China Healthcare Report - Final

This document is being provided for the exclusive use of (Grace Zhang - l.zhang@urgo.cn).
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About the China Healthcare Report 2020

Leveraging the South China Morning Post’s unmatched access
into China’s healthcare market, the China Healthcare Report 2020
gives you exclusive first-hand insights and analysis into the latest
industry developments, including:
• An up-to-date and comprehensive review of the latest

developments in China’s healthcare industry
• Segment analysis of the various sectors in healthcare and in-

depth case studies of remarkable companies in each sector
• Insights on market trends and risks and opportunities

brought by the COVID-19 pandemic
Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
China Healthcare Report 2020 | August 2020
CONTENTS
EXECUTIVE SUMMARY 4
1. SECTOR OVERVIEW 6
1.1 BACKGROUND 8
1.2 MARKET SIZE 11
1.3 GOVERNMENT POLICIES 13
1.4 MAJOR DISEASES 16
1.5 MAIN SEGMENTS 24
1.6 FUNDING 31
2. SEGMENT TRENDS 34
2.1 PHARMACEUTICALS 34
2.2 BIOPHARMACEUTICALS AND CONTRACT SERVICES 44
2.3 MEDICAL DEVICES AND SUPPLIES 57
2.4 HEALTHCARE SERVICE PROVIDERS 61
2.5 HEALTHCARE TECHNOLOGY 66
3. RISKS AND OPPORTUNITIES 72

3.1 TRANSPARENCY IN FOCUS 72
3.2 QUALITY CONCERNS 74
3.3 GEOPOLITICAL CHALLENGES 76
3.4 OVERCROWDING AND EXUBERANCE 80
3.5 A NEW MODEL 82
CONCLUSION 85
Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved. 3
EXECUTIVE SUMMARY
China has set a 2030 target to significantly raise Covid-19, which reaffirmed that population health
the standards of its healthcare sector. This has seen is indispensable to economic development. Covid-19
the government dramatically increase spending on has also provided an immediate windfall to several
healthcare over the past two decades. China ranks as Chinese companies, particularly those making
the second largest healthcare market by expenditure ventilators and disposable medical supplies. But
in the world, with 2018 spending of nearly 6 trillion long-term, the benefits of China’s increased focus
yuan (US$1 = 6.95 yuan), behind only the US, where on healthcare provision will be much more widely
spending stood at US$3.6 trillion.1 dispersed.
In addition to a massive increase in funding, the Innovators will reap outsized rewards
country is undertaking an ambitious series of reforms It is worth noting that rising overall healthcare
seeking to establish an equitable and effective health expenditure will not lift all companies. Government
system for all its people. measures to contain costs while promoting
innovation in drugs and medical devices should see
Improving access and containing costs innovators rewarded while the legions of “copycats”
A big part of the current reform effort is to make see their margins squeezed. As such, investors have
essential drugs more accessible. There are three parts focused their attention on the Chinese healthcare
to this plan. The first involves adding innovative players showing greatest capacity to compete on
and expensive treatments to the country’s national a world stage, of which the biopharmaceutical
insurance coverage list, while compelling drug companies and a few medical device makers are
companies to cut their prices in exchange for the perhaps the most prominent.
volume gains brought by inclusion. The second
seeks to reduce prices of generic drugs through Beyond drugs and medical devices, Covid-19
bulk-buying programmes. And the third encourages highlighted the capabilities of a variety of Chinese
the development of innovative drugs through healthcare technology offerings. Online healthcare
government support and fast-tracking of reviews and service providers saw a spike in demand that is
approvals. likely to be sustained and artificial intelligence (AI)
companies demonstrated their ability to quickly
The Covid-19 crisis highlighted the resilience of repurpose their solutions to help tackle the pandemic.
China’s healthcare sector. Although the outbreak Of the two, online healthcare is clearly the near-
led to a temporary postponement of new product term opportunity, while seeking returns from AI will
launches and non-essential hospital visits and require a much longer view.
procedures,2 businesses were largely back to normal
by July 2020. Going forward, spending growth is Surmounting obstacles
likely to accelerate beyond pre-pandemic levels, China stands a good chance of realising its lofty
as happened during the severe acute respiratory healthcare goals but significant risks stand in the
syndrome (Sars) outbreak of 2002-03, with an initial way. Although it would seem that the lesson of
dip in healthcare spending followed by a strong Covid-19 is that greater international cooperation and
rebound. In particular, the Chinese government coordinated action is the best way to prevent future
significantly increased its investment in the sector public health crises, several nations, most notably
following Sars, and is expected to do the same after the US, could instead seek to reduce their reliance
1
Erik Sherman, “U.S. Health Care Costs Skyrocketed to $3.65 Trillion in 2018”, Fortune, 21st February, 2019: https://fortune.com/2019/02/21/us-health-care-
costs-2/
2
Fitch Solution, “Trends Shaping The Post-Covid-19 Pharmaceuticals & Healthcare Market”, 5th June, 2020: https://www.fitchsolutions.com/corporates/healthcare-
pharma/trends-shaping-post-covid-19-pharmaceuticals-healthcare-market-05-06-2020
4 Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
on other countries, especially China, following the suppliers of globally relevant and transformative
pandemic. solutions, led by China’s tech giants Alibaba, Baidu
and Tencent. Meanwhile, operators of private
But decoupling faces a variety of intractable practical healthcare facilities, including Quality Healthcare
problems, meaning China will probably remain a Medical Services and United Family Healthcare,
crucial part of the global pharmaceutical supply are earning patient trust and making inroads into a
chain. And importantly, although China now faces market long dominated by massive public hospitals
increased scrutiny on its healthcare investments through the provision of more personalised, high-
overseas, the Covid-19 outbreak has not dented the quality care.
resolve of multinational pharmaceutical giants to
invest in China. Indeed, it could well make them more Showing the way
likely to invest in the country by demonstrating the In addition to serving domestic objectives, China’s
stability and integrity of its pharma supply chain. healthcare journey could serve as an example for
other countries. Unhindered by vested interests,
One more risk is the tendency for development efforts China is experimenting with bold policies to rein in
to crowd into popular fields such as oncology for the prices of drugs and medical devices. It is seeking
drug discovery and medical imaging and diagnosis to address quality and capability gaps in healthcare
in AI. Another recurrent concern in China is quality provision between urban and rural areas through
control, which could derail the country’s healthcare technology, including telemedicine and AI. And it is
ambitions. promoting the development of private hospitals and
health insurance schemes as a means to generate
But the other side of risk is opportunity. There competitive pressure on public facilities and alleviate
are notable Chinese companies striking out from the strain on government coffers.
the crowd to develop novel therapies in less well-
served treatment areas. And several firms are highly China’s healthcare sector looks set to move up
committed to ensuring quality. These could win the value chain and converge to developed world
market share at home and abroad. standards. The domestic market provides plenty of
potential, but leading Chinese healthcare players
This report looks at several Chinese players on will also increasingly seek to penetrate international
a mission to pursue innovation and produce markets. They will push down prices and contribute
internationally competitive products. In the fast- to global advances in diagnosis and treatment to
developing biopharmaceutical segment, Alphamab the benefit of patients everywhere. With healthcare
Oncology, Harbour BioMed, Hua Medicine, Hutchison systems around the world facing sustainability
China MediTech (Chi-Med), Innovent Biologics and problems driven by spiralling costs of key products,
Zai Lab are a few names worth watching. In medical ageing populations and, now, the likely emergence
devices, Shenzhen Mindray Bio-Medical Electronics of more frequent pandemics and acute health crises,
and Venus Medtech stand out. The broad-ranging China’s contributions could be a crucial part of the
healthcare technology segment consists of many solution.
1: SECTOR OVERVIEW
China is working towards a 2030 target to upgrade Investors are keen to finance their efforts, with the
its healthcare sector to developed world standards. Covid-19 pandemic having further highlighted the
In addition to large, steady increases in its overall importance and prospects of China’s fast-improving
healthcare spending over the past two decades, healthcare sector. As of mid-May 2020, healthcare
the government has since 2015 introduced specific firms had raised US$7.9 billion in 2020 via initial
measures to encourage greater domestic innovation public offerings in Hong Kong, Shanghai and
in developing drugs and medical devices. Shenzhen, compared to US$2.7 billion in the same
period of 2019.3
Responding to the government’s encouragement
and support, scores of Chinese healthcare companies Amid the market turmoil fomented by the pandemic,
have set out to rise up the value chain to provide China’s healthcare sector was one of the best-
for the huge and growing needs of the domestic performing equity classes globally. Over the first five
market. Many also have international expansion months of 2020, the MSCI China All Shares Health
firmly in view, inspired by a newfound confidence Care Index saw net returns of 13 per cent,4 compared
that they have what it takes to go head-to-head to declines in the overall MSCI China Index (-5.5 per
with established multinational players in markets cent), as well as the MSCI World (-8.2 per cent) and
overseas. MSCI Emerging Markets (-16 per cent) indices.5
FIGURE 1: YEAR-TO-DATE PERFORMANCE OF MAJOR STOCK INDICES (YEAR TO 31st JULY, 2020)
160
Normalized as of January 1st, 2020
MSCI China All Shares Health Care 10/40 Index

