CEO Blog: China Snapshot: Rapid Change, Vast Scale, Stark Contrasts, and Great Opportunity

Spending a month in China earlier this year left me with a clear picture of a nation of rapid change, vast scale, and stark contrasts. All of these factors create opportunities – and challenges – for American businesses in China, and particularly for those of us in health care. Rather than attempt to delve into all the complex issues around doing business in this enormous country, I’d like to share a snapshot that left a profound impression on me.

Here’s a metaphor for the breakneck pace of change in China: Less than four years ago, during a visit to Shanghai, I remember walking in the early morning near the heart of the city and seeing thousands of bicyclists peddling their way to work in offices, shops and factories. Fast-forward only four years, and the bicycles are comparatively scarce, replaced wholesale by cars and motorcycles.

My first drive from Shanghai to Suzhou less than 10 years ago was punctuated by farm fields and open countryside. Today, that 60-mile stretch is almost one continuous development.

China’s recently adopted Five Year Plan aims to maintain growth of GDP in China at 7 percent per year over the period – lower than the 2010 growth rate of nearly 10 percent, but still very rapid economic expansion.

China's continued strong economic growth means that more change and transition is inevitable – and it will all occur on a massive scale.

The magnitude of everything one sees in China is almost unimaginable.

Indeed, the health care system operates at what I called a “10X” scale to anything I’ve ever seen or heard of in the U.S. or elsewhere.

That was certainly true of the hospitals we visited. The West China Hospital in Chengdu is the largest hospital in China and possibly the largest in the world. Last year, this hospital treated 3 million people on an outpatient basis and staged more than 76,000 surgeries – more than 200 a day! Changqiao Community Health Center in Shanghai – an outpatient hospital providing primary care to its neighborhood – handled more than 700,000 patient visits in 2010 with just over 200 employees.

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The massive scale of China was also evident in Suzhou, where Lilly has a new packaging facility and warehouse under construction. Suzhou currently has a population of 6 million permanent residents, plus another 6 million who live there as migrant workers. Suzhou Industrial Park, founded in the mid-1990s, today includes vast residential and retail/commercial tracts in addition to business sites and will eventually comprise more than 100 square miles – five times the size of Manhattan!

Jon Huntsman, the U.S. Ambassador to China at the time of my visit, described to me the massive scale of urbanization in the country. In just the next decade or so, he said, several hundred million Chinese – the equivalent of the entire U.S. population – will move from the countryside into cities, in some cases cities that aren’t even built yet!

Not surprisingly, the pace of economic change varies dramatically across this vast country, creating some very stark contrasts within Chinese society. In a recent survey, China is second only to the U.S. in the number of billionaires. China is today one of the world’s largest markets for luxury goods. It’s easy to spot expensive luxury cars on the streets of Shanghai.

And yet, when we visited a community health center in Qinghai province, just outside Xining in western China, I couldn’t help but notice the scarce resources available there to detect and treat tuberculosis. In fact, the posters and educational brochures that were provided as part of Lilly’s TB partnership were the only resources that I could see. This is emblematic of the continuing contrast in health care between cities and rural areas across China.

There is little doubt that more Chinese people are seeking better health care as the government provides additional coverage and subsidies for the entire population. One factor is the growth in the middle class, which Ambassador Huntsman said could comprise 40 percent of the population by 2025.

That’s good news for companies like Lilly, as more patients have access to our medicines. We have a tremendous opportunity to make a difference for patients in China in the categories where we compete. To cite just one example, there are estimated to be 92 million people in China today with Type II diabetes. Yet, only 40 percent are diagnosed and, of those, only 25 percent are considered to have their diabetes adequately controlled.

Bottom line: There are at least 80 million people in China with Type II diabetes who need better care.

The tremendous opportunity created by China’s growth, however, must be viewed against the unprecedented challenges of such rapid change on such a massive scale.

Consider just a few examples:

• How do you operate a hospital to serve hundreds of thousands of outpatients each year?
• How do you provide health care to more than 1.3 billion people?
• How do you operate an economy that will provide jobs for millions of new university graduates every year?
• How do you govern 200 cities expected to have at least 1 million people each by 2025?

As China confronts these kinds of challenges, it also aims to change the pattern of economic growth from a heavy reliance on exports and manufacturing to one that balances exports with increased domestic consumption and begins to shift from manufacturing to more service-elated jobs.

What’s more, the Chinese are responding to concerns about rising prices – which have recently affected food and housing – by implementing anti-inflation measures. The government will also be seeking to rein in costs in health care, and that means ongoing price pressure on medicines.

We need to be mindful of this and make sure our own costs are in line with our customers’ expectations.

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All in all, China's economic goals remain very ambitious – not to say daunting. Yet, at the annual government-sponsored China Development Conference – which I attended in Beijing – I don't believe there was a single delegate who doubts that China will achieve most of its goals in the period ahead. And these goals include continued expansion and strengthening of basic health care coverage throughout the country.

My overall conclusion from my trip is that our company needs to move even more aggressively to increase our presence in China, to develop the capabilities of our organization, and to continue to build a strong Lilly brand. Whether China becomes the world's No. 2 pharmaceutical market in 2015 or in 2020 doesn't matter. The trend is clear, so long as China's underlying economic growth remains strong.

While there will likely be a few bumps along the road, I came away from China convinced that it will represent an increasingly important segment of our business and a real opportunity for growth for Lilly. It will also be a rich source of talent and ideas for our company. And in a country so vast, changing so rapidly, and raising expectations for so many, there is plenty of room for other American companies, as well.

John C. Lechleiter, Ph.D., has served as president and chief executive officer of Eli Lilly and Company since April 2008. He was named chairman of the board of directors in December 2008. In 2001, Lechleiter was appointed executive vice president for pharmaceutical products and corporate development. In 2004, he became Lilly’s executive vice president for pharmaceutical operations. And, in 2005, he was named president and chief operating officer and joined the board of directors.