The problem is that spending China’s fiscal stimulus on health care appears highly unlikely to cause any form of multiplier effect through the economy.

This has the problem not only of being a considerable waste of useful cash, it may also, as Meng noted, have a worse effect on health sector reform in the long run – as investments in other programs that promise higher returns for economic recovery will look more attractive.

The theory that fixing health care will lead to an economic stimulus assumes that China’s high savings rate is due (to some degree) to a lack of effective insurance. It also assumes that the central government will be able to mobilize adequate finances for the reforms under the current economic crisis.

An effective social safety net will indeed encourage people to reduce their savings rate and shift to higher consumption. But the stimulus package proposed for China’s health system won’t lead to lower savings, despite the RMB 100bn p.a. proposed for the new CMS system.

This is because – in spite of the far higher levels of funds that will soon be in the system – the new CMS remains fundamentally flawed as an economic stimulus for two reasons.

The first is that the new CMS makes them pay to see the doctor up front, then be reimbursed. You can pump as many trillions of yuan into insurance as you want, but if you have to pay up front you still need to save enough money to pay for your health care before being reimbursed. Thus, the new funds, in spite being 37 per cent of the total budget, are unlikely to affect savings rates.

Secondly, due to the fact that the new CMS remains the only social health insurance scheme in the world which is voluntary, healthcare costs are likely to also rise under the new stimulus package. 

The other major tenet of the new system is that the central government will completely subsidize the delivery of an ‘essential public health service’. There will be a mandated level of services for all citizens across China, whilst local governments can add public health services to this package based on the local economic situation.

The issue with this as an economic stimulus is that it merely reinforces the existing, dramatic, horizontal inequities within the Chinese public finance system. Prior research already tells us that in public fund-starved rural areas providers often charge for goods mandated as free and basic: immunisations are a good example.

The announcement of greater funds going to health care is a significant bonus. An increase of public funds and attention in this area is of undoubted benefit to China. Improving public good provision may go someway to rectifying China’s equity problems. Moreover, no-one doubts that the establishment of social health insurance takes time: most studies argue an average of 20 years.

The one part of the new health care policy statement that may make a difference is the statement that ‘all level(s) of political leadership should put health care as a priority on the party’s agenda’. Should this anodyne statement be reflected in the opaque world of cadre zhibiao (performance criteria), then health care may see some dramatic improvements.

However, expecting this form of public spending in the current health care system to invoke any form of economic stimulus is, at best, wishful thinking.