S&P 500 Index
140
Dow Jones US Healthcare Index
MSCI World Healthcare Index
120
100
Travel restrictions placed on 80

Wuhan to limit the spread of
the coronavirus
Jan 1 Jan 15 Jan 31 Feb 14 Feb 28 Mar 16 Mar 31 Apr 15 Apr 30 May 15 May 29 Jun 15 Jun 30 Jul 15 Jul 31
Source: Bloomberg
3
Alison Tudor-Ackroyd, “China’s health care companies rush to raise capital during fight against coronavirus pandemic”, South China Morning Post, 19th May, 2020:
https://www.scmp.com/business/banking-finance/article/3085119/chinas-health-care-companies-rush-raise-capital-during
4
MSCI China All Shares Health Care Index: https://www.msci.com/documents/10199/9dd44c37-f44c-421c-82bc-c72fa90475df
5
MSCI World Index (USD): https://www.msci.com/documents/10199/149ed7bc-316e-4b4c-8ea4-43fcb5bd6523
Beyond the demographic opportunity of providing leading to significant overall improvements in

healthcare to an ageing and patient outcomes. But this will not
increasingly affluent population, necessarily translate to higher profits
investors are interested in for all players. The margins of drug
companies that reaped a Covid-19 “The rise in China’s makers will be squeezed through
windfall, perhaps through healthcare spending the expansion of the government’s
increased government spending over the coming years bulk-buying programmes, which in
to combat the pandemic or will be accompanied turn will likely result in widespread
rising consumer adoption of by the rooting out industry consolidation. At the same
digital healthcare offerings.
of inefficiencies time, the removal of obstacles to
Another obvious focus is on the
both through running clinical trials in China and
frontrunners in the race to develop
administrative other measures promoting new
changes and
a vaccine. That race could yield drug development will see the spoils
technological
a few winners because it is likely increasingly go to innovators.
advances, leading
that Covid-19 will eventually
to significant overall
be contained not with a single Clear victors are emerging and
improvements in
vaccine, but with several.6 patient outcomes.” despite the headwinds, given the
immense market potential and
The rise in China’s healthcare the government’s determination
spending over the coming to broaden access and improve
years will be accompanied by quality, China’s healthcare sector
the rooting out of inefficiencies both through has been described by some investors as the “must
administrative changes and technological advances, overweight” sector in the coming five years.7
A man demonstrates how Tinavi’s surgical robot can carry out operations on the extremities, pelvic fractures and the spine.
6
Faye Flam, “The More Covid-19 Vaccines, the Merrier”, Bloomberg, 26th May, 2020: https://www.bloomberg.com/opinion/articles/2020-05-26/covid-19-
vaccines-will-create-multiple-winners
7
1.1: BACKGROUND
Most countries have healthcare sectors that are rife doctors in China receive much less pay in relation to
with systemic problems, and China is no exception. the country’s median income than those in developed
Among China’s specific problems are an insufficient nations. Choosing to work as a GP, especially in the
primary care system, glaring gaps between the countryside, means earning even less and having
quality of care available to rich and poor and between lower status than a specialist, so most Chinese
urban and rural areas, as well as kickbacks given to physicians opt for the latter career path.
underpaid doctors by pharmaceutical companies
and patients seeking preferential treatment. As a More broadly, when considering all doctors, China
consequence, there is a great deal of mistrust in the has two per 1,000 inhabitants, which is not far behind
system, with frustration sometimes boiling over to the US and Canada, at 2.5 and 2.8, respectively.13
physical attacks on doctors. But the profession is ageing fast (see figure 2). The
percentage of licensed doctors aged 25 to 34 declined
One of the biggest shortcomings of China’s healthcare from 26.4 per cent in 2009 to 22.6 per cent in 2016,
system is the lack of an adequate primary care while the proportion aged 60 or above rose from 7.2
system. The number of general practitioners (GPs) per cent to 12.4 per cent. In a worrying sign, 45 per
stood at 1.07 per 10,000 people in 2013, well short of cent of 150,000 Chinese doctors surveyed in 2018 said
the international standard of at least 5 per 10,000 they do not want their children to follow them into
indicated by the World Health Organization (WHO). their profession.14
In 2015, the Chinese State
Council introduced a scheme FIGURE 2: DISTRIBUTION OF CHINA’S DOCTORS BY AGE GROUP
to increase that number,11 and
by 2019 it had reached about
2.2 per 10,000.12 Still, China has Percentage of licensed doctors
aged between 25 and 34
a long way to go to meet the
international standard. The proportion of young doctors
is generally falling...
The dearth of GPs is the

