Private healthcare opportunities abound in China

This includes areas such as medical products, pharmaceuticals and consumer health, and multinationals are understandably flocking to take advantage of the opportunities. At the same time, there are reasons for investor caution, such as pressure on pricing and the rise of “local champions” – emerging Chinese companies strong enough to take on the multinationals and compete effectively. Vice Premier Li Keqiang recently said reform of China’s healthcare system had effectively entered “unchartered waters”.

For hospitals, competition from the private sector and the incentives this creates for the public sector to improve its service are welcome. With more choice, I believe many wealthy Chinese and also some of the middle-class population will choose private care, which would relieve pressure on public hospitals, considerably reducing their burden and helping shorten queues for poor and not so well-connected patients. The opportunities are great, but for overseas operators the challenge is to properly understand local cultures and practices.

Growth in China’s healthcare sector in general is being driven by an ageing population, urbanisation and rising incomes. In addition, the government has made healthcare a strategic priority, starting with wide-ranging reforms of the sector in 2009, and including it in its 12th five-year plan, announced earlier this year.

The government is determined to establish a universal healthcare system by 2020, providing what Li has described as “safe, effective, convenient and low-cost healthcare services”, which means there will be many opportunities for healthcare suppliers and contractors.

Most of the large global pharmaceutical and biomedical companies – such as Bayer, Baxter, AstraZeneca, Roche, GlaxoSmithKline, Eli Lilly and Merck – operate already in China, and are accelerating their commitments, including research and development spending. Medical device companies, such as Covidien, GE Healthcare, Johnson & Johnson and Metronic – are also prominent.

At the same time as China becomes more appealing to healthcare companies, Western markets and Japan are becoming less attractive to healthcare companies for many reasons, including declining R&D productivity, expiration of patents for many blockbuster drugs, and significant pressures as governments tighten their spending.

Despite the obvious attractions of China, there are reasons to be cautious. As noted in a recent report on the sector by management consultancy McKinsey and Company, competition from local companies is intensifying and the pace of the nation’s economic growth is slowing. It is likely to become more difficult, even for large-scale operators, to compete, and late entrants may struggle to gain traction.

Long-term success is likely to depend on the government’s ability to align the interests of many different stakeholders and foster an environment that supports innovation and quality, without resorting to protectionist measures assisting local champions. Benefits may well extend beyond China, such as the development of vaccines that everyone can use. Certainly this would be a huge boost to China’s global standing, emphasising how China’s emergence on the world stage is about more than just financial and economic clout.

 

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