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Why China’s obesity crisis is great news for investors

Why China’s obesity crisis is great news for investors

Increasing obesity and other health concerns in China pose serious challenges, but also exciting opportunities for investors.

Growing prosperity in China led to the greatest exodus from poverty in human history. As China’s economy matures, the country faces news problems, notably a massive increase in obesity. China has quickly become the second most overweight nation in the world (behind the U.S.), with 28% of men and 27% of women either overweight or obese. This equates to 46 million obese and over 300 million overweight individuals.

This state of affairs raises serious problems for China, but also a host of opportunities for investors.

The growing middle kingdom

As incomes in China have increased, changing dietary habits have mirrored trends seen in developed countries, as Chinese consumers increasingly opt for high-calorie, processed foods. What makes the situation in China different, is the fact that the country went “from famine to gluttony in a generation.”

Consequently, attitudes among older Chinese regarding diet runs counter to contemporary advice, as being thin is associated with being poor. These attitudes have led to increased obesity rates in Chinese children who live with grandparents in the home. These children are being over-fed and indulged by elderly relatives, who equate weight with wealth.

This trend is further compounded by the one-child policy that has seen many single children in increasingly wealthy homes become huang di or ‘little emperors’ – spoiled by parents who pin all their hopes on their only child. This in turn accounts for the fact that obesity rates are higher among Chinese men and boys as opposed to females. The traditional preference for boys, compounded by the one-child policy and permissive parents has seen obesity trends in China run counter to Western ones, where women are more likely to be overweight than men.

These various elements have seen China become home to one third of the world’s diabetics, with 114 million sufferers in the country. Add to this China’s aging population, the effects of rampant pollution, and the fact that China is the largest consumer of tobacco products, and the country faces serious problems. A conservative estimate of the costs to China’s health care system just from higher obesity rates is $155 billion.

Beijing is well aware of the country’s obesity epidemic; it recently lowered weight requirements for PLA recruits in order to maintain intake, and the military has also complained that soldiers are increasingly unable to fit into traditionally sized tanks.

Beijing is seeking to boost national health, by for instance promoting President Xi Jinping’s interest in soccer, and has mandated healthier policies, such as requiring schools to set aside an hour for exercise everyday. However, this move has largely failed as many schools ignore the ruling, as they face criticism from demanding parents complaining that exercise time undermines academics.

Despite investing $359 billion between 2010-2015 to improve health care infrastructure, the government has still not done enough to provide sufficient medical staff. There is a shortage of doctors and nurses, as well as only 10,000 registered nutritionists for a population requiring around four million.

China is seeing creation of trillion-dollar health sector

Alongside the booming pollution mitigation and green tech sectors, China’s health sector is benefiting from rising obesity rates. While even a few years ago, growth in these areas was modest, in recent years the health industry is seeing record growth. Health care remains one of the final frontiers for foreign investment penetration in China, with the Chinese health care industry projected to be valued at between $1-1.3 trillion by 2020.

Companies are capitalizing on surging public demand, as fat camps for rich children expand in Chinese cities, and the country becomes the third largest cosmetic surgery market, with liposuction the most popular procedure. Consequently, the medical device market in China forecasts 20% growth rates for the next three to five years, with the sector estimated to pass $50 billion by 2017.

Chinese consumers are also purchasing dietary and nutritional supplements, with surveys showing that almost half of urban Chinese regularly buy vitamins and supplements. The supplement market in China doubled between 2008-2014, reaching $15.7 billion. Another survey by BCG has shown that 73% of Chinese consumers are willing to pay higher prices for products that are deemed healthier – 12% above the global average.

Changing Chinese consumer trends are seeing a boom in China’s sport industry, with estimates valuing the industry at $772 billion by 2025. A key factor behind this growth is increasing interest from female consumers. Beauty preferences for women in China are shifting from the traditional softer physique towards more toned and athletic bodies. To meet this demand, more than fifty health and fitness apps came online in the first half of 2015, and gym attendance in 70 major Chinese cities has been increasing at an annual rate of 4-5 million since 2011.

As a result the sports apparel industry in China has seen 10% annual growth since 2010, with market leaders Nike and Adidas reporting 14.4% and 13.8% growth respectively. Indeed, Adidas reported an 18% increase in China during the first nine months of 2015 alone, resulting in $2 billion in sales.

It is interesting to note that foreign brands such as Nike and Adidas have come to dominate the Chinese market, increasingly stealing market share from domestic companies in recent years. This is indicative of many sectors of the Chinese economy as more prosperous consumers seek out foreign brands as status symbols and due to concerns about quality.

While all the figures listed above indicate that Beijing is making progress in shifting China’s economy towards a consumption based model, it also highlights how Chinese consumers are using the private sector to fill the health care gap. Beijing cannot solely rely on market solutions to make up for a grossly under funded health system; especially as poorer Chinese remain without adequate options, a state of affairs that could lead to unrest.

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