result of both demand and
supply. Patients generally lack
...while the proportion of older
confidence in local doctors doctors is generally rising
and community clinics, so
tend to seek treatment from Percentage of licensed doctors
aged aged 60 or above
specialists at hospitals in big
cities, even for minor ailments
such as colds and headaches,
leaving local clinics relatively
underutilised. Meanwhile,
Source: 2010-2017 China Health and Family Planning Statistical Yearbook
8
Alice Yan, “1,100 medical staff held over drug kickbacks in Zhangzhou”, South China Morning Post, 25th July, 2013: https://www.scmp.com/news/china/
article/1290060/1100-medical-staff-held-over-drug-kickbacks-zhangzhou
9
Phoebe Zhang, “Chinese doctor’s murder overshadows new law to improve public health care”, South China Morning Post, 30th December, 2019: https://www.scmp.
com/news/china/politics/article/3043842/chinese-doctors-murder-overshadows-new-law-improve-public
10
Sui-Lee Wee, “China’s Health Care Crisis: Lines Before Dawn, Violence and ‘No Trust’”, The New York Times, 30th September, 2018: https://www.nytimes.
com/2018/09/30/business/china-health-care-doctors.html
11
Healio Primary Care, “China approves guideline to nearly double its number of doctors by 2020”, 2nd April, 2015: https://www.healio.com/primary-care/practice-
management/news/online/%7B710e354b-cf39-492b-b818-378b58d504ab%7D/china-approves-guideline-to-nearly-double-its-number-of-doctors-by-2020
12
Xinhua, “China has 300,000 general practitioners”, 19th April, 2019: http://www.xinhuanet.com/english/2019-04/19/c_137991151.htm
13
OECD Data: https://data.oecd.org/healthres/doctors.htm#indicator-chart
14
Ni Dandan, “Why China’s Young Doctors Want Out of the System”, Sixth Tone, 11th January, 2019: https://www.sixthtone.com/news/1003446/why-chinas-young-
doctors-want-out-of-the-system
A big part of China’s healthcare reform, which changing the rules to allow citizens to freely access
commenced in 2009, was establishing a tiered service better trained doctors at urban hospitals, and at the
delivery system and clearly defining and coordinating same time made the hospitals more profit driven.
the functions of primary, secondary and tertiary
healthcare providers.15 Yet more than a decade into Health centres and hospitals were given a fixed
the reform process, it is still common to see dozens of subsidy from taxes, but were free to generate
patients with minor ailments camping out overnight additional revenue by charging fees for certain
at major metropolitan hospitals in the hopes of getting services and by earning a profit on drug prescriptions.
an appointment with a specialist.16 Whereas public hospitals received 100 per cent of
funding from subsidies prior to the
Profit-driven problems reforms, in 2019 that was down to
China’s current lack of a clearly just 10 per cent. The system favoured
defined primary care system is a wealthier urban towns and provinces
major departure from the situation “By 2011, up to 40 over less-affluent rural areas, and
in the 1960s and ‘70s, when basic per cent of Chinese incentivised hospitals to provide
care provided by the country’s hospital revenue profitable services and prescribe
“barefoot doctors” was the main will be derived from drugs that may not be necessary.19
focus of the government’s efforts to medicines, compared
improve healthcare. with 19 per cent in By 2011, up to 40 per cent of Chinese
most developed hospital revenue will be derived
Life expectancy rose from 44 years in countries. And there from medicines, compared with
1960 to 63 in 1970, as thousands of have been several 19 per cent in most developed
peasants were recruited into medical high-profile instances countries. And there have been
training programmes lasting a few of pharmaceutical several high-profile instances of
months to a year and covering a host company kickbacks.” pharmaceutical company kickbacks.
of basic procedures ranging from In 2014, GlaxoSmithKline (GSK)
first aid to delivering babies.17 These paid a US$500 million fine for giving
barefoot doctors, supplied with kickbacks to doctors and hospitals
limited medicine and equipment, that prescribed its drugs,20 and a
were mainly deployed to rural areas, where they made string of other major global drug makers, including
a big impact. In addition to improved life expectancy, Eli Lilly, Pfizer, AstraZeneca, Sanofi, Novartis, Novo
this resulted in infant mortality plunging from 200 per Nordisk and UCB, have been investigated for similar
100,000 births prior to the Communist Party coming offences in China. Several drug and food safety
to power in 1949 to just 18.6 by 1970.18 scandals have also tarnished the image of domestically
made medicines. The government has responded by
The reform and opening up of China’s economy sacking the responsible officials and slashing tariffs to
launched by leader Deng Xiaoping at the end of 1978 make way for higher quality imported drugs.21
led to rapid urbanisation and growing demand for
more sophisticated medical care at major hospitals. The transformation of China’s healthcare system from
The government responded in the early 1980s by rural primary care to one that leans heavily on more
15
The British Medical Journal, “China’s Health System Reforms: Review of 10 Years of Progress”, June 2019: https://www.bmj.com/sites/default/files/attachments/
resources/2019/06/china_health_reform_full.pdf
16
Haining Liu, “Amid pain and sometimes fury, China’s mega hospitals need to get back to basics”, South China Morning Post, 27th October, 2018: https://www.scmp.
com/comment/insight-opinion/asia/article/2170501/amid-pain-and-sometimes-fury-chinas-mega-hospitals-need
17
Peggy Sito, “What has China’s public healthcare system learned from the twin coronavirus outbreaks of Sars and Covid-19?”, South China Morning Post, 14th March,
2020: https://www.scmp.com/business/china-business/article/3075095/what-has-chinas-public-healthcare-system-learned-twin
18
Cui Weiyuan, “China’s village doctors take great strides”, Bulletin of World Health Organization, December 2008: https://www.who.int/bulletin/
volumes/86/12/08-021208/en/
19
SAGE Publishing, “The SAGE Handbook of Healthcare”
20
Daniel Ren and Agencies, “GlaxoSmithKline hit with record 3b yuan fine for bribing Chinese doctors”, South China Morning Post, 19th September, 2014: https://
www.scmp.com/news/china/article/1596109/glaxosmithkline-hit-record-3b-yuan-fine-bribing-chinese-doctors
21
Viola Zhou, “Does China have universal health care? A long (and better) answer”, Inkstone, 10th October, 2018: https://www.inkstonenews.com/health/china-
translated-does-china-have-universal-health-care/article/2167579
FIGURE 3: MEDICAL EXPENDITURE IN CHINA, THE US, GERMANY AND THE UK President Xi Jinping has stressed
that providing affordable
healthcare is a key priority
for his administration.25 The
11.1% 12.5% 14.8%
3.0% government’s stated intention
35.0% 5.5%
is to “alleviate poverty caused
3.6%
39.6% by illness”, but there is a clear
economic argument as well.
84.5% A stronger safety net will
79.7%
encourage Chinese people
61.4%
49.3% to spend more and save less,
supporting the country’s
transition to a consumption-led
economy.
Source: World Health Organization and Ernst and Young (as of April 2018)
Solutions in progress
The government is working on
specialised and tertiary care left many unable to afford solutions to some of the problems highlighted above.
the new costs for tests and procedures.
It has implemented programmes to attract young
In response, between 1998 and 2007, the Chinese people to the medical profession and primary care in
government introduced different schemes to achieve particular, and has been cracking down on endemic
universal health coverage for all citizens.22 Although corruption, including the “red envelopes” of cash
that goal has ostensibly been achieved, with 95 given to doctors by patients. And a hospital generic
per cent of the population covered by social health bulk-buying programme introduced in 2018 has
insurance schemes by 2018,23 the coverage is generally slashed the costs of several major drugs and will be
limited to the most basic and critical care. extended to cover many more, which should help head
off an affordability crisis.
“With all the money spent, China has not really
fundamentally solved the problem of access and While pharmaceutical companies’ profit margins
affordability,” noted Yanzhong Huang, an adjunct could be squeezed, their ability to innovate will be
senior fellow for global health at the Council on bolstered by China’s adoption of a new fast-track
Foreign Relations in New York.24 approach to drug evaluation and approval,26 which
should lead to better patient outcomes.
Out-of-pocket expenses account for over a third of
China’s total medical expenditure, which is a good deal Longer term, the government is banking on
higher than in most developed nations (see figure 3). technology and innovation in areas ranging from drug
The implication is that not only is insurance coverage development to the use of artificial intelligence (AI) in
insufficient, but many citizens may be unable to afford diagnosis and treatment to enhance overall services
services that are essential, even if not immediately life and redress the accessibility and quality gaps between
threatening. rural and urban areas.
22
Kathryn Martin, “Universal health care in China”, 7th November, 2016: https://www.unicef.cn/en/stories/universal-health-care-china
23
British Medical Journal, “Towards universal health coverage: lessons from 10 years of healthcare reform in China”, March 2020: https://www.ncbi.nlm.nih.gov/pmc/
articles/PMC7103824/
24
25
Reuters, “China to expand medical insurance for major illnesses,” 2nd August, 2015: https://www.reuters.com/article/us-china-healthcare/china-to-expand-
medical-insurance-for-major-illnesses-idUSKCN0Q701D20150802
26
Xinhua, “China brings more new drugs to market with fast-track approval”, 29th January, 2019: http://govt.chinadaily.com.cn/a/201901/29/
WS5c4fbb2a498e27e338037cc7.html
1.2: MARKET SIZE

The major players in China’s FIGURE 4: TOTAL HEALTHCARE EXPENDITURE IN CHINA (RMB BN)
healthcare sector are buoyed by
10,000 9,352
tremendous market potential.
In 2018, each Chinese resident 9,000
CAGR: 9.8%
averaged six visits to hospitals 8,000
and clinics, totalling 8.31 billion 7,000
27
visits. China’s total healthcare 6,000 5,870
CAGR: 13.5%
spending has nearly quadrupled 5,000
in the decade since 2008,
4,000 3,531
soaring from 1.5 trillion yuan to
3,000
almost 6 trillion yuan in 2018.28
China now ranks as the second 2,000
largest healthcare market by 1,000
expenditure in the world, behind 0
the top ranked US market, where 2014 2018 2023E
Source: Frost & Sullivan as of March 2020
spending in 2018 was more than
four times greater, at
US$3.6 trillion.29 FIGURE 5: GROWTH RATE OF WORLD’S TOP FIVE HEALTHCARE MARKETS
Healthcare expenditure
10Y 5Y
20%
in China is growing
considerably faster than 15%
in the world’s other top
five healthcare markets 10%
(see figure 5), with
the National Health 5%
and Family Planning
0%
Commission predicting
it will reach 16 trillion
-5%
yuan (US$2.2 trillion) China USA Japan Germany France
30
by 2030. Supply to the Source: Data from the World Health Organization as of end-2017
industry has also been

expanding steadily, with
the country registering 12.3 million healthcare A variety of factors underlie that growth. Apart
workers as of end-2018, up 4.7 per cent from the from the country’s rising wealth, the positives are
previous year, and 8.4 million sickbeds, up 5.8 per government reforms to expand insurance access
cent.31 to both rural and urban residents, expansion and
modernisation of the hospital system, upgrading
27
Xinhua, “Number of China’s healthcare workers, sickbeds both rises” 24th May, 2019: http://www.xinhuanet.com/english/2019-05/24/c_138085933.htm
28
Tom Fowdy, “China’s healthcare revolution to bolster response to coronavirus,” CGTN, 22nd January, 2020: https://news.cgtn.com/news/2020-01-22/China-s-
healthcare-revolution-to-bolster-response-to-coronavirus-Nse7J69BtK/index.html
29
Erik Sherman, “U.S. Health Care Costs Skyrocketed to $3.65 Trillion in 2018”, Fortune, 21st February, 2019: https://fortune.com/2019/02/21/us-health-care-
costs-2/
30
Xinhua, “Economic Watch: China becoming prescription for success to global healthcare firms”, 11th September, 2019: http://www.xinhuanet.com/
english/2019-09/11/c_138384428.htm#:~:text=The%20country%20released%20the%20%22Healthy,trillion%20U.S.%20dollars)%20in%202030
31
Xinhua, “Number of China’s healthcare workers, sickbeds both rises”, 24th May, 2019: http://www.xinhuanet.com/english/2019-05/24/c_138085933.htm
primary care services, and new But it may not be desirable to

technology and innovations “In a bid to head completely close that gap, because
creating better but more expensive off an affordability the other markets, particularly the
treatments. The negatives include crisis, as part of US, suffer from systemic problems
a rapidly ageing population and wider reform efforts, that arguably result in significantly
higher incidence of lifestyle- the government has inflated costs per capita. In a bid
related diseases. begun introducing to head off an affordability crisis,
measures to control as part of wider reform efforts, the
Despite the rapid growth of drug prices, which government has begun introducing
China’s healthcare sector, per will eat into the measures to control drug prices (see
capita expenditure trails far behind profitability of section 1.3), which will eat into the
that of developed countries (see some of the major profitability of some of the major
figure 6 below). As a consequence, pharmaceutical pharmaceutical companies.
many predict there is plenty of companies.”
room for the market to grow.
FIGURE 6: PER CAPITA HEALTHCARE EXPENDITURE OF MAJOR COUNTRIES IN 2017

