“Obamacare” may be a hot button issue in the US, but America isn’t been the only country to pursue an aggressive health care reform program.

In 2006, just 45 percent of the Chinese population was covered by health insurance. But as incomes in the country rose and a middle class emerged, demand for modern, Western-style health care surged. Several private companies stepped in to meet that demand, as wealthier Chinese essentially paid out of pocket for medical care.

Unfortunately, that set of circumstances created a wide gap between health care “haves” and “have-nots.” For a supposedly socialist country, this dichotomy proved unseemly and embarrassing, prompting the government of China to implement two remedies.

First, it radically expanded its Urban Employee Basic Medical Insurance program that mandates basic insurance coverage for urban employees of both state-owned and private enterprises. As with employer-sponsored insurance programs in the US, the cost of that insurance is shared by both the employer and the employee.

Secondly, it created two new insurance programs for low-income Chinese, one for urban residents and the other for rural residents. The programs are primarily funded by the Chinese government and also require small annual premiums from the insured themselves.

As a result of those programs, nearly 95 percent of the 1.3 billion citizens of China are now covered by health insurance and the county is quickly becoming one of the largest health care markets in the world, second only to the US.

Within the next three years, health care spending in China is expected to reach nearly 7 percent of Chinese gross domestic product. While China’s Ministry of Health has yet to release total spending figures for 2012, in 2011 China spent nearly USD120 billion on health care.

That spending explosion has historically been a major profit boon for Western multinationals such as Pfizer (NYSE: PFE) and Merck & Company (NYSE: MRK). But China’s leaders have gotten wise to the massive business opportunities created by the country’s expansion of health care and they’ve decided to favor domestic companies rather than foreign ones, when possible.

As a result, the Chinese government has introduced a series of price control measures and stricter approval requirements on Western drugs and other medical products.

Those policies have given rise to companies such as Mindray Medical International Limited (NYSE: MR), a current portfolio holding, which have stepped in to meet the gap between supply and demand.

Mindray hasn’t been one of our top performers since I added it to the portfolio in early December. As we enter 2013, the stock has sold off on heavy volume (despite the lack of news as a catalyst), which leads me to suspect it’s a victim of mutual fund repositioning. However, it has great long-term potential, as Chinese health care spending continues to grow. Mindray Medical International Limited remains a buy up to 40.

Another company positioned to benefit from the upward trend in Chinese health care spending is Shangong Weigao Group Medical Polymer Company (Hong Kong: 1066), which produces a variety of single-use medical products, otherwise known as consumables.

The company’s product line includes items such as syringes, infusion and blood transfusion sets, as well blood purification equipment and metal plates and screws used in surgical procedures. While it does generate some export sales, it primarily serves the Chinese market with an in-country sales force of nearly 1,300 representatives in 119 cities.

In 2004, the company’s full-year revenue reached RMB407.8 million with earnings of RMB65.9 million, a margin of 16.2 percent. In 2011, revenues hit RMB3.2 billion with earnings of RM958 million and a now better than 25 percent margin.

The company is the dominant supplier of disposable medical products in China, holding 75 percent of market share in China’s top tier hospitals. Despite that already huge presence, it’s estimated that the company is currently capturing less than 2 percent of total disposable spending in the country.

Consequently, the company is expanding its efforts to reach smaller and more rural hospitals as well as blood collection centers across China. It is also spending heavily on research and development—now about 5 percent of revenues—to develop new product offerings primarily in orthopedic appliances.

Although China has achieved nearly universal medical insurance coverage, massive supply constraints still impede the provision of medical care, with too few doctors and hospitals across the country. Nearly a third of China’s anticipated growth in health care spending by the government will be earmarked for training doctors and building new state-run hospitals, particularly in rural areas.

While there’s no target number of new hospitals to be built—an anomaly for a government that typically imposes a target for everything—each facility will represent yet another potential customer for this expanding company.

Buy Shangong Weigao Group Medical Polymer Company under 10.