Establishing Equitable and Efficient Systems for Education and Healthcare

Abstract

Education and healthcare are central to successfully sharing the fruits of economic development and promoting social equity. Both can contribute to human capital accumulation, labor productivity promotion, and economic growth. Improvements in education and health also help to close the gap between human capital and income, promoting social equity. They can also be mutually reinforcing. Achieving the development goal of “common prosperity” requires the establishment of equitable and efficient nationwide systems for education and healthcare. Insufficient funding and incomplete institutional systems are two long-term constraints hindering China’s approach to achieving a high-quality education system. On the one hand, public funding for education in China is insufficient and unevenly distributed. Public funding for early childhood education (for ages 0–3) and vocational education is relatively insufficient in China, with significant regional disparities. Guidance and supervision of the education system is insufficient, particularly in public childcare services, the integration between vocational education and general education, participation of enterprises, and autonomy of universities. Insufficient funding and incomplete institutional systems have led to unequally distributed resources in education, thereby weakening the role of education in promoting economic growth and social equity. The limited financial protection provided by health insurance and the uneven allocation of medical resources are the primary reasons for “kan-bing-nan” (seeking care is difficult) and “kan-bing-gui” (seeking care is expensive) in China. “Seeking care is expensive” is manifested as a heavy burden for patients, which can easily result in catastrophic medical expenditure, and even push them into poverty due to illness. “Seeking care is difficult” results from insufficient high-quality medical resources. Patients often struggle to find good doctors when faced with serious illnesses, and the number of physicians in rural areas is relatively low compared with urban areas. “Seeking care is expensive” in China reveals that there is still a long way to go before the country develops a fully comprehensive healthcare security system, and significant disparities persist between urban and rural areas. “Seeking care is difficult” in China reflects the unbalanced allocation of medical resources, with an excessive concentration of high-quality resources and large differences in clinical quality across different levels of medical institutions. The limited financial protection and unbalanced allocation of medical resources undermine the ability of healthcare to promote economic growth and social equity. To establish an equitable and efficient education system, China needs to increase fiscal investment in education and improve the overall environment for the development of young teachers. China should also clarify the focus of its education policies based on the unique characteristics of each stage of education. The government needs to commit more resources to inclusive childcare services in early childhood, expand the supply of in-school resources for basic education, diversify the assessment system, and modernize the vocational education system. To promote equity in basic medical services, China needs boost its financial resources, improve the efficiency of healthcare spending, and encourage innovation in commercial insurance. China should also develop an integrated, people-centered healthcare system with primary care at the core. This includes strengthening the capacity of community-level healthcare institutions, integrating healthcare and social care services at the community level, and promoting the training and development of healthcare professionals.

Authors: Kai Qian, Liping Zhao, Peng Zou, Rong Dai, Shuyun Che, Zeyu Liu, Qianyi Li, Fang Quan, Yizheng Yang, Ting Wu, Yuchi Zheng.

6.1 Education and Healthcare Are the Cornerstones for Sharing the Fruits of Economic Development and Promoting Social Equity

The education and healthcare systems can contribute to achieving the goal of common prosperity by promoting economic growth and social equity. Improving education and healthcare systems can effectively promote the accumulation of human capital and health human capital, which in turn can drive economic development. Furthermore, ensuring equitable access to education and healthcare can effectively prevent the intergenerational and intra-generational transmission of poverty, and promote social equity. Therefore, the establishment of equitable and efficient education and healthcare systems is crucial for achieving the goal of common prosperity.

6.1.1 The Mutual Promotion Between Education, Healthcare, and Economic Growth

Education contributes to economic growth by increasing human capital and improving labor productivity. In the late 1950s, economists began to incorporate human capital into the neoclassical growth model, treating it as a factor of production.¹ The contribution of education to economic growth is through two dimensions: Quantitative and qualitative. The quantity of education can be measured by indicators such as the average years of schooling of the population.

National cross-sectional data suggests that countries with higher average years of schooling tend to have higher GDP per capita (Fig. 6.1). Empirical studies strongly correlate human capital stock with economic growth.² The quality of education also plays an important role in economic growth as the same number of years of schooling can result in varying levels of knowledge accumulation depending on the quality of education. A country’s education level, measured by the average science and mathematics scores of the Program for International Student Assessment (PISA), demonstrates a significant positive correlation with GDP growth. This correlation has a higher explanatory power than when education level is measured by average years of schooling.³

Fig. 6.1

Source World Bank, UNDP, CICC Research, CICC Global Institute

The correlation between average years of schooling and GDP per capita. Note The sample contains 176 countries for which data is available.

Healthcare plays a vital role in promoting economic growth by enhancing health human capital and expanding the labor supply and boosting labor productivity. In the 1970s, economists started to incorporate health into economic models, with health being considered both a consumer good that affects current utility and an investment good that impacts future labor supply and labor productivity.⁴ Free from physical and mental illnesses and the resulting stress, individuals can develop and increase their labor productivity, extend their working lives, and increase their personal income and wealth. Good health for all is also a crucial long-term driver of sustained economic growth. A large and healthy workforce is a prerequisite for creating wealth and achieving the goal of common prosperity.⁵

Education and health can reinforce each other by increasing the efficiency of health production and the quality of education. Higher levels of education can lead to a higher “health production” function.⁶ Empirical studies have consistently found that individuals with higher levels of education are less likely to engage in risky behaviors such as smoking, alcohol abuse, excessive weight gain, or unsafe driving.⁷ Moreover, the positive effect of education on health production is more significant the higher the education level.⁸ At the same time, improved health has the potential to enhance the accessibility, effectiveness, and quality of human capital accumulation. Childhood health and nutritional status have profound impacts for the education process and human capital formation. Malnutrition, in particular, can delay school entry or result in pupils dropping out of school, with girls being more affected. Infectious diseases such as parasitic diseases and dysentery can affect school attendance and attention to learning.⁹

6.1.2 The Improvement of Education and Healthcare Will Promote Social Progress

An increase in the level of education can promote social equity by providing individuals with equal opportunities to acquire knowledge, skills, and abilities, regardless of their socio-economic background. National-level data reveals that countries with higher average years of schooling have a relatively lower Gini coefficients (Fig. 6.2). However, it should be noted that an increase in the average level of education of the population does not necessarily lead to a decrease in income inequality. If the disparity in education levels between individuals widens, it could instead lead to a widening of the income gap. To reduce income inequality, it is necessary to bridge the gap between rich and poor by raising the educational level of the less educated towards the mean. Only in this way can the income disparity be reduced, and social equity promoted.

Fig. 6.2

Source World Bank, Our World in Data, CICC Research, CICC Global Institute

Average years of schooling is negatively correlated with the GINI coefficient. Note The sample includes 98 countries and territories for which data is available, including high-income, upper-middle-income, and lower-middle-income countries.