12,000
10,246
10,000
8,000
5,783
US$
6,000 5,332 5,033 4,755 4,380 4,169 3,859

4,000
2,000
441
0
USA
Luxembourg
Australia
Germany
Canada
France
Japan
UK
China
Source: Data from the World Health Organization, last updated on 1st July 2020
22
Kathryn Martin, “Universal health care in China”, 7th November, 2016: https://www.unicef.cn/en/stories/universal-health-care-china
23
British Medical Journal, “Towards universal health coverage: lessons from 10 years of healthcare reform in China”, March 2020: https://www.ncbi.nlm.nih.gov/pmc/
articles/PMC7103824/
24
25
Reuters, “China to expand medical insurance for major illnesses,” 2nd August, 2015: https://www.reuters.com/article/us-china-healthcare/china-to-expand-
medical-insurance-for-major-illnesses-idUSKCN0Q701D20150802
26
Xinhua, “China brings more new drugs to market with fast-track approval”, 29th January, 2019: http://govt.chinadaily.com.cn/a/201901/29/
WS5c4fbb2a498e27e338037cc7.html
1.3: GOVERNMENT POLICIES

The Chinese government launched its first round Spending soars
of healthcare reform in 1996. Those efforts were Government investment in healthcare has soared
deemed largely ineffective and, if anything, led to since the 2009 reforms kicked off. Fiscal subsidies
increased complaints from the public about access to public hospitals more than tripled from 84.9
and affordability.32 Then came the outbreak of billion yuan in 2010 to 270.5 billion yuan in 2018.33
severe acute respiratory syndrome (Sars) in China In 2017, the government announced a further goal
in 2003, highlighting the shortcomings of the of progressively abolishing drug mark-ups at public
country’s healthcare sector and demonstrating the hospitals, which in 2008 had accounted for 42 per
importance of a healthy population to overall social cent of hospital income but just 30 per cent by 2018,
and economic development. with profit from pharmaceutical sales approaching
zero (see figure 7). Ultimately, the aim is for all public
The government embarked on a second, more hospital funding to come from either government
focused round of reform in 2009, seeking to subsidies or service charges.
establish an equitable and effective health
system for all people by 2020 through universal The current round of reform was accompanied by
basic healthcare coverage, provision of essential the introduction of the National Essential Medicines
medicines and improving the workings of the Policy (NEMP), which sought to improve the
healthcare system. The current reforms are now availability, affordability and safety of medicine
being carried forward as part of a wider plan to and cut the profit link between health institutions,
improve public health by 2030. doctors and medicine.34
FIGURE 7: REVENUES OF PUBLIC HOSPITALS

Disposable revenue of all public hospitals (RMBbn)
Revenue of all public hospitals (RMBbn)
Annual growth rate of revenue of all public hospitals
Annual growth rate of disposable revenue of all public hospitals
Pharmaceutical sales revenue (% of hospital revenue)
Pharmaceutical profit (% of hospital revenue from pharmaceutical sales)
Government subsidy (% of total disposable revenue)
Diagnostic test fee (% of hospital disposable revenue)
50 1800
40 1440
Revenue (RMBbn)
Percentage
30 1080
20 720
10 360
0 0
2002 2004 2006 2008 2010 2012 2014 2016
Source: National Health Commission, “China National Health Statistical Yearbook 2003-2018”
33
Xinhua, “Chinese public hospitals receive increasing government funds”, 14th June, 2019:http://www.xinhuanet.com/english/2019-06/14/c_138144143.htm
34
Qian Li, Fei Chen, Min Yang et al., “The Effect of China’s National Essential Medicine Policy on Health Expenses: Evidence From a National Study”, NCBI, 21st
September, 2018: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6154266/
China is also pursuing a two-pronged campaign The rampant overuse of antibiotics threatens to give
to provide broader access to quality drugs (see rise to the spread of antibiotic-resistant bacteria.
Pharmaceuticals, section 2.1), which has significant China’s campaign to head off a so-called ‘antibiotic
implications for the bottom lines apocalypse’ saw a decrease in
of both local and multinational antibiotic use in inpatient and
pharmaceuticals companies. outpatient care by 50 per cent in
“Going forward, selected tertiary hospitals.35 Still,
The first prong is adding innovative the government’s antibiotic use in China is considered
and expensive treatments to its healthcare objectives excessive.
national insurance coverage list, fall under the remit
but compelling drug companies of the “Healthy China Improving access and reducing
to cut their prices in exchange for 2030” blueprint, inequality
inclusion. The second is a bulk- which was formally The 2009 reforms also contributed
buying programme for generic passed in October to improving access to healthcare by
drugs, which has already seen 2016, with an extending coverage of social health
prices of the first batch of included overarching goal insurance schemes to virtually all
medications fall by about half and is of reaching health citizens and increasing healthcare
being progressively expanded. standards on par with resources.36
developed countries
In addition, the reforms also by 2030.” One important measure is the decline
called for the promotion of a more in people who need healthcare but
rational use of antibiotics, which are unable to afford it. Between 2003
had previously been overprescribed and 2008, the proportion of patients
at hospitals owing to the previous funding model, who were advised by doctors that they needed
where drug sales covered the biggest share of public treatment in hospital but did not use inpatient care
hospitals’ operating expenditure. fell from 29.6 per cent to 25.1 per cent.37 The drop
FIGURE 8: PERCENTAGE OF PATIENTS WHO DID NOT USE IN-PATIENT CARE WHEN NEEDED
2003 2008 2013
32
24
Percentage
16
0
Total Urban Rural
Source: Center for Health Statistics and Information, National Health and Family Planning Commission
35
He P, Sun Q, Shi L and Meng Q, “Rational use of antibiotics under the context of China’s health system reform”, The British Medical Journal, 2019
36
Meng Q, Xu L, Zhang Y, et al., “Trends in access to health services and financial protection in China between 2003 and 2011: a cross-sectional study”, Lancet, 2012
37
Center for Health Statistics and Information, National Health and Family Planning Commission, “An analysis report of national health services survey 2013”
accelerated following the 2009 reforms, with the The blueprint was inspired, in part, by the United
proportion declining to nearly 16 per cent by 2013 Nations’ Sustainable Development Goals 2015-2030,
and is likely to have come down much further since which calls on all countries to “Ensure healthy lives
(see figure 8). Meanwhile, the proportion who needed and promote well-being for all at all ages.”
hospital care but could not afford it declined from
17.6 per cent in 2008 to 7.4 per cent in 2013. In July 2019, the State Council announced an
ambitious guideline and action plan to achieve
Another major focus of reform efforts has been the goals of Healthy China 2030, outlining 15
addressing inequalities in the availability and quality major health campaigns to “intervene in health-
of care between richer and poorer regions. Significant influencing factors, protect full-life-cycle health,
progress has been made on that front. The divergence and prevent and control major diseases”.38 The
in both maternal (see figure 9) and infant mortality health-influencing factors include health literacy,
rates between urban and rural areas, for example, diet, fitness activity, smoking, mental health and
was largely eliminated between 2005 and 2017. environmental health. Protection of full life-cycle
includes targets for improving the health of women
From treatment to prevention and children, students, workers and the elderly. The
Going forward, the government’s healthcare objectives major diseases under the purview of the action plan
fall under the remit of the “Healthy China 2030” include cardiovascular and cerebrovascular diseases,
blueprint, which was formally passed in October 2016, cancer, chronic respiratory disease, diabetes and
with an overarching goal of reaching health standards infectious and endemic diseases.
on par with developed countries by 2030.
FIGURE 7: MATERNAL MORTALITY RATE BY INCOME LEVEL OF PROVINCES, 2005-17

Lowest income provinces
Lower middle income providers
Middle income provinces
Upper middle income provinces
Highest income provinces
60
50
(per 100,000 live births)
Maternal mortality rate
40
30
20
10
0
2005 2007 2009 2011 2013 2015 2017
Source: National Health Commission. China’s health statistics yearbook 2018
38
CGTN, “China issues new documents on implementing Healthy China initiative”, 16th July, 2019: https://news.cgtn.com/news/2019-07-16/China-issues-new-
documents-to-implement-Healthy-China-initiative-ImIqjuksqA/index.html
1.4: MAJOR DISEASES

