An overview of the China healthcare market including overall structure, trends, drivers and constraints. Recommendations are also provided for how foreign companies should look at China healthcare opportunities and what best practices they should consider using to enter and grow in this market.

1. An Overview of the China Healthcare Market Presented by Michael Zakkour Contact: Michael Zakkour, principal Technomic Asia [email_address]

3. Age-shift in China 0 20 40 60 80 100 120 140 Population in millions Age 0-4 10-14 20-24 30-34 40-44 50-54 60-64 70-74 80+ 1978 2008 There will be 181 million people aged 65+ in China by 2020, more than the entire population of Russia, 25% of the world's total elderly The high savings rate in China – average 35% of total income – is attributed, in part, to people’s concern over being able to afford healthcare for their parents and themselves Source: China Statistics Yearbook; Euromonitor, Technomic Asia analysis

4. China Healthcare vs the U.S. China has seen explosive growth in their healthcare sectors. However, there is still additional room for growth compared levels in the US. Historical Healthcare Expenditures: China & the U.S. $ (billions) Source: WHO World Health Statistics 2009, China and India Ministries of Health; Technomic Asia analysis Healthcare Overview – China & the US China US Healthcare annual growth +20% 6.9% Public/private sector control 90% /10% 10% /90% Beds per 1,000 population ~2.30 ~3.60 Basic health insurance penetration ~30% ~84.7%

5. China Healthcare Share of Wallet Source: China Statistical Yearbook; McKinsey; Technomic Asia analysis Transportation and communication Recreation and education Personal items Household Items Housing and utilities Healthcare Apparel Food items Healthcare expenditure in China is estimated to double in the next two decades in terms of its percentage of a consumer’s total spending. Government reform and tremendous domestic demand will drive increased consumer spending from 2009. Evolution of the Chinese Consumption Portfolio Today Discretionary Semi-Necessity Necessity

7. Chinese Medical Institutions Source: China Ministry of Health; Technomic Asia analysis There nearly 289,000 medical institutions in China in 2008, of which 19,700 were hospitals. Clinics perform only basic outpatient services, while community health centers do limited diagnosis & testing. Chinese Medical Institutions (2008) ■ Grade III ■ Grade II ■ Grade I ■ Ungraded 66% 25% 7% 2% 5% 29% 16% 50% Hospitals 19,701 China Hospital Ownership (2008) <10% >90%

8. Hospital Utilization Grade III 9,934 1.471 billion 79 million Utilization of Graded Hospitals (2008) Source: Ministry of Health, Technomic Analysis China’s core issue in providing healthcare services is that the top hospitals – Class III – are the fewest in number but care for a disproportionate volume of patients. Grade II Grade I The Chinese government will be investing heavily in Class II hospitals to improve the level of service and make them more attractive places to seek treatment