An improvement in the overall health level of a population can contribute to reducing gaps in human capital and income between individuals, thereby promoting social equity. A cross-country comparison using life expectancy as a proxy for national health reveals that countries with higher life expectancies tend to have relatively lower income inequality (Fig. 6.3). A high level of health for all is a fundamental component of social progress, as evidenced by the United Nations’ adoption of life expectancy as one of the three major indicators of the Human Development Index. This underscores the international community’s recognition of the central role that health plays in sustainable development. Aligned with the role of education in promoting society, the improvement in macro health indicators such as life expectancy may not necessarily lead to a reduction in income inequality. Only a significant improvement in the health of people with poorer health can reduce the gap between different populations and promote social equity.

Fig. 6.3

Source World Bank, CICC Research, CICC Global Institute

Life expectancy is negatively correlated with the GINI coefficient. Note The sample includes 98 countries and regions for which data is available, including high-income, upper-middle-income, and lower-middle-income countries.

6.1.3 Establishing Equitable and Efficient Systems for Education and Healthcare Is Essential for Achieving Common Prosperity

In order to achieve the goal of common prosperity, it is necessary to provide high-quality education to all. Building a multi-system and multi-level structure is necessary if high-quality education is to be provided to all. A multi-system and multi-level structure enables individuals to pursue their educational goals to the fullest extent by enhancing the quality of vocational education and increasing enrollment at higher education levels. This diversifies the pool of industrial talent available. Promoting balanced development among regions and schools and ensuring that everyone has access to high-quality education may expand the size of the middle-income group and enable more low-income individuals to move up to the middle-income class.

Fig. 6.4

Source World Bank, OECD, Ministry of Education, Wind, CICC Research, CICC Global Institute

Public spending on education as a share of GDP by countries. Note The data is the latest year data for each country disclosed by the World Bank and OECD, mostly for 2019 and 2018, and China’s data is for 2019.

Creating an equitable and efficient healthcare system is also the foundation for promoting the distribution of the benefits of development. Equitability requires that medical and healthcare services be accessible to all, regardless of their socio-economic status. Efficiency is achieved by establishing a health-centered and value-based integrated healthcare system. A robust healthcare system can minimize disparities in medical service utilization among income groups, thereby reducing health inequality. Furthermore, a robust healthcare security system can minimize the financial risks associated with medical treatment for patients, reducing the incidence of catastrophic health expenditure and poverty. This, in turn, can improve people’s sense of security. Establishing an integrated healthcare system with primary care at its core can facilitate the development of an effective tiered diagnosis and treatment system, leverage the strengths of healthcare providers at all levels, and improve the overall efficiency of the medical system.

6.2 Problems and Underlying Causes of China’s Education and Healthcare Systems

6.2.1 Insufficient Funding and Incomplete Institutional Systems Are Two Primary Long-Term Constraints Hindering the High-Quality Development of China’s Education System

In recent years, China has witnessed a steady increase in resources allocated to education, leading to significant improvements in education indicators. From 2010 to 2020, China’s completion rate of nine-year compulsory education rose from 89.9 to 95.2%,¹⁰ while the gross enrollment rate of higher education increased from 26.5 to 54.4%. Additionally, the average years of schooling for the working-age population increased from 9.5 to 10.8 years.¹¹ The education gap in impoverished areas has been gradually closing, as evidenced by the completion rate of nine-year compulsory education in poor counties reaching 94.8% in 2020.¹² To promote education equity, colleges and universities in China have been expanding their special enrollment programs for rural areas and poverty alleviation regions. These achievements have laid a solid foundation for preventing intergenerational poverty transmission.

However, there remains a gap between the current state of education and people’s aspiration for a better life. The accelerated development of science and technology as well as industrial upgrading raises the requirements for the skills and overall ability of the labor force. In OECD countries, 39% of the working-age population (aged 25–64) have higher education, with the proportion in the UK and the US reaching nearly 50%.¹³ In contrast, the proportion of China’s working-age population with higher education was much less.¹⁴ At the same time, development of education is uneven, especially among low-income households.

According to the National 1% Population Sample Survey in 2015, the proportion of the population with high school and higher education levels is lower among the rural population. As education progresses, low-income groups face greater disadvantages in accessing high-quality resources. Students from low-income families are often concentrated in lower-ranked local colleges or vocational schools, and due to lower financial subsidies, these students usually bear higher tuition fees.

Insufficient funding and incomplete institutional systems are two key factors that hinder the development of high-quality education in China. Public funding in education is insufficient and the structure is unbalanced. In 2019, public spending on education accounted for 4.1% of GDP, which was slightly higher than that of upper-middle-income countries (3.8%) during the same period, but still represented a significant gap with high-income countries (4.8%) （Fig. 6.4）. Resources allocated to education are unevenly distributed among various education levels and regions. The funding for children aged 0–3, which is the critical period for cognitive development, is relatively insufficient. The funding in vocational education is also inadequate compared with funding for general education.

Additionally, there are regional disparities in funding for elementary education, and there remains a lack of sufficient guidance and supervision for participants at each stage of the education process. The mechanisms for the provision of public childcare services, the connection between vocational and general education, the participation of enterprises in vocational education, and the autonomy of universities all still need to be reinforced. Education resources are unevenly distributed between populations, with resources disproportionately allocated to some areas, weakening the role of education in promoting economic growth and social equity.

Disparities in opportunities for development exist between different people with different abilities. The restricted development and the low status of vocational education in society have yet to be improved. These factors not only cause individual income to have long hovered at low levels, but have also led to a mismatch between the quality of talent and the needs of industrial development, thereby reducing the efficiency of value creation in society.

6.2.2 Constraints on the Development of Education at Each Stage Due to Insufficient Funding and Incomplete Institutional System

6.2.2.1 Inadequate Public Services in the Early Childhood Stage (for Ages 0–3)

Early childhood education crucially influences an individual’s intellectual and emotional development. In early childhood, deficiencies in nutrition and lack of parenting and interaction can have long-term effects on children’s abilities to learn and develop social skills later in life.¹⁵ Early intervention for children from low-income families can be an effective way to improve their educational achievement and future employment performance, and also reduce income disparities. From a cost–benefit perspective, investments aimed at early childhood development generate significant rewards.

Currently, there are insufficient inclusive resources for childcare and education in China. The national enrollment rate for those aged 0–3 years is only about 5.5% as of 2021,¹⁶ while the proportion of those aged 0–2 receiving early education and care services in OECD countries reached 36% in 2019.¹⁷ There is a shortage of public childcare services in China, and private services are more expensive, making it difficult to some extent for families to access affordable and high-quality childcare.

