If you are Chinese, try very hard not to be ill

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will not easily forget the first time I entered a Chinese hospital, a few years ago – and not just because I was ferrying my pregnant wife into the maternity ward in the freezing pre-dawn hours of a Shanghai winter.

The hospital refused to allow us into the ward until I lined up at
what looked like a railway ticket
sales booth and paid Rmb30,000 ($4,000). I was lucky to be able to use a credit card. Most hospitals demand cash up front.

What was an annoyance for me is a matter of life and death for many Chinese people, who cannot get treatment for themselves or their children, even for life-threatening illnesses, until they hand over money.

The health system has become a kind of perfect storm for China’s transition from a state to a
market economy. Like most
aspects of the fast-growing Chinese economy, its impact is no
longer confined to China itself.

The fear of being financially crippled by falling ill is an important driver of the country’s high savings rates, which in turn feeds the economy’s bias towards investment and, more recently, with a large current account surplus, in
favour of exports.

Health (along with education
and pensions) used to be provided through government enterprises in cities and communes in the countryside, both bulwarks of the state that have disintegrated in recent years, leaving a vacuum to be filled by a user-pays system.

In the absence of government funding, hospitals (China has no system of general practitioners) have been turned into pharmacies on steroids, with more than half their recurrent funding from the sale of drugs. Much of the rest comes through diagnostic tests, which explains why some Chinese
hospitals have better equipment than in the west.

The system has in-built incentives for everyone to sell as many drugs as possible, including doctors, whose salaries are tied to prescription targets. As a result, rich China gets good hospitals, while poor China is lucky to get a clinic. It would be
easy to blame the hospitals for shaking down their patients at the front door, but they have to grab money where they can.

It is no coincidence that one of the biggest corruption cases this year centred on Zheng Xiaoyu, former head of the state food and drug administration, who was executed last month for taking bribes of $1m to approve new drugs.

The most common prescription is for antibiotics, with devastating effect. The health ministry announced the results of a survey this week showing about 70 per cent of child pneumonia patients were resistant to drugs used to treat the disease, because of overuse of antibiotics. In three children’s hospitals in Beijing, Shanghai and Guangzhou, the country’s wealthiest cities, the figure climbed to 90 per cent.

The systemic problems are notorious enough to be the subject of media pranks. A Chinese journalist visited 10 hospitals this year and, pretending to be a patient, provided tea in the place of a requested
urine sample. Six of the hospitals said they had discovered “blood cells” in the “urine” and immediately prescribed drugs.

The government has not been idle (in China, it rarely is) in addressing the health crisis. In rural areas, a new co-operative system is being rolled out, which combines insurance contributions from the local government and individuals with price caps at hospitals. In larger cities, the government has also begun a means-tested health insurance programme for low-income earners and, in May, capped hospital margins from drug sales.

At the national level, the issue has the attention of a committee involving nearly 20 ministries. Officials have panicked at the potential cost of
what many believe was a directive from Hu Jintao, the president, to come up with a blueprint for universal coverage. But the beginnings of a new national system will be rolled out, probably next year.

A country can still prosper, and indeed become a superpower without a fair or exemplary health system, as the US demonstrates, and certainly there is no magic bullet to fix China’s problems. The health overhaul, however, will provide a telling template for the broader policy directions, and boldness, of Mr Hu’s administration.

The problems of the health system are tangled up in the country’s larger policy conflicts. How much of a role should be allowed for the market? (The health ministry, which stands to profit from the industry’s growth, is resisting giving too much ground to the private sector.)

Who will regulate the doctors? (China is just starting to build professional bodies with the kind of independence that has so far not thrived in a one-party state.) And how much money will Beijing throw at the issue? (The finance ministry is flush with tax revenues but reluctant to hand them over to provinces and cities without knowing how they will be spent.)

In my case, I received a refund of the balance left over from my down payment after the birth, so I left hospital with a baby in one hand and a heavy brick of cash in the other. Such happy endings, however, are all too rare.