China Rejigs Healthcare to Put Money Where It Delivers Optimal Results

Editor's note:

China recently released the blueprint for the 15th Five-Year Plan (2026-2030), outlining how the nation will move up the value chain in industry and spur innovation, become more self-reliant in technology, and improve living standards. The new plan, which comes amid a more disquieting global environment, will go to the National People's Congress in March for adoption. This series provides insights into China's vision of its path forward.

China is redesigning its healthcare system, with the 15th Five-Year Plan (2026-2030) pointing where change will lead.

The country is moving away from incremental expansion and toward industrial selection: paring inefficiencies, reconfiguring the treatment ladder and prioritizing the forms of drug research that can survive in a system facing extreme demographic and financial pressures.

The shift did not arrive in policy documents first; it began in the marketplace. China's pharmaceutical stocks surged on foreign licensing deals, riding a wave of enthusiasm that briefly pushed valuations far above historical averages.

It was fueled by rush for profits. In May 2025, Pfizer struck a record-setting agreement with 3SBio, acquiring overseas rights to a PD-1/VEGF bispecific for an unprecedented US$1.25 billion upfront fee and more than US$6 billion in potential future payments. In July, Hengrui secured a US$12.5 billion global licensing deal with GlaxoSmithKline, and in October Innovent Biologics signed an US$11.4 billion development and commercialization partnership with Japan's Takeda.

By the third quarter in 2025, foreign licensing deals by Chinese biopharma firms reached about US$92.03 billion, up 77 percent from a year earlier.

The market's verdict on mega deals was subdued. A correction set in, pharma prices sagged and the focus turned to the question: Can domestic pharma show organic growth without heavy reliance on overseas licensing?

"We remain optimistic about the long-term potential of China's healthcare market," said Chen Chen, an analyst at UBS. "However, after the sector surged 64 percent, driven by enthusiasm around outbound licensing, and US policies introduced risks, we expect market attention to shift back toward internal revenue and profit growth."

His outlook is not a pivot toward pessimism; it is a reminder that investors, regulators and hospitals have all begun to demand proof rather than narrative.

The demographic backdrop is irrevocable. More than 15 percent of China's population is 65 years or older, and that share will approach 20 percent by 2040. Healthcare needs and spending rise sharply with age. A patient in their 70s requires nearly twice the resources of someone in their 40s. Healthcare expenditure can no longer just sit around 7.8 percent of gross domestic product, well below levels typical in advanced economies.

The solution is to reconfigure how China organizes and pays for care.

One area to address is the plight of top-tier hospitals, currently catering to a vast volume of less serious cases that could be cared for at lesser costs elsewhere.

What is often framed domestically as fenji zhenliao (分级诊疗), or "tiered diagnosis and treatment," aims to route routine illnesses and chronic management of ailments down to county hospitals and grassroots clinics. That means tertiary centers can focus on cancer, neurological disease, metabolic disorders, rare ailments and high-risk surgeries that often determine life versus death.

This is not decentralization for the sake of administrative neatness. It is a defense against suffocation in the most needed segments of healthcare.

By September 2,199 counties had established tight-knit local medical services, diverting less serious cases away from major hospitals. The new five-year plan also sets a target of primary-care access within a 15-minute radius of homes by 2027, and a sustained increase in the share of services delivered by facilities at the county and township level by 2030.

The financing arm of this transformation is often misunderstood outside China, where observers view centralized procurement and payments as pressure tactics. Inside the system, they function as a pricing algorithm.

Commodity drugs and easily replaceable medical devices are bought in bulk by the government procurement agency after negotiation with drug and device makers, thus reducing prices at the grassroots level.

In November, for example, the approved price for Camrelizumab, a blocking antibody targeting certain cancer cells, was reduced 85 percent from pre-negotiation levels, and Toripalimab, another drug used in cancer therapy, had a price cut of 71 percent.

Complex therapies, biologics and high-value implants are given a different funding pathway based on incremental evidence, selective reimbursement access and longer cycles of clinical use.

The point is not to reduce spending overall. It is to reallocate budgets from parts of the system that generate no marginal value.

"After 11 rounds of national centralized procurement, the revenue share of generics in China's pharmaceutical industry has declined, and we expect this trend to continue over the next decade," Chen said.

The market has already internalized this logic. Companies that rely on generics have reduced or abandoned research and development investment in those categories. Capital is no longer rewarding commercial survivorship; it is rewarding clinical defensibility.

The industrial consequences have been profound. Domestic medical device firms have climbed from disposables to surgical robotics, imaging systems and orthopedic implants. Hospitals now treat them less as substitutes and more as infrastructural partners, embedding maintenance, training and procedural integration.

Pharmaceuticals have followed a similar arc. The sector has moved past the question of whether China can innovate – it's obvious now that it can – to asking which pipelines are best to scale up. The foreign licensing heyday that began in 2020 created a global recognition channel for Chinese pharma, especially in oncology, autoimmune diseases and metabolic disorders.

"Chinese pharmaceutical companies are becoming key participants in global innovation," Chen said.

That momentum is now visible in domestic approvals as well. China cleared 43 innovative drugs for use in the first half of 2025, a 59 percent increase from a year earlier and the highest number in any six-month cycle. The issue is no longer quantity but rather quality of the drug pipelines capable of supporting global development.

"The constraint ahead," said Jin Chunlin, director of the Shanghai Health and Development Research Center, "is moving beyond me-too production toward first-class research anchored in stronger basic science and research."

The new five-year plan builds on that momentum by elevating biomanufacturing and digital medicine to the level of industrial priority.

Biomanufacturing is being positioned as a general-purpose technology stack: fermentation systems, enzyme platforms, synthetic biology toolchains, core hardware and materials. The objective is not isolation; it is insulation.

The country wants to ensure that the components that enable breakthrough therapies do not depend entirely on fragile cross-border supply chains.

"With US-associated risk increasing and valuations running ahead of fundamentals, we expect the investment focus to return to core earnings drivers," Chen said.

What the 15th Five-Year Plan codifies is a filtering mechanism. China is not looking to subsidize hundreds of companies that duplicate each other, nor to preserve low-margin factories or opportunistic pipelines. It intends to preserve capacity where it produces scientific leverage.

Tertiary hospitals will be reserved for serious disease treatment, where care for a patient can add to the body of scientific knowledge. Insurance funds will be allowed to pay generously only where new therapies alter real-world trajectories. Firms without defensible science will fall out of the ecosystem.

The result is an industry entering a harsher but more rational phase. Healthcare will expand simply because aging makes contraction impossible. But expansion will not determine winners. Companies that turn laboratories into launch pads, converting trial data into regulatory approvals and approvals into market therapies, will define the era. It's a plan that doesn't promise softness, but rather instills discipline for companies that hope to survive.