Public resources for childcare are more needed in rural areas, and some family members as caregivers are associated with inappropriate feeding practices and a lack of interaction with children. Studies conducted by the Rural Education Action Program (REAP) have found that children in certain rural and impoverished areas are at risk of falling behind in their cognitive functions, social-emotional development, motor abilities, and language skills.¹⁸

Inadequate inclusive resources and large urban–rural disparities mainly stem from insufficient public funding and incomplete childcare mechanisms. Regarding public funding, there is a limited budget for preschool education. In China, the financial burden of education and care for children aged 0–3 years mainly falls on families, whereas in OECD countries, the government bears the bulk of the cost. When the family burden is measured by the proportion of kindergarten tuition fees to total kindergarten education expenditure, the burden on families is much higher in China than in OECD countries (Fig. 6.5).¹⁹

Fig. 6.5

Source OECD, China Education Expenditure Statistical Yearbook (2019), Ministry of Education, National Bureau of Statistics, CICC Research, CICC Global Institute

Household burden of preschool education in China is much higher than that in OECD countries (2018).

There is a severe shortage of childcare resources in rural areas, and caregivers may lack the necessary knowledge and skills to provide adequate care. In 2018, 6.97 mn children were left behind in rural areas by parents travelling for work in urban areas in China, with 21.7% of them aged 0–5 years old. Among them, 96% were cared for by their grandparents.²⁰ While these caregivers usually have a limited level of education and mainly focus on the physical needs of children, they often neglect the developmental needs of children in areas such as social-emotional, intellectual, and linguistic aspects.

Regarding mechanisms, some shortcomings persist in the management, financial investment, and service delivery models for childcare in China. First, both the central and local governments have certain management authority in setting standards, designing curricula, and supervising childcare services. However, the boundaries of authority and responsibility need to be further clarified. Second, the mechanism of financial compensation for childcare services has yet to be launched. The National Development and Reform Commission (NDRC), the National Health Commission, and the Ministry of Civil Affairs have provided construction subsidies for demonstrative institutions of childcare and childcare facilities at the community level.

As an example, the central government allocates a budgetary investment of Rmb10,000 for each new childcare vacancy.²¹ However, there are either no consistently clear standards or the subsidies are too low for operational subsidies to childcare institutions and financial subsidies to families. There is a structural imbalance in the number of public and private, for-profit and non-profit providers. Furthermore, there is a severe shortage of inclusive childcare services.²²

6.2.2.2 The Development of Public Services for Elementary Education Is Uneven

There are disparities in the quality of elementary education between urban and rural areas, as well as between different schools. The educational level of teachers in rural kindergartens and primary and junior high schools is on the whole still lower than that of their urban counterparts.²³ Students in rural areas also face some disadvantages in various selection exams. According to the PISA conducted in 2018, China had a relatively greater degree of inter-school disparities. Public funding for elementary education can help narrow the gap in education spending among different households, leading to a positive distributional effect.²⁴

Both the level and allocation of public funding in elementary education need to be improved. In general, China’s total expenditure per pupil on primary education as a share of GDP per capita was lower than the OECD average. In terms of resource allocation, responsibility for public funding in China is currently shared by four levels of government at the central, provincial, municipal, and county levels, with the county-level government being the most significant. Meanwhile, the mechanism for the division of responsibilities still needs to be improved to make it more reasonable.²⁵ Since 2000, the central government has increased the amount of transfer payments for elementary education, gradually narrowing the gaps in funding between urban and rural areas as well as among regions. However, addressing these funding gaps within provinces remains a challenge as the responsibility of provincial governments for spending on elementary education has not significantly increased compared with that of the central government. Additionally, the fiscal capacity of county level governments is limited, further exacerbating this issue.

The funding of elementary education in general does not prioritize teacher quality, leading to a lack of investment in this crucial aspect of education. Funding of elementary education is underinvested in terms of teacher quality. In 2018, primary and secondary schools in China allocated less than 65% of their education spending to staff expenses,²⁶ while in OECD countries, staff salaries at non-higher education institutions accounted for 77% of total education spending during the same periods.²⁷ Insufficient funding has created a gap between China and developed countries in terms of overall teacher quality and distribution. Compared with their counterparts in developed countries, teachers employed at primary and secondary schools in China have lower levels of education and competence, with less than 4% of them holding postgraduate degrees.²⁸

The results of the 2018 PISA show that there is still a relatively significant gap in teaching skills between urban and rural teachers. The issues of teachers in rural China being “not good at teaching” and “not happy to teach” are more pronounced in the context of national curriculum reform. Meanwhile, the mechanisms for the utilization, evaluation, and supervision of public education funds by governments are incomplete. This may affect the efficiency of the funds and result in excessive investment in infrastructure such as school buildings and teaching equipment.

The mechanism for sharing high-quality education resources is not well developed yet. Currently, the structural imbalance of teacher resources between urban and rural areas, as well as among regions and schools in China, is relatively pronounced. The mechanism of teacher rotation could help balance the distribution of high-quality educational resource to some extent. However, the mechanisms related to management, selection, and compensation of teacher rotation are still underdeveloped. When implementing the “xian-guan-xiao-ping” mechanism (where teachers are administered by the county-level government and employed by schools), there are difficulties in coordinating different governmental departments. Meanwhile, the selection mechanism lacks fairness, and the financial subsidies do not match the costs. The limited fiscal capacity in less-developed areas may hinder the scaling up of the teacher rotation mechanism.

External educational institutions are able to seize high-quality in-school resources, but the supervision mechanism requires improvement. Since the 1980s, the Chinese government has encouraged the establishment of privately-funded educational institutions, which has expanded the channels for financing education spending and increased the availability of educational resources. However, due to incomplete supervision, private institutions may have a negative impact on equity in education.

Private institutions have a high degree of autonomy when it comes to setting fees and selecting students for admission. They often generate significant revenue through high fees, which they use to attract and hire excellent teachers through high salaries, and select exceptional students in advance. This can put local public schools at a disadvantage in terms of both teachers and students, leading to a further outflow of outstanding teachers and students from public schools. As a result, these outflows can create a vicious spiral in equity in education.

The division of administrative and fiscal power between the central and local governments in education could result in insufficient funding and unevenly distribution of resources. While the central government often increases public funding for compulsory education through general transfer payments, it is up to local governments to allocate these funds among various developmental goals. As a result, tracking the proportion of general transfer payments allocated to education and teacher training by the center government is challenging.

However, coordination of these fund allocations by provincial governments tends to be incomplete, as are the evaluation criteria and monitoring mechanisms. Therefore, effectively matching the supply and demand of education resources can be challenging. Moreover, municipal, county-level, and township governments all have the administrative power to organize compulsory education, meaning that each level of government can prioritize investing in schools at their level, neglecting support for schools run by lower levels of government. Additionally, there are barriers to the flow of educational resources among schools of different levels.