FIGURE 10: PREVALENCE OF MAJOR DISEASES IN CHINA Vaccine candidates are also being tested by two
separate subsidiaries of Sinopharm Group, namely
Population
Disease
(millions) the Wuhan Institute of Biological Products and the
Beijing Institute of Biological Products.45 Another
Cardiovascular disease 29039
is being tested by Nasdaq-listed Sinovac Biotech,
Diabetes 11440 which has seen trading in its shares suspended since
February 2019 following its activation of a rarely
Chronic Obstructure Pulmonary Disease 10541
used “poison pill” takeover defence.46
Alzheimer's disease and other dementias 1142
Cancer 8*43 The government has made finding a vaccine a

national priority, although it has not disclosed
*Five-year prevalent cases
spending details. State media is publicising the
Source: SCMP Research
vaccine efforts, making a celebrity out of Chen Wei,
the Chinese military’s top virologist. Not only would
The disease that has recently displaced all others in a Chinese vaccine help defuse accusations that
news headlines is, of course, Covid-19, and finding China’s silencing of early warnings about Covid-19
a vaccine has become a global priority. contributed to the global pandemic,47 but could also
restore confidence in locally produced vaccines after
As of June 2020, China had eight vaccine candidates their reputation was marred by several high-profile
approved for human trials at home and abroad.44 scandals.48
Most of the buzz surrounds Ad5-nCoV, developed
by Tianjin-based CanSino Biologics. CanSino’s Chronic diseases are the biggest killers
vaccine was the first in the world to enter and The current focus on Covid-19 distracts from
pass Phase 2 trials, and has also won approval for the far bigger diseases afflicting the country. As
human testing in Canada. And on 25th June 2020, of June 2020, fewer than 5,000 Chinese had died
CanSino announced its vaccine candidate, which of Covid-19, while over a million were killed by
was developed jointly by a research institute at stroke in the first half of the year. Improvements in
China’s Academy of Military Science (AMS), had healthcare over the past two decades have resulted
been approved for use by the Chinese military for a in infectious and childhood disease becoming
period of one year. The company’s stock price has less deadly in China. At the same time, chronic
more than tripled over the first half of 2020. conditions, and especially lifestyle-related diseases
stemming from an ageing population and increasing
39
Li-Yuan Ma, Wei-Wei Chen, Run-Lin Gao, Li-Sheung Liu, Man-Lu Zhu, et al, “China cardiovascular diseases report 2018: an updated summary”, January 2020:
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7008101/
40
Hu Yiwei, “China’s diabetes epidemic in charts”, CGTN, 14th November, 2019: https://news.cgtn.com/news/2019-11-14/China-s-diabetes-epidemic-in-charts-
LC60vrsOv6/index.html#:~:text=China%20is%20home%20to%20over,million%20cases%20are%20in%20China
41
Marco Koch, Thomas Butt, Wudong Guo, Xue Li, Yirong Chen, Diana Tan and Gordon G. Liu, “Characteristics and health burden of the undiagnosed population at risk
of chronic obstructive pulmonary disease in China”, BMC Public Health, 23rd December, 2019: https://bmcpublichealth.biomedcentral.com/articles/10.1186/s12889-
019-8071-8
42
Lancet, “Neurological diseases in China 3”, September 2019: http://www.ccmu.edu.cn/docs/20190917192730176948.pdf
43
The Global Cancer Observatory, World Health Organization: https://gco.iarc.fr/today/data/factsheets/populations/160-china-fact-sheets.pdf
44
Reuters, “CanSino’s COVID-19 vaccine candidate approved for military use in China”, 29th June, 2020: https://www.reuters.com/article/us-health-coronavirus-
china-vaccine/cansinos-covid-19-vaccine-candidate-approved-for-military-use-in-china-idUSKBN2400DZ
45
Sui-Lee Wee, “China’s Coronavirus Vaccine Drive Empowers a Troubled Industry”, 4th May, 2020: https://www.nytimes.com/2020/05/04/business/coronavirus-
china-vaccine.html
46
Liana B. Baker, “Sinovac Biotech activates ‘poison pill’ defense in rare move”, 23rd February, 2019: https://www.reuters.com/article/us-sinovac-biotech-poisonpill/
sinovac-biotech-activates-poison-pill-defense-in-rare-move-idUSKCN1QB2IA
47
Sarah Zheng, “Why is China resisting an independent inquiry into how the pandemic started?”, South China Morning Post, 16th May, 2020: https://www.scmp.com/
news/china/diplomacy/article/3084602/why-china-resisting-independent-inquiry-how-pandemic-started
48
Jane Zhang, “Girl’s death after rabies shot hits raw nerve in China after vaccine scandals”, South China Morning Post, 14th May, 2019: https://www.scmp.com/news/
china/society/article/3010154/girls-death-after-rabies-shot-hits-raw-nerve-china-after-vaccine
Workers in the catering industry of Beijing’s Xicheng

District take a nucleic acid test at a makeshift testing
spot set up at a bridge over an expressway in front of
the Beijing Exhibition Center in Beijing, China.
FIGURE 11: LIFE EXPECTANCY AT BIRTH (YEARS)

China Japan Singapore UK US
90
80
Years of age
70
60
50
1960 2017
Source: World Bank
affluence, have become far more prevalent, Cardiovascular disease

unseating infectious diseases as the leading causes Some 290 million Chinese live with cardiovascular
of early deaths in the country. disease, with many in danger of dying from it.49
Stroke is China’s biggest killer, followed by ischemic
Whereas lower respiratory infections and neonatal heart disease. Hypertensive heart disease also
disorders were the top two causes of premature features prominently on the list of leading causes of
deaths in China in 1990, by 2017, the top five were all mortality.
chronic conditions, including stroke, coronary heart
disease, lung cancer, chronic obstructive pulmonary Stroke, in particular, presents an outsized healthcare
disease, and liver cancer. Along with diabetes, these demand, with China accounting for roughly one-
diseases present some of the biggest treatment third of worldwide stroke deaths.50 The diagnosed
opportunities in China’s healthcare sector. incidence of first-ever arterial ischemic stroke (AIS)
FIGURE 12: POPULATION OVER 65 AS A PERCENTAGE OF TOTAL POPULATION IN CHINA

11
10
9
Percentage
5
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Source: National Bureau of Statistics of China
49
Li-Yuan Ma, Wei-Wei Chen, Run-Lin Gao, Li-Sheung Liu, Man-Lu Zhu, et al, “China cardiovascular diseases report 2018: an updated summary”, January 2020:
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7008101/
50
Zixiao Li et al, “China’s response to the rising stroke burden”, 28th February, 2019: https://www.bmj.com/content/364/bmj.l879
FIGURE 13: MAJOR CAUSES OF DEATH AND DISABILITY IN CHINA Change in number
(RATE PER 100,000 POPULATION) 1990-2017
2.8k Stroke +73%
2.4k Neoplasms +79%
2k IHD +143%
1.6k
1.2k
Lung cancer +204%

0.8k
Diabetes +102%
0.4k Neonatal -54%

Lower respiratory -91%
infections (LRI)
o
1990 2000 2010
Non-communicable diseases
Communicable diseases, maternal, neonatal, nutritional diseases
Source: Global Health Data Exchange
FIGURE 14: LEADING CAUSES OF “YEARS OF LIFE LOST” (1990-2017)

Chronic conditions
RANK 5 10 15 20 25 30 35 40 45 50 55 60
Stroke
Iscemic heart disease
Tracheal, bronchus, and lung cancer
Chronic obstructive pulmonary disease
Liver cancer
Road injuries
Stomach cancer
Alzheimer’s disease and other dementias
Neonatal disorders
Hypertensive heart disease
Oesophageal cancer
Lower respiratory infection
Self-harm
Cirrhosis and other chronic liver diseases
Colon and rectum cancer
Chronic kidney disease
Congenital disorders
Falls
Drowning
Diabetes mellitus
Breast cancer
Leukemia
Brain and central nervous system cancer
Pancreatic cancer
Other malignant neoplasms
Source: Chinese Center for Disease Control and Prevention, Institute for Health Metrics and Evaluation
in 2019 stood at 300 cases per 100,000 population greater occurrence of all types of cardiovascular and
in urban China, compared to just 100 cases per respiratory disease.
100,000 in both Italy and the UK.51 The much higher
incidence in China likely stems from the prevalence Cardiovascular medications are second only
of smoking in the country, which leads to the to antibiotics in their share of China’s overall
pharmaceutical revenue. Two of
the top-selling foreign drugs in
FIGURE 15: DIAGNOSED INCIDENCE OF FIRST-EVER AIS China, Pfizer’s Lipitor, a statin for
350 treating cholesterol, and Sanofi’s
Diagnosed incidence (cases per 100,000 population)
Plavix, a blood thinner, are used

