China’s growing appetite for our healthcare sector

6 minute read

Ambitious plans to improve public health are driving Chinese investment in Australia’s healthcare sector

Ambitious Chinese plans to boost the health of the world’s most populous nation have driven a shopping spree in Australia’s healthcare sector, with inbound investment shooting from almost zero to $5.5 billion since 2015 involving 16 major deals.

As much as 80% of the deals, by value, came from private Chinese firms, many of which have healthcare experience, including hospitals, specialised healthcare providers and pharmaceutical companies, as well construction and private equity firms.

The scale and breadth of the investment is mapped in a new report from KPMG and the University of Sydney Business School – Demystifying Chinese Investment in Australian Healthcare – which tracks merger and acquisitions and joint venture activity into Australia in the calendar years 2015 to 2017.

The report singles out the $930 million purchase of Australian hospital operator Healthe Care in 2015, the purchase of Swisse Wellness for more than $1.5 billion across 2015-16, and from 2017 the $800 million investment in Ansell’s Sex Wellness Division and the $337 million takeover of PRP Diagnostics.

The expenditure compares impressively with Chinese investment in the US healthcare sector, which the report puts at $US4.5 billion.

Speaking to The Medical Republic, report co-author Professor Hans Hendrischke, of the University of Sydney Business School, linked the spike in interest to China’s recent “radical” plans to beef up the health of the nation – including one aimed at raising China’s average life expectancy by one year, to 77.3 years, by the end of 2020.

China’s first long-term national health strategy, Healthy China 2030, was released in 2016 and identified population aging, spiralling chronic disease, environmental contamination and food safety as significant challenges. It specifically vowed to tackle China’s death rates from cancer, chronic respiratory diseases and stroke.

Jangho’s high-profile interest in Primary Health Care notwithstanding, Professor Hendrischke explained that the bulk of Chinese interest was in specialist services ,such as oncology, radiology, ophthalmology, IVF, and aged care.

“These services are replicable in the Chinese market and customised to fit the specific needs of China’s middle-to-high end consumer markets. Australian healthcare brands have an initial advantage in China due to their reputation for high-quality products with consumers,” he said.

China has also stepped up efforts to boost the nation’s birth rate in recent years. Despite scrapping the notorious one-child policy (which was replaced by a two-child policy in 2016), only 17 million babies were born in 2017, 3.5% fewer than in 2016 and more than four million short of predictions by China’s National Health and Family Planning Commission.

Meanwhile, despite ongoing Chinese efforts to beef up its underdeveloped primary health system, Professor Hendrischke said it was too early to tell what impact Chinese investment could have on the Australian primary care sector.

“You might get exposure to primary healthcare here, but quite likely it would be at the luxury or high-level end of the market. I think the reason why Chinese want foreign investment and foreign participation is because they want to upgrade their capabilities.

“Chinese investors have really shifted their investment interests to Australia’s high-tech, high-quality health products and services sector in the last three years,” report co-author Doug Ferguson, Head of Asia & International Markets at KPMG Australia, said.

“As China’s aged-care industry develops and its medical treatment sector matures there will be a greater need for these qualities and more demand for the businesses providing them. There’s still a long way to go,” he said.

Intriguingly, the researchers found “no significant investment” by Chinese firms in Australian pharmaceuticals, biotechnology or aged-care sectors.

“In biotech and pure research much of the investment seems to go to the US, and possibly Europe, simply because there is more general investment in the industry, Professor Hendrischke explained. “For aged care it could just simply be the [Chinese] market is not mature enough yet.”

Beijing-based Jenny Yao, KPMG China’s Head of Healthcare, told The Medical Republic: “The patterns that are emerging in China’s domestic healthcare sector are likely to strengthen investment demand in the coming years as healthcare assets become a key component of many Chinese investors’ portfolios.”

Chinese policymakers have made great pains to move the Chinese economy from a recipient of investment into a global investor. Since 1999, the nation has promoted outbound investment as part of a long-term strategy to revamp its economy, and in 2014 Beijing again urged domestic firms to “Go Global”.

Healthcare is said to be attractive as Chinese companies seek overseas opportunities outside what the Chinese government has more recently labelled “irrational” sectors, such as entertainment and property. China’s giants have been rapped over the knuckles for investing heavily in those sectors.

But Professor Hendrischke dismissed suggestions the healthcare investment trend was an example of Chinese “capital flight”.

“What I think is driving investment much more is the Chinese have, as a matter of policy, opened their healthcare market and health-product market to foreign participation,” he said.

Chinese investors are most interested in companies that are already exporting to, or capable of exporting to, China. That explained investments in non-exporting companies such as Healthe Care and Genesis Care, which were made with the intent to expand those businesses into China’s domestic market, the report said.

KPMG’s Ferguson said Australia’s advantages in advanced technology application, quality care facilities, management systems and what he called Australia’s “clean, green and healthy” image made Australian exports popular in China.

Reasons listed by Chinese firms for their interest in Australian healthcare investments included the maturity of Australian business services and technology, its popularity as a destination, the small time difference with China, the stable political environment, low sovereign risk, transparent regulation, stable economic returns and cultural diversity.

Professor Hendrischke said the cultural competency of Australian companies came up in interviews.

“That’s also going to count in the aged-care sector, dealing with cultural expectations about how elderly people should be treated, the kind of cultural rules for showing respect. What Australian companies have done is convert those [rules] into management procedures.”

Meanwhile, Professor Ken Harvey of Monash University, a high-profile critics of complementary remedies, lamented the fact that half of the Chinese investments had been in health supplements companies.

He also rubbished the report’s assertion that “companies such as Swisse help fulfil the Chinese Government’s aim of ‘safe, effective, convenient and affordable’ healthcare”.

“Yes, the Chinese people like Australian complementary medicines because they are less likely to be adulterated or contaminated compared to their own,” Professor Harvey told The Medical Republic. “But one day they will also want products that work!”

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