6.2.2.3 Insufficient Funding and Incomplete Development Mechanism in Vocational Education

Compared with general education, vocational education is less appealing, and quality needs to be improved. Vocational education and general education are equally important, yet they are two distinct types of education.²⁹ Currently, vocational education in China holds less appeal to students than general education, and the misconception of “emphasizing general education over vocational education” still persists. Since 2010, the number of students enrolled in secondary vocational education in China has been declining, with a slight increase in 2018 (Fig. 6.6). The graduation rate for secondary vocational students in China is approximately 80%, lower than for general high school students (99%).³⁰ Moreover, some students who initially enrolled in vocational education drop out of school to work or retake high school.

Fig. 6.6

Source Ministry of Education, Wind, CICC Research, CICC Global Institute

The appeal of secondary vocational education enrollment in China. Note The number of graduates and enrollment are the current year’s numbers.

The quality of vocational education is imbalanced and does not always meet the needs of personal development and industrial diversification. Some secondary schools in China do not meet basic standards for their operating conditions, including average land area per pupil, average floor space of school buildings per pupil, and teacher-student ratio.³¹ This problem is more severe in poor areas, particularly in “san-qu-san-zhou” areas.³²

The lack of funding and incomplete institutional mechanisms also contribute to the underdevelopment and poor quality of vocational education. In 2018, total funding for secondary education in China only accounted for 0.3% of GDP, lower than the OECD average of 0.5% (Fig. 6.7). Given that vocational education often requires investment in equipment, construction of training sites and facilities, and subsidies to enterprise for encourage participation in school operation, the total funding of secondary education per pupil is usually higher than that of general high schools. In 2018, the total funding of secondary education per pupil in OECD countries was US$1,500 higher than that of general high schools. However, in China, the total funding of secondary education per pupil has consistently been lower than that of general high schools since 2017 (Fig. 6.8). Furthermore, in higher vocational education, China’s financial support for students from low-income families is inadequate. According to the 2020 Report on the Development of Student Financial Aid in China, only 15% of junior college students receive interest-free loans.³³ Moreover, the absence of financial assistance will exacerbate inequality since vocational schools enroll a higher proportion of students from low-income families.

Fig. 6.7

Source Education at a Glance 2020, Wind, CICC Research, CICC Global Institute

Low proportion of GDP spent on secondary education in China. Note the data for China is measured as the ratio of secondary education funding to GDP in 2018.

Fig. 6.8

Source Ministry of Education, Wind, CICC Research, CICC Global Institute

Total funding for secondary education per pupil in China is lower than for general high schools.

The vocational education talent cultivation systems and the enterprise participation mechanisms are incomplete. First, the current mechanism of dividing students into vocational and general schools is still based on exam scores, which does not adequately reflect the unique features of vocational education. The current passive division mechanism based on exam scores fails to enhance the appeal of vocational education, and instead imposes a psychological burden on students, who may feel under pressure as they are more difficult to secure high-skilled or higher-paying jobs. In addition, the proportion of knowledge-based courses in the curriculum of secondary vocational school is lower than in general high school. This puts students from secondary vocational schools at a disadvantage when participating in the general college entrance examination.

Second, the lack of uniformity in the framework of vocational qualification certification has affected both vertical development, which refers to progression from secondary to higher vocational education, and horizontal development, which refers to the integration between vocational education and general education. The vocational qualification certification system needs to reflect the varying levels of difficulty and complexity of different skills at different education levels. It should also allow for the transferability of qualification certifications between different skills to promote horizontal and vertical mobility within the vocational education system. Although China has a preliminary vocational qualification certification system, the certification is issued by multiple departments and organizations, and the supervision of qualification certification needs to be further enhanced to ensure uniformity. Moreover, the mismatch between skill qualification standards and the actual requirements of the job market may result in a lack of recognition of qualification certification in the job market.

Third, there is inadequate participation by enterprises, which are major employers in the labor market, in vocational education. As a type of education aimed at employment, vocational education should ensure that the skills training matches the needs and requirements of enterprises. The government has introduced policies to encourage vocational education institutions to hire “shuang-shi-xing” teachers (teachers who specialize in more than one area of expertise) and offer classes customized for specific enterprises. However, there is still a gap in the degree of implementation of these policies. Although there have been policies encouraging the integration of industry and education in recent years, many enterprises are still not active enough participations, and some may even view investment in vocational education as an unnecessary cost.

Fourth, the direction of development of colleges and universities is vague, and the professional programs offered by vocational colleges and universities do not always meet industry needs. During their development, different types of schools in China have tended to adopt a single model of development and excessively pursue increased enrollment. Moreover, some higher vocational schools have focused too much on upgrading to undergraduate colleges and invested too heavily in developing comprehensive and general disciplines, thereby neglecting their own vocational characteristics. This has resulted in inconsistencies between specialist departments and regional economic development, which do not meet the needs of local pillar industries.³⁴

Insufficient funding and incomplete institutional mechanism in vocational education can be attributed to a lag in reforms, inadequate incentives, and poor coordination. Firstly, after the expansion of higher education, there has not been an established mechanism for students to transition from secondary to higher vocational education. Moreover, the adjustment of majors in vocational education has not kept pace with the optimization and upgrading of the country’s industrial structure. Thus, job opportunities for vocational education graduates have been constantly shrinking, and the appeal of vocational education has decreased significantly.

Second, the direction of development of colleges and universities is influenced by the evaluation standard used for assessment. At present, the evaluation system for colleges and universities in China lacks a diversified development evaluation framework, resulting in vocational universities not having competitive advantages in terms of the number of professional subjects and published papers. The participation of enterprises in running schools requires funding and manpower, and the lack of incentive policies makes it difficult to mobilize enthusiasm of enterprises. Again, the development of vocational education involves many departments such as MOE, MURSS, MIIT, and DRC. As a result, there are numerous challenges in implementing and coordinating policies among these departments.

6.2.3 “Seeking Care Is Difficult” and “Seeking Care Is Expensive” Are Still the Main Problems of China’s Healthcare System

Many countries are struggling with issues related to healthcare systems, such as “seeking care is difficult” and “seeking care is expensive”. The US has been criticized for its high medical costs and the fact that its total health expenditure as a percentage of GDP far exceeds that of other developed countries. In the UK, many people may opt out of surgical treatment due to the long waiting times involved. Rising medical costs in Japan, driven by an aging population, have made public finance unsustainable. In terms of total health expenditure and waiting time for medical care, China outperforms many developed countries. Nevertheless, accessibility and affordability remain significant areas of concern.