300 in the treatment of cardiovascular
disease.52 In addition, the Chinese
250 market for cardiovascular medical
devices was valued at US$2.8
200 billion in 2018 and is expected to
grow at a compound annual rate
150 of around 8 per cent over the next
few years.53
100
Diabetes
50 More than one in ten Chinese
adults have diabetes, representing
US
France
Germany
Italy
Spain
UK
Japan
Urban China
0 a staggering increase since 1980,

when less than 1 per cent were
thought to suffer from it.
Note: As of 2019. Both sexes, ages ≥18
Source: GlobalData
China is home to more than a
quarter of the world’s diabetics.54
FIGURE 16: CHINA’S DIABETIC POPULATION In addition, almost half of Chinese
Adults with diabetes (aged 20-79) in millions adults have prediabetes, which is a
risk factor for not only developing
125
China diabetes, but also for other
conditions such as cardiovascular
100
disease.
75 India
China’s diabetes market, which
consists of insulin and oral
50
antidiabetic drugs, was estimated
25 to be worth US$3.8 billion in
2019 and forecast to surge to
0 US$6.3 billion by 2025.55 Several
2000 2005 2010 2015 prominent Chinese companies
Source: IDF
have increased their research and
51
GlobalDate Healthcare, “Urban China tops acute ischemic stroke burden across major pharma markets”, 19th April, 2019: https://www.hospitalmanagement.net/
comment/china-stroke-prevalence/
52
China’s Cardiovascular Devices Market to 2024: Rapid Technological Advances to Boost Market Growth
53
Ibid.
54
Hu Yiwei, “China’s diabetes epidemic in charts”, CGTN, 14th November, 2019: https://news.cgtn.com/news/2019-11-14/China-s-diabetes-epidemic-in-charts-
LC60vrsOv6/index.html
55
IMARC Group, “China Diabetes Market: Industry Trends, Share, Size, Growth, Opportunity and Forecast 2020-2025”
development spending to create innovative diabetes disregarding road deaths. An estimated 10 million
treatments, with Hua Medicine in particular working Chinese had Alzheimer’s in 2020, with the number
to develop a drug based on a truly novel approach. expected to increase to 40 million by 2050.59
Antidiabetic drugs also feature prominently among
China’s top-selling international drugs, including Alzheimer’s has proved an elusive disease for drug
Bayer’s Glucobay and Sanofi’s Lantus. makers developing treatments. Over the past two
decades, some 320 drug candidates have failed in
Chronic Obstructive Pulmonary Disease late-stage clinical trials. It therefore came as some
Chronic obstructive pulmonary surprise when an innovative Chinese
disease (COPD), a chronic lung Alzheimer’s drug hit the domestic
disease characterised by long-term market in January 2020, with plans
breathing problems and poor airflow, to commence global clinical trials.
afflicts almost 100 million people in The drug, called Oligomannate, is
China, equivalent to 8.6 per cent of “The Asia-Pacific derived from seaweed, and according
the adult population. It is the fourth market for respiratory to the company behind it, Shanghai
leading cause of early deaths in the drugs, covering Green Valley Pharmaceuticals, was
country.56 asthma and COPD, shown to improve cognitive function
amounted to an in patients with mild to moderate
COPD is caused by long-term estimated US$9.8 Alzheimer’s compared to placebo in
exposure to irritants in the air, billion in 2018, of a domestic Phase 3 trial.60
including pollution and cigarette which by far the
smoke. Many Chinese citizens suffer largest share was Although the industry was receptive
poor air quality both indoors and spent in China.” of Chinese regulators’ move to
outdoors, and rates of smoking prioritise emerging Alzheimer’s
remain high in the country. treatments, doubts remain about the
efficacy of Oligomannate ahead of
The Asia-Pacific market for the full data on the drug being made
respiratory drugs, covering asthma available.
and COPD, amounted to an estimated US$9.8 billion
in 2018, of which by far the largest share was spent Cancer
57
in China. AstraZeneca’s Pulmicort Respules, used Cancer presents a massive disease burden in China,
to treat asthma, is among China’s biggest selling accounting for 5.5 deaths in the country every
international drugs.58 minute. China accounts for 18 per cent of the world’s
population, yet in 2018 had 24 per cent of estimated
Dementia new cancer cases and 30 per cent of cancer-related
Though less publicised than the other major diseases, deaths globally.61
Alzheimer’s disease and other dementias have also
risen significantly in recent years in China and In particular, China accounts for half of the world’s
globally, a consequence of both an ageing population gastric, hepatocellular carcinoma (the most common
and increased diagnosis. form of liver cancer) and oesophageal cancer patients,
and 37 per cent of those afflicted with lung cancer.62
Dementia now ranks as China’s eighth leading Among the top ten leading causes of premature
cause of death, and seventh leading cause when deaths in China, lung cancer ranks third, liver cancer
56
Tulane University, “Almost 100 million adults have COPD in China”, 9th April, 2018: https://www.sciencedaily.com/releases/2018/04/180409185331.htm
57
Asia-Pacific Respiratory Drug Market 2019-2025
58
Frost & Sullivan, from Moody’s Investors Service, “Global Pharmaceuticals: Sector In-Depth”, 24th September, 2019
59
Xinhua, “Chinese Alzheimer’s drug to undergo global clinical trials”, 4th January, 2020: http://www.xinhuanet.com/english/2020-01/04/c_138678444.htm
60
Andrew Joseph, “New Alzheimer’s Therapy Approved in China, Delivering a Surprise but Raising Questions”, Scientific American, 5th November, 2019: https://www.
scientificamerican.com/article/new-alzheimers-therapy-approved-in-china-delivering-a-surprise-but-raising-questions/
61
Rui-Mei Feng, Yi-Nan, Zong, Su-Mei Cao and Rui-Hua Xu, “Current cancer situation in China: good or bad news from the 2018 Global Cancer Statistics?”, Cancer
Communications, 29th April, 2019: https://cancercommun.biomedcentral.com/articles/10.1186/s40880-019-0368-6
62
Global Cancer Observatory (GLOBOCAN), 2018
FIGURE 17: CHINA AND GLOBAL CANCER BURDEN, 2018 fifth and stomach cancer seventh. The
incidences of pancreatic, breast, and
50%
Chinese population colon and rectum cancers have also risen
substantially over the past twenty years.
vs Another issue in China is late screening
18%
of global total population
global GC, HCC, and
esophageal cancer patients
are from China
and diagnosis. For instance, 55 per cent
of China’s hepatocellular carcinoma
patients are diagnosed in stages three
or four, versus 15 per cent in the US and
just 5 per cent in Japan. That is one of
FIGURE 18: LATE DIAGNOSIS OF HCC HEPATOCELLULAR the factors behind China’s lower cancer
CARCINOMA IN CHINA VS US AND JAPAN63 survival rate, which stood at 40.5 per
15%
cent in 2015,64 compared to 68 per cent
Late diagnosis in the US.65
55% in US The availability of cancer drugs in China,
5%
vs which was previously hindered because
of a backlog of applications or delays in
Chinese HCC patients are
diagnosed in stage III and IV in Japan approvals, referred to as the “drug lag”,
is improving. Since 2015, the government
Source: Global Cancer Observatory has introduced a series of measures to
FIGURE 19: CANCER INCIDENCE IN CHINA VS OTHER MAJOR COUNTRIES

