Another revolution coming in China

The Beijing government plans a massive investment in social services, particularly health care. For investors, this will have a major impact on how to make money in China.

Tens of millions of people aren't covered by any health insurance, and millions who had insurance have lost it as a result of the global economic crisis.

Too many people live in fear that they're only one illness away from poverty.

In January, the Beijing government announced a plan to spend $124 billion by 2011 to provide some form of health insurance to 90% of the population.

A radical and profitable change

Either way you look at it, spending more than $60 billion a year to improve health care in China has the potential to be revolutionary.

We are looking at the beginning of revolutionary change in the Chinese economy.

For investors, that revolution will totally change how to make money in China.

Let me explain what's so revolutionary about spending $124 billion over two years.

The goals of the plan seem modest enough. The government wants to extend some form of health insurance to 90% of the Chinese population. "Some form" is the key. Each person covered would get an annual subsidy worth about $17 beginning in 2010. Medicines would be covered by the insurance. Some of the money would go to improving health centers in rural areas, and efforts would be made to reform the operation of public hospitals.

Now, $17 a year per person doesn't seem like much, and indeed it's not in the developed economies of the world. It's a much bigger deal in rural China, which is much poorer than the urban areas.

In the first quarter of 2009, according to a nationwide government survey, the average household in rural China showed an annual income of $237 at official exchange rates. Rural households average 4.5 people (or at least they did in 1995, which is the most recent data I could find). In a household of four people, the new plan would provide an annual budget of $68 a year. That's a big percentage on a household income of $237.

Cash and apothecary

The effect, though, is even greater if you look at the way China's health care system works now. Everything requires a cash payment from the minute you walk through the door.

Think about living on a household income of $237 a year and knowing that a thing like an infected appendix could bankrupt you. And that without ready money -- $100 or so -- you can't get a diagnosis or tests.

Save or die

What would you do? If you live in China, you save like your life depends upon it. Because it does.

Do you really wonder why China's savings rate is something like 40%?

The government has known about this problem of social insecurity for years. It is a completely predictable result of breaking the iron rice bowl, the government-provided social services that formed the basis of Chinese society until the introduction of "it's all right to get rich" economics by Deng Xiaoping.

But the decision to devote tens of billions a year to improving health care and providing a minimal level of health insurance is a remarkable sign that the government actually intends to do something about social insecurity in China.

And the leaders in Beijing are also moving to put money into education and pensions.

Waiting to buy the revolution

What does that mean for those of us who constantly search for ways to invest in China?

Companies such as Ping An Insurance (PNGAY, news, msgs) or China Medical Technologies (CMED, news,msgs) that will be direct beneficiaries of more government spending on social services.

Chinese stocks are incredibly volatile, and lower prices will come to he or she who waits.

And you're not in any hurry. This revolution in China's economy is just getti started, and it has a long way to run.

http://articles.moneycentral.msn.com/Investing/JubaksJournal/another-revolution-coming-in-china.aspx