In the past, “seeking care is difficult” and “seeking care is expensive” were primarily due to the lack of medical insurance and insufficient medical resources.³⁵ As China shifted from a planned to a market-oriented economic model, its medical system also underwent a commensurate transition. This included the dismantling of cooperative medical care in rural areas, which left a significant number of rural residents without insurance coverage. In addition, the former labor insurance system provided inadequate coverage for many urban residents.³⁶ Consequently, in 1998, as many as 76.4% of China’s population lacked any form of medical insurance, and this figure was even higher at 87.4% in rural areas.³⁷

During the same period, the proportion of fiscal subsidies in annual hospital revenues has been declining. To make up for this shortfall and maintain their revenue levels, hospitals and doctors have had to prescribe more expensive drugs and tests during the treatment process, leading to a significant increase in costs.³⁸ At this time, “seeking care is expensive” in China was the result of a lack of medical insurance coverage, as well as of insufficient financial compensation and price distortion. Furthermore, “seeking care is difficult” in China during this period was exacerbated by a lack of government investment, limited capacity of medical and health resources, and a low absolute amount of medical resources per capita.

Thanks to the establishment of three major basic national medical insurance programs and increased fiscal investment in healthcare, the issues of lack of sufficient insurance coverage and limited healthcare resource have improved. The government has established three major basic medical insurance programs that cover urban workers (since 1998), rural residents (since 2003), and urban residents (since 2007). The broadening and deepening of health insurance coverage has significantly improved the accessibility of medical services. In 2003, as many as 70% of patients “who required hospitalization but not” are due to financial difficulties. By 2018, this figure has decreased to 45.5%.³⁹

As health insurance coverage has expanded, the government has also increased fiscal subsidies to public healthcare providers, resulting in continued expansion of healthcare resources. Although, the number of physicians and beds per 1000 persons in China was less than half of the OECD average in 2003, these gaps have significantly narrowed by 2018. In fact, the number of beds per 1000 people in China has even surpassed OECD countries. This indicates that the total supply of healthcare resources in China has improved significantly (Fig. 6.9).

Fig. 6.9

Source China Health Statistical Yearbook, OECD Health Statistics, CICC Research, CICC Global Institute

Number of physicians and beds per 1000 persons in China is close to the OECD average.

However, the issues of “seeking care is difficult” and “seeking care is expensive” still exist. According to the 2018 China Livelihood Survey, medical care ranked second among the most unsatisfactory issues, with expensive medical care (due to low reimbursement of medical insurance) and the difficulty of seeing a doctor at a large hospital being the main reasons.

The primary manifestation for the issue of “seeking care is expensive” is the heavy burden it places on an individual. Reimbursement from basic medical insurance is relatively low, and residents still have to bear a considerable proportion of the medical expense. China’s basic medical insurance does not provide sufficient protection for high medical expenses compared with developed countries. Both the Urban Employee Basic Medical Insurance (UEBMI) and the Urban and Rural Resident Basic Medical Insurance (URRBMI) have caps on reimbursement, beyond which households must bear 100% of the expenses incurred. This places a greater financial risk on patients and can even result in catastrophic health expenditure⁴⁰ and impoverishment due to illness⁴¹ (Fig. 6.10). While China’s basic medical insurance catalog includes nearly 3,000 drugs, many innovative and original drugs are not covered, yet some drugs with poor therapeutic effects and low value remain included. As a result, the medical insurance fund is not used efficiently. Another reason for “seeking care is expensive” is the high prices of drugs that are not covered by the catalog.

Fig. 6.10

Source Ta, Zhu, & Fu. (2020), CICC Research, CICC Global Institute

Chinese patients still face the issue of “seeking care is expensive”.

The issue of “seeking care is difficult” is primarily due to the uneven distribution of high-quality resources. The issue is not a lack of doctors, but rather a lack of high-quality doctors. While the number of hospital beds and physicians per capita in China is comparable to that of OECD countries, there are significant disparities in the utilization of medical resources across various medical institutions. Specifically, there is underutilization of medical resources among healthcare institutions at the grassroots level and overutilization of specialty and tertiary medical resources. In 2019, the occupancy rate of hospital beds is over 100% at hospitals affiliated with the National Health Commission and provincial governments, and around 90% at county-level hospitals, while the occupancy rate of hospital beds at healthcare institutions at the grassroots level is less than 60%. Moreover, doctors at hospitals affiliated with the commission deal with an average of 10.5 outpatient visits per day, which is 28%, 36.4%, and 43.8% higher than that of provincial, municipal, and county-level hospitals, respectively.⁴²

While the rising incomes of Chinese households has led to higher demand for high-quality medical resources, there are significant differences in the quality of hospitals, which has resulted in a lack of trust between Chinese families and healthcare institutions at the grassroots level. Additionally, the absence of a tiered diagnosis and treatment system exacerbates the influx of patients to large hospitals, resulting in congestion and difficulty in obtaining medical care at these facilities.

6.2.4 “Seeking Care Is Difficult” and “Seeking Care Is Expensive” Are Primarily Caused by Inadequate Capacity of Insurance and Uneven Allocation of Resources

6.2.4.1 Inadequate Capacity of Medical Insurance and Significant Urban–Rural Disparities

Currently, China’s total health expenditure is primarily financed through government spending, which is insufficient, and high out-of-pocket payments by households, which is the result of insufficient depth of basic health insurance coverage and low reimbursement rates. Compared with countries with a similar level of economic development, Chinese households have a higher personal out-of-pocket ratio (Fig. 6.11) for healthcare expenses. In 2019, China’s out-of-pocket payments accounted for 35% of its total health expenditure, which is significantly higher than the OECD countries’ average for the same period. The high financial burden on households reflects insufficient government spending on health. The average proportion of general government health expenditure to GDP in OECD countries was 7.73% in 2019, while that in China was only 3%.

Fig. 6.11

Source World Bank, WHO, CICC Research, CICC Global Institute

Chinese families still have high out-of-pocket payments (2019).

Higher personal out-of-pocket expenses place a significant financial burden on disadvantaged groups such as low-income households, hindering their access to healthcare and discouraging them from seeking necessary medical treatment. This further exacerbates health inequality.