4500 4285
4000
3500
3000
Incidences ‘000
2500
2129
2000
1500
1157
1000 883
609 559 543
500 456 447 410
249 191 107
0
China USA India Japan Germany Brazil Russia France UK Italy Canada Mexico S. Africa
Source: World Health Organization (WHO)
63
Jian-Hong Zhong et al, “Tumor stage and primary treatment of hepatocellular carcinoma at a large tertiary hospital in China: A real-world study”, March 2017:
https://pubmed.ncbi.nlm.nih.gov/28407686/
64
Maomao Cao and Wanqing Chen, “Cancer burden and control in China”, September 2019: http://ace.amegroups.com/article/view/5132/html
65
Andrew M. Seaman, “U.S. cancer survival rates improving”, 24th April, 2015: https://www.reuters.com/article/us-cancer-survival/u-s-cancer-survival-rates-
improving-idUSKBN0NE2KD20150423
promote innovation in drugs, including cancer drugs. as the US, and its immuno-oncology therapeutics
This saw a shift in the regime from strict entry and development outside of one main area (targeting PD-1/
tolerant exit – characterised by difficulty in getting PD-L1 receptors) lagged behind that of developed
approval for clinical trials but ease in obtaining countries. Recent government policies (see section 1.6)
marketing authorisation – to tolerant entry and strict are expected to see China rapidly close those gaps.68
exit.
China is also seeking to expand patients’ access
Spending on oncology therapeutics is growing fast in to innovative oncology drugs by adding them to
China, reaching US$9 billion in 2018.66 Much of the its National Reimbursement Drug List (NRDL),
global innovation in oncology drug development is which covers all drugs reimbursable by public
currently centred on immuno-oncology therapeutics, insurance schemes. Forty-one innovative oncology
which essentially stimulate the body’s immune drugs (including PD-1) were included in the
system to fight cancer.67 national reimbursement drug list (NRDL) through
reimbursement negotiations in 2018 and 2019,69
In the nine years to 2020, China had only one tenth of resulting in average price concessions ranging from
the clinical trial volume of innovative oncology drugs 44 per cent to 61 per cent.
Introduction of Zhuhai People’s Hospital’s technology-enabled medical and healthcare services during the official launch of the
WeDoctor Greater Bay Area Healthcare Platform.
66
Global Oncology Trends 2019: Therapeutic, Clinical Development and Health System Implications, IQVIA, 2019: https://www.iqvia.com/insights/the-iqvia-institute/
reports/global-oncology-trends-2019
67
American Cancer Society, “Immune Checkpoint Inhibitors and Their Side Effects”
NB: Immune checkpoints ensure immune system cells do not mistakenly destroy healthy cells during an immune response. Cancer cells can exploit these immune
checkpoints as a way to evade immune detection and elimination. By blocking immune checkpoint proteins, including PD-1, PD-L1 and CTLA-4, with monoclonal
antibodies, the immune system can overcome cancer’s ability to resist the immune responses and stimulate the body’s own mechanisms to remain effective in its
defenses against cancer
68
Fabio La Mola, Helen Chen, Bin Zhou, Kaishen Chen, “Opportunities and Patient Insights into the China Oncology Market”, L.E.K. Insights, 10th Janary, 2020:
https://www.lek.com/insights/ei/china-oncology-market-opportunities
69
State Medical Insurance Administration (SMIA)
1.5: MAIN SEGMENTS

Pharmaceuticals are the main focus of investors detailed below, are biopharmaceuticals and contract
in China’s healthcare sector, accounting for more services, medical devices and supplies, healthcare
than 40 per cent of the MSCI China Healthcare service providers and healthcare technology.
Index (see figure 20). The other main segments, as
Pharmaceuticals
China’s pharmaceutical market
FIGURE 20: SEGMENT WEIGHTINGS OF MSCI CHINA HEALTHCARE registered US$134 billion in sales in
INDEX (JULY 2020) 2018 and is expected to grow to US$154
billion in 2020.70 Prescription drugs
2%
accounted for US$116 billion, or about
12%
86 per cent of the total in 2018, while
Pharmaceuticals the rest came from sales of over-the-
Biopharmaceuticals counter medicines. Of the prescription
and contract services 13% 40%
drug sales, the vast majority, worth
Medical devices US$85 billion, came from generics.
and supplies
These are produced by a robust local
Healthcare technology manufacturing sector, though there
Healthcare service are often doubts raised about their
providers quality. About US$31 billion worth of
33% prescription sales in 2018 came from in-
patent drugs.
The pharmaceutical
manufacturing sector is highly
FIGURE 21: MARKET SHARE OF TOP 10 PHARMACEUTICAL MARKETS (2018)
fragmented, composed of
US over 4,000 companies, the
40.4%
majority of which are small-
China 11.1% and medium-sized. As a result,
Japan 7.1% R&D spending as a percentage
Germany of sales has averaged as low as
4.4%
5 per cent,71 compared to the
France 3% global average of over 20 per
Italy 2.8% cent.72
Brazil 2.6%
The industry is expected to
UK 2.4% undergo a wave of consolidation
Spain 2% in the coming years in response
Canada 1.8% to several government measures
to weed out poor quality drugs
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
and inefficiencies, including
Note: Worldwide market valued at US$1.2 trillion
more stringent drug quality
Source: Statista
70
International Trade Administration, “Pharmaceuticals”, 13th October, 2019: https://www.trade.gov/knowledge-product/china-pharmaceuticals
71
Daxue Consulting, “China’s Pharmaceutical Industry”, 24th April, 2020: https://daxueconsulting.com/pharmaceutical-industry-china/#:~:text=China’s%20
pharmaceutical%20market%20has%20been,86.4%25%20of%20total%20drug%20expenditure
72
Amandeep Singh, “Pharmaceutical R&D global spending trends in 2019”, June 2019: https://www.prescouter.com/2019/06/pharmaceutical-rd-global-spending-
trends-in-2019/
regulations and a reduction in layers of distribution companies belong to the biopharmaceuticals

