Chinese medicine and wisdom

OECD Economics Department

The report entitled Challenges for China’s Public Spending: Toward Greater Effectiveness and Equity, published earlier this year, identified education and healthcare as priority areas for public spending. Why does China need to spend more on education and health?

Some public services in China have come under serious strain, even as the economy has boomed. This appears to be the case with health and education, whose present level of public spending seems to be out of line with the country’s development needs and goals.

The available data indicate that public spending on education and health was 2.8% and 0.6% respectively of revised GDP in 2004. These ratios are lower than in many developing countries such as Thailand and the Philippines, let alone OECD countries. Spending on education and health appears low not only relative to other countries, but also in comparison with China’s own national objectives.

Not that the authorities are unaware of the situation. Indeed, they have for instance long recognised the need for strong government support for education, which has been a key target of development policy and public expenditure during the past decade. As early as 1993, a medium-term goal for public expenditure on education (to be reached by the end of the century) was set at 4% of GDP. This was around the developing country average at the time.

The objective has not been reached. The same is true for healthcare: the objective set in the early 1990s for the growth of spending on health to exceed that of total spending has not been attained. Indeed, its share in total spending has fallen over the past ten years.

Despite the focus of the public policy debate on government inputs, outcomes are what ultimately count. In education, China compares favourably to other countries in terms of pupil-teacher ratio at the primary school level, but its secondary school enrolment rate and adult literacy rate are not only lower than in OECD countries but also lower than in many developing countries. Health outcomes show a similar pattern: in terms of life expectancy, China compares well with some OECD countries, but its infant and maternal mortality rates are even higher than in many developing countries. Moreover, there are large disparities among regions, and particularly between urban and rural areas. Focusing increased inputs in needy areas would help to improve the overall picture.

What seems clear is that most of that extra input will probably have to come from the public purse. Why? For a start, the private sector in China already provides a higher share of spending on education and health than in most other countries. In fact, the share of private spending on health is higher than it is even in the US.

In China’s case, with its already wide income disparities, raising the private share of spending would not necessarily improve the access of poor people to education and healthcare services, and could even reduce their access in many cases. Already, education is not free even at the primary level, with parental wealth largely determining access. Similarly, nearly 80% of the rural population and half of urban dwellers are not covered by health insurance and so cannot afford to visit a doctor.

This situation became evident during the SARS (severe acute respiratory syndrome) outbreak in 2003 and it complicated efforts to prevent the disease from spreading.

Much of the access problem can be traced to the large disparities in local government revenues between wealthier provinces in the east of China and poorer provinces in the interior, and between rural and urban areas. Many local governments, which bear the main responsibility for providing education and healthcare services, face a persistent shortage of revenues and cannot meet their expenditure mandates. China’s extensive system of inter-government transfers only partially makes up for these gaps. As a result, poorer localities are often unable adequately to provide even the most basic services.

The market can be harnessed to help overcome some of these problems. For instance, the usual practice in OECD countries is for government to fund primary and secondary education because of its broad social benefits, and allow the market to contribute finance to higher education, through fees for instance, because the private benefits to graduates are considered greater. In China, though, the emphasis is the other way around, with a relatively large share of government education spending channelled into tertiary education. Yet if more private money were coaxed into higher education instead, this would free up public resources for investment in primary and secondary schools.

The market cannot do it all though. The entry of private capital into the health sector has been insufficient to meet the increasing demand for healthcare services. True, the share of private hospitals has reached 10% of the total, but their overall role is limited by their small size. Also, the financial capacity of rural citizens is simply too weak to pay for their own healthcare. In short, to provide accessible healthcare for all, and to prevent major outbreaks of disease, increased government outlays will inevitably be necessary. China’s government will also need to spend more to alleviate the problems now facing schools in poorer areas.

However, money alone will not solve the problems. Better governance is called for to improve efficiency. Public funds are often used in inefficient ways, and this is reflected in the structure of spending. For instance, in education, the share of spending on infrastructure and equipment is lower than in other countries, while labour costs, particularly of non-teaching staff, are far higher. There are also serious inefficiencies in healthcare. For example, the insurance system fosters substantial overuse of prescription drugs in relation to less costly but equally effective alternatives that are not covered.

China is certainly not sitting on its laurels. Providing universal compulsory education for free and access to healthcare services for the poor, especially in rural areas, were among the major immediate objectives of public policy at the annual session of the Chinese National People’s Congress in March 2006. These steps are seen as critical to achieving the broader goal of raising living standards of rural citizens.

The goals are important for the growth and development of China as a whole, and not just for social reasons. Education and health affect human capital, productivity and competitiveness. Upgrading skills would also make it easier to adopt new technologies and hence strengthen another pillar of growth. For China, more well-managed public spending on health and education really could make a difference.


OECD (2006), Challenges for China’s Public Spending: Toward Greater Effectiveness and Equity, Paris.

OECD (2005), Economic Surveys: China, Paris.

OECD (2005), Governance in China, Paris.

©OECD Observer No 256, July 2006

Economic data

GDP growth: +0.5% Q3 2018 year-on-year
Consumer price inflation: 2.1% Jan 2019 annual
Trade: +0.3% exp, +0.7% imp, Q2 2018
Unemployment: 5.3% Jan 2019
Last update: 12 Mar 2019


Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Subscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly

Online edition
Previous editions

Don't miss

  • Food production will suffer some of the most immediate and brutal effects of climate change, with some regions of the world suffering far more than others. Only through unhindered global trade can we ensure that high-quality, nutritious food reaches those who need it most, Angel Gurría, Secretary-General of the OECD, and José Graziano da Silva, Director-General of the United Nations Food and Agriculture Organization, write in their latest Project Syndicate article. Read the article here.
  • Globalisation will continue and get stronger, and how to harness it is the great challenge, says OECD Secretary-General Gurría on Bloomberg TV. Watch the interview here.
  • OECD Secretary-General Angel Gurría with UN Secretary-General António Guterres at the 73rd Session of the UN General Assembly, in New York City.
  • The new OECD Observer Crossword, with Myles Mellor. Try it online!
  • Watch the webcast of the final press conference of the OECD annual ministerial meeting 2018.
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2019