The low reimbursements provided by URRBMI result in a heavy burden on patients to seek medical treatment. UEBMI provides coverage for urban workers and other formally employed groups, while URRBMI⁴³ covers rural residents, urban residents, and those informally employed in urban areas. There are significant differences in the depth and breadth of coverage between UEBMI and URRBMI. As of 2021, URRBMI provides coverage to 1.01bn people, which is 2.85 times the number of people covered by UEBMI. However, the total funding for URRBMI is only 51.4% that for UEBMI. Additionally, the funding for UEBMI is 5.55 times that for URRBMI on a per capita base. The funding disparity results in a significant difference in health insurance benefits between those insured under UEBMI and URRBMI. For example, in 2021, the per capita fund expenditure for UEBMI was Rmb4196, 4.6 times that of URRBMI. Furthermore, the average reimbursement ratio of UEBMI is more than 15ppt higher than that of URRBMI.⁴⁴

There are some regional disparities in the coverage and benefits of basic medical insurance in China. The funds of each insurance scheme are primarily pooled at the prefecture or county level, with UEBMI and URRBMI forming independent pools within each region. The demographic structure and levels of industrial and economic development of each region contribute to different levels of financing, resulting in disparities in benefits and payments of health insurance funds. Comparing per capita expenditures of basic medical insurance in each province, Beijing, Tianjin, Jiangsu, Zhejiang, and Shanghai have the highest per capita insurance expenditures, while Guizhou, Henan, Gansu, and other central and western provinces have the lowest.

Disparities in urban–rural and regional benefits result in an uneven distribution of health resources among the population. This leaves disadvantaged groups such as rural residents, urban informal workers, and residents of less developed regions facing a greater degree of severity of “seeking care is expensive”. Lower health insurance expenditure can result in patients facing higher out-of-pocket expense, leading to disparities in the use of healthcare services. Disadvantaged groups may face greater financial burdens and reduce their use of healthcare services due to “seeking care is expensive”. This can impede the accumulation of the human capital necessary for the progress in development for disadvantaged groups, ultimately hindering their long-term income growth prospects.

Another reason for the issue of “seeking care is expensive” is the rapid growth of healthcare expenditure, which can be attributed to the imbalanced allocation of medical resources. There are several factors contributing to the rapid growth of total health costs in China, including the increase in family income, the expansion of health insurance coverage, the aging of the population, and the advancement of medical technology. However, when compared with other countries, the imbalanced allocation of medical resources is an important contribution to the soaring health expenditure in China. A significant portion of medical resources in China is concentrated in hospitals, particularly large tertiary hospitals. This leads to a shortage of resources and weak capacity of healthcare institutions at the grassroots level, making it challenging to provide high-quality primary and preventive care to patients. The imbalanced distribution of medical resources has resulted in patients with common diseases that could be treated at healthcare institutions at the grassroots level flocking to large hospitals for treatment, driving up medical costs.

6.2.4.2 The Unbalanced Allocation Is the Primary Cause of the Issue of “Seeking Care Is Difficult”

The structural imbalance in the allocation of resources in China resembles an inverted triangle. Large tertiary hospitals in China have access to a significant amount of high-quality resources and continue to expand in size, while healthcare institutions at the grassroots level and at primary and secondary hospitals lack corresponding high-quality resources. At the same time, due to the lack of a corresponding tiered diagnosis and treatment system and inadequate constraints of health insurance, patients are inclined to seek medical treatment at tertiary hospitals, and large hospitals also have incentive to absorb them. In 2020, the number of tertiary hospitals in China accounted for 24% of all healthcare institutions, yet they received 42.5% of all inpatients. Moreover, the revenue generated by tertiary hospitals accounts for 59% of the total revenue at hospitals and healthcare institutions at the grassroots level (Fig. 6.12). The influx of patients to tertiary hospitals has resulted in these hospitals operating at high workload, making it more difficult for patients to access care.

Fig. 6.12

Source China Health Statistical Yearbook, CICC Research, CICC Global Institute

The imbalanced allocation of medical resources in China. Note (1) The number of physicians in the above chart is the number of licensed physicians & physician assistants; (2) hospital revenue only covers public hospitals.

There are significant disparities between urban and rural areas in the distribution of medical resources. In 2020, the number of licensed physicians and physician assistants per 1000 people in urban areas was twice that in rural areas, and the number of beds in medical institutions per 1000 people in urban areas was 1.8 times that in rural areas, indicating a significant disparity. At the same time, unequal economic development between urban and rural areas has led to many young and middle-aged individuals from rural areas migrating to cities, resulting in a higher proportion of elderly individuals in rural areas. As the population in rural areas continues to age, there may be increased demand for medical services, which could exacerbate the existing shortage of medical resources in these areas. This can create a difficult situation in which it becomes challenging to fully meet the medical needs of rural residents.

There are also some disparities in the distribution of medical resources among regions. Medical resources in China are distributed unequally across regions, with the more developed eastern areas holding a relatively significant advantage over the central and western regions. Factors such as economic development, generosity of medical insurance, and population mobility preferences all contribute to this disparity. In 2020, the number of licensed physicians and physician assistants per 1000 persons in Beijing, Zhejiang, and Jiangsu were 4.9, 3.4, and 3.2, respectively, which is significantly higher than the figures in central and western provinces such as Guangxi (2.5), Yunnan (2.6), and Jiangxi (2.3).⁴⁵

Regarding advanced medical equipment, the number of high-end CT scanners per capita is lower in the central and western regions. There are significant regional disparities in the distribution of high-quality medical resources as well. Of the top 100 general hospitals ranked by Fudan University in 2020, 51 hospitals were located in Beijing, Shanghai, and Guangzhou, while 12 provinces did not have any hospital ranked in the top 100. The northern and eastern regions of China have the highest density of top 100 hospitals per capita.

There are significant disparities in the quality of care provided across different regions and healthcare facilities in China. First, there is a pronounced gap in the clinical quality of hospitals across the different administrative levels in China. The China Acute Myocardial Infarction (CAMI) Registry study has analyzed the in-hospital mortality rate of ST-segment elevation myocardial infarction (STEMI) at the provincial, municipal, and county hospitals from 2013 to 2014. The study found that the in-hospital mortality rates were 3.1%, 5.3%, and 10.2% at provincial, municipal, and county hospitals, respectively (Fig. 6.13).⁴⁶ The quality of care also varied relatively significantly among hospitals at the same administrative level. A study comparing clinical process quality indicators for patients with acute myocardial infarction at 14 tertiary hospitals in Beijing found that although all hospitals had high quality at the overall level, there was still significant variance in clinical quality among the 14 hospitals.⁴⁷ In rural areas, significant disparities in clinical quality exist across different healthcare institutions, with relatively low quality of care at healthcare institutions at the grassroots level.

Fig. 6.13

Source Annual Report on Cardiovascular Health and Diseases in China (2020),Footnote

National Center for Cardiovascular Disease [23].

CICC Research, CICC Global Institute

Quality of care varies widely among medical institutions.

