through the dispensary. Mr Ma is seeking to convert these sales to over-the-counter. Why? It’s easier for customers to buy. And, by changing pharma models in China, they might not be the only ones benefiting. Aussie pharma would likely share in the profits.
How? More sales equal more orders to source Australian-made pharmaceuticals. According to Mr Ma:
‘The health industry is a huge market for China, worth 8000 billion yuan, so the big opportunity for us is to share part of the pie. The Australian products are reliable, good products and they [Chinese pharmacies and customers] feel comfortable with them.’
A slice of that pie could very well go to Australia.
Australia is also a favoured option for China because of the Sino-Australia free trade agreement signed last year. Under the agreement, tariffs of up to 10% on pharmaceuticals will be progressively eliminated by January 2019.
One of the key findings from PwC’s 2015 report ‘Challenges and Change’ was that the Australia’s pharma industry needs future investment. In the report, PwC surveyed various pharmaceutical professionals. Of those surveyed, 66% are anticipating growth in the next few years. And China may just be the driver behind those expectations.
IBISWorld estimates annual revenues for Australia’s health services industry total $116 billion. In the past five years, the industry has been growing at 4.1%.
Let’s do a quick comparison. Australia’s mining industry totals annual revenues of $193 billion. Over the past five years, it hasn’t been growing. In fact, its average five-year growth is -1%. Therefore, it’s not that hard to believe health services could be the next big Aussie booming sector.
Junior Analyst, Money Morning
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