Using standardized patients with tuberculosis (TB) symptoms as an instrument, a study found that the rates of correct diagnosis and treatment of patients at a county hospital, a township health center, and village clinics were 90%, 38%, and 28%, respectively (Fig. 6.13).⁴⁹ Furthermore, there is considerable potential for enhancing the prevention, management, and control of chronic diseases. Preventing, managing, and controlling chronic diseases such as hypertension and diabetes can have a strong preventative effect on the occurrence of cardiovascular and cerebrovascular diseases. Although the awareness and treatment rates of hypertension among Chinese patients have greatly improved from 2002 to 2015, the control rate of hypertension⁵⁰ remains only about one-sixth of all patients, leaving significant room for improvement. The situation is even more severe in rural areas.

The disparities in economic development have further widened the gap in the distribution of high-quality resources. Compared with economically developed regions, the central and western regions of China have limited financial capacity due to the smaller tax base of local governments. The current fiscal transfer system from the central to local governments does not include subsidies for public hospitals and healthcare institutions at the grassroots level in its transfer items. The fiscal subsidies provided to healthcare institutions in each province, particularly at the grassroots level, are constrained by the local level of economic development. As a result, developed regions have a comparative advantage in raising funding for their healthcare institutions. At the same time, high-quality medical resources are concentrated in the economically developed eastern regions, which also have relatively abundant educational resources.

There is a strong link between local tertiary hospitals and medical schools in these areas. This connection continuously attracts excellent medical graduates and talent to work in these areas. This positive feedback mechanism reinforces the concentration of high-quality medical resources in economically developed regions. As a result, the uneven distribution of medical resources and medical quality between urban and rural areas and regions becomes even more pronounced.

6.3 Establishing the High-Quality Education for All

Establishing high-quality education can, on one hand, reduce the uneven distribution of educational resources so that disadvantaged groups could have more opportunities to accumulate human capital, narrow the income gap with other groups, and promote social equity. The development of high-quality education can also make educational training and the needs of industrial development match each other, and improve the efficiency of the utilization of social resources.

6.3.1 Increasing Fiscal Investment in Education

It is crucial to increase the ratio of government spending on education to GDP. Given China’s new pattern of economic growth, which puts greater emphasis on human capital and technological progress, and considering the educational inequity in the country, it is indeed advisable to further increase government spending on education as a share of GDP.

It is crucial to enhance the construction of big data platforms and accelerate the process of education informatization. Through the discovery and predictive capabilities of big data, it has become possible to break down and analyze every stage of the education process as well as various aspects of teaching. This analysis can provide invaluable support for education policy-making and tracking the effectiveness of implemented measures. Furthermore, education informatization can improve the learning environment and stimulate interest in learning among disadvantaged groups. Instead of solely focusing on construction of campus infrastructure, efforts should be directed towards optimizing the effectiveness of teaching. Furthermore, it is essential to transform the education system into one that is student-centered.

It is crucial to enhance the overall environment for the development of teachers. The government could implement policies aimed at enhancing the benefits and salaries of teachers, thereby improving the overall appeal of the teaching profession. Particular attention should be given to providing salary incentives and living allowances for teachers in economically underdeveloped areas. Strengthening teacher training mechanisms is also crucial for ensuring that educators are equipped with the necessary knowledge and skills for effective instruction. By creating a favorable environment for development for teachers, we can promote their professional growth and job satisfaction, ultimately benefiting the education system as a whole.

6.3.2 Clarifying the Policy Focus for Different Stages of Education

Given the limitations of fiscal capacity, it may not be feasible for public finance to meet the needs of all educational products and services. Achieving a balanced relationship between the government and the market is crucial, particularly in guiding enterprises to participate in the development of high-quality education in alignment with the characteristics of each stage of education.

6.3.2.1 Early Childhood Education: Expanding Inclusive Childcare Resources and Strengthening Guidance on Childcare Services for Rural Families

Enlarging fiscal investment in preschool education and increasing the supply of inclusive childcare services is of the utmost importance. Public finance plays a vital role in expanding the supply of childcare services and ensuring that they reach disadvantaged groups. By allocating funds to support the establishment and operation of childcare facilities, governments can increase the availability and affordability of childcare for families in need. In addition to expanding public childcare services, the government can support and regulate the development of nonprofit childcare services through subsidies and other measures. Nonprofit organizations are also often strongly committed to serving the community, and can provide high-quality care.

Completing the mechanisms for guiding and monitoring childcare norms in rural areas is also crucial. The government can play a crucial role in promoting family education services in remote rural areas by utilizing in-home interventions or leveraging the internet. These approaches can help bridge the gap in access to educational resources and support for families in isolated or underserved regions. Via online and television guidance, complemented by the provision of learning kits, parents and caregivers are encouraged to actively engage in children’s home learning activities.

6.3.2.2 Basic Education: Expanding the Supply of In-School Resources, Enhancing Balance, and Continuously Regulating Out-of-School Resources

Focusing on equity and promoting the sharing of high-quality educational resources should have high priorities. It is crucial to promote the sharing of high quality educational resources among schools and regions; gradually establish a comprehensive regulation system on teacher rotation and the relevant policy support; improve the mechanism of selection, compensation, and supervision; and improve the coordination between among various county-level departments to support the implementation of the system.

Consolidating the policy of “gong-min-tong-zhao” (fairness in enrollment for public and private school) and “shuang-jian” (easing the burden of excess homework and off-campus tutoring) is crucial for promoting equity in education. Additionally, expanding the supply of services within schools can further support students’ holistic development. Regulations on resources outside of the public-school system play a crucial role in promoting educational equity and should be consistently implemented and consolidated. Attention should also be directed towards assessing whether public education is providing sufficient educational capacity and towards improving the balance of educational resources across different schools. This ensures that all students have equal access to educational resources and opportunities, regardless of their socioeconomic background.

6.3.2.3 Vocational or Higher Education: Increasing Overall Funding and Establishing a Modern Vocational Education System

Strengthening the fiscal support for vocational education is of utmost importance. When it comes to overall funding, there is a need to raise the proportion of spending on vocational education in relation to GDP, particularly with regard to public funding allocated to secondary vocational education. In terms of funding allocation, China should consider two aspects. First, it is crucial to enhance targeted investment in vocational education in remote and rural areas. Second it is equally important to allocate funding towards enhancing the quality of teaching. This can be achieved by establishing public practical training sites, conducting vocational teacher training programs, and offering employment counseling services. The fund allocation mechanism can be effectively combined with performance-based indicators such as student graduation rates, training completion rates, and teacher qualifications. By doing so, the aim is to enhance the efficiency of fund utilization and ensure that resources are allocated in a manner that reflects measurable outcomes and achievements.

To promote the seamless integration between vocational and general education, it is crucial to establish a platform of mutual recognition that facilitates interoperability. A credit conversion mechanism should be developed to facilitate the transferability of credits earned by students across different skill qualifications. Simultaneously, it is necessary to establish a coordinated management platform to enhance synergy and communication among different departments.

6.4 Promoting the Equal and Fair Provision of Basic Medical Services for All

By promoting the equal and fair provision of basic medical services, patients, particularly in low-income disadvantaged groups, can experience a reduction in the burden of medical expenses. This approach also helps to narrow the gap in accessibility of medical services caused by income disparities. Furthermore, promoting equal and fair provision of basic medical services will not only enhance the service capacity and clinical quality of healthcare institutions at the grassroots level, but also improve their ability to prevent and manage chronic disease. This approach can help address the unbalanced allocation of medical resources and ultimately enhance the overall efficiency of the healthcare system. These efforts will significantly contribute to the overarching goal of common prosperity by ensuring that education and healthcare are accessible to all individuals in a fair and efficient manner.

6.4.1 Improving the Depth of Health Insurance Coverage

6.4.1.1 Increasing Government Spending on Health to Narrow the Gaps Between Urban and Rural Areas

Compared with OECD countries, there is still relatively significant room for increasing government spending on healthcare. In 2019, the weighted average share of general government spending on healthcare to general government expenditure in OECD countries was 18.1%, whereas the corresponding figure for China was only 8.8%. As China’s aging population grows rapidly, the escalation of health expenditure will put a greater burden on the government’s spending on health.

The focus of government spending on health should be on addressing structural contradictions within the healthcare system. Ensuring uniform benefits of basic medical insurance is a crucial prerequisite for achieving equalization of basic medical services. The government should gradually increase fiscal subsidies for URRBMI and encourage people to increase their individual contributions by raising per capita financial subsidies. Simultaneously, the government can increase the level of funding while enhancing the level of fund pooling and reducing regional disparities, and gradually transition to a national pooling health insurance for residents (URRBMI). Furthermore, we believe the government should also design an effective referral system and a tiered diagnosis and treatment system to guide residents seeking medical treatment in an efficient manner. It should also channel medical resources to flow to rural areas through the gradient reimbursement of insurance, enhancing the capacity and capabilities of healthcare institutions at the grassroots level.

6.4.1.2 Strengthening the Efficiency and Quality of Health Insurance Fund Management

The establishment of a single payer system would enable the strategic purchasing power of health insurance funds to be leveraged, thereby enhancing the value for money of health insurance payments. Implementing a single payer system can effectively enhance the market power of health insurance funds, leading to improvements in the quality of care and a reduction in the cost of medical treatment. Leveraging the strategic purchasing power of a single payer system requires a balance between price and quality, and should follow the principles of value-based care, taking into consideration both cost and quality.

Payment reform could focus on the overall nature of healthcare. Reforming payment methods is a crucial tool for regulating the behavior of medical institutions, but it could be approached comprehensively in order to achieve the intended goals and avoid unintended effects. Moreover, the payment reform should not only select the appropriate payment scheme based on the nature of different medical procedures, but also focus on incentivizing medical providers.

6.4.1.3 Enriching Product Supply and Encouraging Product Innovation of Commercial Insurance

Commercial health insurance plays a vital role as a supplement to basic medical insurance, and there is significant potential for further development. In 2020, the depth of China’s health insurance, measured as the ratio of health insurance premium to GDP, was only 0.8%. Similarly, the health insurance density, measured as the ratio of health insurance premium to the total population, was only Rmb579 per person. These figures are significantly lower than those of the mature health insurance markets in Europe and the US. In terms of product structure, critical illness insurance still dominates China’s commercial health insurance market, with medical insurance, nursing insurance, and disability allowance insurance accounting for a relatively low percentage. While traditional commercial insurance plays a role in cost supplementation, it can also focus on supplementing the catalogs and networks to meet the diverse healthcare needs of patients. Additionally, in comparison to basic health insurance, commercial health insurance companies have a greater incentive to innovate health insurance models and control medical costs. Encouraging innovation and applying the resulting experiences to basic health insurance can improve the efficiency of basic health insurance management.

6.4.2 Improving the Quality and Efficiency of Medical Services

6.4.2.1 Establishing an Integrated Primary-Care-Centered Healthcare System

Integrated healthcare system needs to shift from being “disease-centered” to being “health-centered”. Currently, China’s healthcare system is still largely focused on treating diseases and ailments, with relatively less emphasis on prevention, control, and treatment of chronic diseases. Moreover, the current fragmented medical service system may not be adequate for responding to the needs of a large number of chronic patients in the future. Integrated healthcare is a system that designs the functions of institutions at all levels according to the frequency and cost of medical services, as well as promoting the division of labor and cooperation among institutions, with the ultimate goal of providing comprehensive, continuous, and coordinated care for patients.

An efficient integrated healthcare system often centers on primary care, with resources allocated to healthcare institutions at the grassroots level to address the needs of common and chronic diseases. Secondary hospitals are designed to address the needs of more serious diseases, and tertiary hospitals are reserved for the treatment of the most severe cases. Institutions at all levels within the integrated healthcare system can refer patients in both directions based on the patient’s condition, without encountering barriers. The flow of information is shared seamlessly, enabling the efficient utilization of medical resources in a comprehensive and effective manner. This collaborative approach ensures that patients receive appropriate care at the right level of the healthcare system. China has accumulated extensive local experience in the construction and operation of “yi-lian-ti” (healthcare consortiums), which can provide valuable insights on and lessons for the establishment of an integrated healthcare system.

6.4.2.2 Strengthening the Capacity and Ability of Healthcare Institutions at the Grassroots Level

Integrating healthcare services is crucial for improving the overall health of the population. Preventative care, rehabilitation care, health behavior, and elderly care all significantly influence overall health outcomes. For a long time, healthcare institutions at the grassroots level have primarily served as medical service providers without adequately addressing other determinants of health. The challenges associated with China’s aging population are compounded by the ongoing process of urbanization, leading to a significantly higher level and rate of aging in rural areas compared with urban areas. Healthcare institutions at the grassroots level play a crucial role as integrated providers of health services, encompassing not only medical services, but also preventative care, rehabilitation care, health interventions, and elderly care. Simultaneously, the performance evaluation of local governments should include the health outcomes of the local population, ensuring a fully coordinated approach at the policy-making level to align goals consistently.

6.4.3 Stimulating the Innovative Vitality of the Pharmaceutical Industry

The government plays a crucial role in fostering an institutional environment that stimulates pharmaceutical innovation. The US has implemented effective incentives for innovation in the pharmaceutical sector, providing valuable lessons for China to enhance its own pharmaceutical innovation efforts. First, the public sector and university research funding, represented by the National Institutes of Health (NIH), continues to provide financial support for basic research in frontier areas. Second, the establishment of a multiple payer system in the healthcare market has better mobilized the financing capacity of the healthcare system. Third, regulatory authorities continuously reform the drug review system and the patent system to improve the entry standards for new drugs and to prevent duplication of low-end market players.