intermediaries.73 segment. The prefix “bio” refers to how the drugs
are produced, and whereas pharmaceuticals are
At the same time, a raft of measures to support made through a series of chemical synthesis,
and incentivise new drug discovery and testing is biopharmaceuticals are manufactured in living
intended to help shift China’s predominantly off- organisms such as bacteria, yeast and mammalian
patent drug copying pharmaceutical industry into cells.
one that’s capable of coming up with
innovative patentable products. Biopharmaceuticals are considered
to be safe, effective and have few
Global pharmaceutical giants side effects. This, combined with
including AstraZeneca, GSK, “Biopharmaceuticals their ability to address previously
Novartis, Novo Nordisk, Pfizer are considered to be untreatable conditions, offers
and Roche have set up commercial safe, effective and manufacturers the ability to charge
operations and R&D centres in China. have few side effects. higher prices. Therefore, not only
And all of the 20 biggest global This, combined have all the major pharmaceutical
pharmaceutical companies have set with their ability to companies started producing
up either joint-venture or wholly address previously biopharmaceuticals, but such
owned manufacturing facilities in the untreatable drugs are actually tipped to
country. They are believed to have conditions, offers eventually become the core of the
captured at least 8-10 per cent of the manufacturers the pharmaceutical industry.
domestic market. Sales are highly ability to charge
dependent on distributor networks, higher prices.” Biopharmaceuticals are considered
with four Chinese companies to be safe, effective and have few
– Sinopharm Group, Shanghai side effects. This, combined with
Pharmaceuticals, China Resources their ability to address previously
Pharmaceutical Group, and Jointown untreatable conditions, offers
Pharmaceutical Group – commanding a dominant manufacturers the ability to charge higher prices76
and growing share of domestic distribution. Although Therefore, not only have all the major pharmaceutical
all four have reported revenue increases following companies started producing biopharmaceuticals, but
the government’s imposition of the “two-invoices such drugs are actually tipped to eventually become
system” in 2018 to streamline drug distribution the core of the pharmaceutical industry.
(see section 2.1), they have also seen profit margins
narrow.74 The biopharmaceuticals market is growing fast in
China, with the best estimate putting sales at US$22.8
China is a net importer of pharmaceuticals, with billion in 2016, having risen from US$9.4 billion in
imports in 2018 valued at US$26.8 billion and exports 2012.77 Sales are projected to reach almost US$50
at US$5.3 billion. These are forecast to increase, billion by 2021.
respectively, to US$34.4 billion and US$10.2 billion by
2023.75 China was home to some 209 biopharmaceutical
manufacturing facilities as of 2018. The most
Biopharmaceuticals and contract services innovative firms have emerged around two clusters,
Many of the newer and more innovative drug including one in the Yangtze River Delta near
73
Eric Ng, “Why most small players may not survive China’s pharmaceutical industry consolidation”, 31st January, 2018: https://www.scmp.com/business/companies/
article/2131230/why-most-small-players-may-not-survive-chinas-pharmaceutical
74
“Top Chinese drug distributors grapple with tepid margins”, Healthcare Asia, 25th September, 2019: https://healthcareasiamagazine.com/healthcare/news/top-
chinese-drug-distributors-grapple-tepid-margins
75
76
Ralf Otto, Alberto Santagostino, and Ulf Schrader, “Rapid growth in biopharma: Challenges and opportunities”, McKinsey Insights, 1st December, 2014: https://
www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/rapid-growth-in-biopharma
77
According to BioPlan Associates, a strategic analysis and market research firm for biopharmaceutical and life science companies: https://www.
pharmamanufacturing.com/articles/2019/chinas-biopharma-growth/
Shanghai and another in Beijing. The segment companies to outsource a greater share of their
heavyweights are Sino Biopharmaceutical and Jiangsu R&D budgets to CRO services. This should lead to
Hengrui Medicine, while some of the other highly tremendous growth, with the local CRO industry
regarded companies in the space are WuXi Biologics, tipped to expand to 242.5 billion yuan by 2025.
Innovent Biologics, BeiGene, Zai Lab, Shanghai
Junshi Biosciences, Shanghai Fosun Pharmaceutical, China’s CRO industry is made up of both local and
Alphamab Oncology, Hua Medicine and Harbour large multinational players. Among the well-known
Biomed. global names with branches in China are IQVIA,
LabCorp and Parexel, offering preclinical and clinical
Of the estimated 16.5 million litres of active trial services.
biopharmaceutical production capacity worldwide,
the US and Canada account for 6 million litres and The local companies, including Wuxi AppTec,
Western Europe another 4.7 million litres.78 Of the Pharmaron, Medicilon, Shanghai ChemPartner,
4.7 million litres in the Asia-Pacific region, China Tigermed and Joinn Laboratories, also boast
accounts for 870,000, not far behind India, which formidable talent and ability. WuXi AppTec in
has 941,000, although China’s facilities are generally particular offers one of the most comprehensive
considered to be further behind India’s in meeting service platforms, integrating discovery, research
the manufacturing standards of highly developed and development of small-molecule drugs. It is also
countries.79 a global leader, securing 10.1 per cent of the world’s
CRO market in 2018.
However, in the wake of recent regulatory changes
in China allowing third parties to undertake contract The dawn of contract manufacturing
manufacturing of biopharmaceuticals, the country Thanks to newly approved regulations, China
is building high quality capacity and adopting newer is also set to experience a boom in its contract
technologies much faster than India, and should pull manufacturing organisation (CMO) industry.
ahead in the very near future.
The 2019 version of the Drug Administration Law
Almost all of the drugs and therapies produced by finally approved the market authorisation holder
Chinese biopharmaceutical companies are currently (MAH) system on a national level, after running
for domestic consumption, with almost no exports. it as a pilot programme in several provinces since
This is likely to change in coming years as the 2017. Under the new law, whereas pharmaceutical
industry becomes bigger, more innovative and companies were previously obligated to manufacture
streamlines its operations.80 their products themselves, they now have the option
of outsourcing manufacturing to a CMO partner.
Contract research is growing fast
Drawn by China’s lower cost base, global China’s CMO industry is thus very much in its
pharmaceutical giants have built dozens of research nascency. It will be propelled by global drug makers
and development centres in the country, feeding a seeking to outsource production, especially with a
contract research organisation (CRO) industry that view to supplying the fast-expanding Chinese market.
reached an estimated 68.7 billion yuan in 2018.81 The Another important change is the arrival of competent
industry is poised to benefit not only from China’s domestic biopharmaceutical service companies that
own newfound focus on research and innovation, but are able to meet the requirements of global clients.
also from the trend for international pharmaceutical
78
Ronald A. Rader and Eric S. Langer, “Worldwide Biopharmaceutical Manufacturing Capacity Analysis: Growth Continues Across the Board”, BioProcess International,
15th September, 2018: https://bioprocessintl.com/business/economics/worldwide-biopharmaceutical-manufacturing-capacity-analysis-growth-continues-
across-the-board/
79
Shi Wei Jun, “Biopharma Boom”, CKGSB Knowledge, 18th February, 2020: https://knowledge.ckgsb.edu.cn/2020/02/18/innovation/china-biopharma-boom/
80
Ibid.
81
China Contract Research Organization (CRO) Industry Report, 2019-2025: https://www.prnewswire.com/news-releases/china-contract-research-organization-
cro-industry-report-2019-2025-300819505.html
Just a decade ago, such companies were hard to find, China’s medical device producers are likely to grow
but now there are several, including WuXi Biologics, in prominence over the coming years on the back of
MabPlex and CMAB Biopharma. government support and encouragement of domestic
innovation. One of the focus areas of the ambitious
Medical devices and supplies “Made in China 2025” initiative, announced in
China’s domestic market for medical devices was 2015, is improving the quality, competitiveness and
worth US$52.3 billion in 2018, up 14.4 per cent from production capabilities of the country’s high-tech
the previous year and having maintained double- medical device industry.
digit growth for over a decade. China’s growth is much
greater than the global average, which stood at low Notably, a few of China’s tech giants have recently
single-digits over the same period.82 sought to gain a foothold in the medical equipment
market. Huawei added medical devices to its business
The bulk of sales were driven by hospital procurement. scope in 2019, while Tencent and Baidu have invested
Since Chinese hospitals consider US products to be in high-end medical equipment manufacturers to
of superior quality and the most technologically supplement their efforts in developing healthcare-
advanced, US firms capture nearly three quarters of related AI solutions.
spending on medical devices by large public hospitals.
Disposable medical supplies
There were more than 15,000 medical device Meanwhile, there has been a temporary export boom
manufacturers in China as of 2016, of which 90 per of disposable medical supplies. The entire global
cent were relatively small. These suppliers mainly market for such products was valued at US$48.6
compete in low-end consumables, false teeth, hearing billion in 2016, and projected to exceed US$80 billion
aids, mechano-therapy apparatus and wheelchairs. by 2023.84 China commands a sizeable share of the
High-end products, which made up the lion’s share lower-quality products within that market, covering
of market value, are generally imported. The largest such products as medical gloves, face masks and
segments by value in China, as is the case globally, are drapes, along with other products such as syringes,
medical imaging, in-vitro diagnostics, cardiovascular test tubes, and petri-dishes.
devices and orthopaedics, together accounting for
more than half of the total.83 The Covid-19 pandemic has resulted in increased
shipments of personal protective equipment and
There are about 50 listed Chinese medical device tests. From 1st March to 30th April in 2020, China’s
manufacturers, of which Shenzhen Mindray Bio- exports of medical supplies reached about US$10
Medical Electronics recorded the highest operating billion, accounting for 2.6 per cent of the country’s
revenue, followed by Shinva Medical Instrument, Dian total exports in the period, and including 27.8 billion
Diagnostics Group, Lepu Medical Technology and face masks and 130 million protective suits, among
Jiangsu Yuyue Medical Equipment & Supply. However, others.85
their performance pales in comparison to those of
global medical device leaders such as Medtronic, The Chinese manufacturers holding the biggest
Johnson & Johnson and GE Healthcare Systems. US- shares of the market are Shandong Weigao Group,
based Medtronic, the world’s leading medical device Henan PiaoAn Group, Jiangsu Province JianErKang
company by revenue, registered US$29.9 billion in Medical Dressing and Sichuan Nigale Biomedical
sales in 2019, more than ten times greater than the Co. The brand-name global giants in the space are
US$2.3 billion in sales generated by Mindray in the 3M, Abbott, Cardinal Health, Johnson & Johnson and
same period. Smith & Nephew.
82
International Trade Administration, “Healthcare Resource Guide: China”: https://2016.export.gov/industry/health/healthcareresourceguide/eg_main_108574.asp
83
Auxergo, “The current state of China’s medical device industry”, 10th April, 2019: https://www.auxergo.com/post/2019/04/10/the-current-state-of-china-s-
medical-device-industry-1
84
Allied Market Research: https://www.alliedmarketresearch.com/press-release/disposable-medical-supplies-market.html#:~:text=According%20to%20a%20
new%20report,and%20is%20projected%20to%20reach
85
Finbarr Bermingham, “Coronavirus: China’s medical supply boom, lockdown backlog sparked surprise April exports rise”, South China Morning Post, 7th May,
2020: https://www.scmp.com/economy/china-economy/article/3083357/coronavirus-chinas-medical-supply-boom-lockdown-backlog
Healthcare service providers China’s private hospitals mainly target affluent

The majority of China’s healthcare expenditure customers and focus on fields offering high
is recorded at the nation’s large public hospitals. profit margins such as gynaecology, dentistry,
In 2018, all Chinese hospitals orthopaedics, ophthalmology, plastic
registered revenue of roughly 3.6 surgery, assisted reproduction
trillion yuan, representing a 14.2 services, rehabilitation service and
per cent increase from the previous “China’s private high-end prenatal and postpartum
year.86 Smaller private hospitals hospitals mainly target care.90 These specialised hospitals
accounted for about 10 per cent of affluent customers require relatively low investment and
that figure.87 and focus on fields produce a high return on investment.
offering high profit Their revenue has been growing at an
The Chinese government is intent margins such as annual rate of about 20 per cent over
on increasing the number of private gynaecology, dentistry, the past few years.91
hospitals in the country, and in an orthopaedics,
effort to promote development and ophthalmology, plastic Among China’s high-profile private
funnel investment to them, placed surgery, assisted hospital operators are United Family
limits on the number and scale of reproduction services, Hospital, Aier Eye Hospital, Beijing
public hospitals under the 13th Five-
rehabilitation service Jiangong Hospital, Concord Medical
Year Plan (2016-2020). 88 and high-end prenatal Services, Xi’an International Medical
and postpartum care.” Investment, Wenzhou Corelle
In all, there were 33,000 hospitals and dental-hospital operator TC
across China as of February 2019, of Medical. Investment in China’s
which about 64 per cent, or 21,165, private medical institutions grew at
were private. The private hospitals are much smaller a compound annual rate of 80 per cent from 2012 to
than the public ones, however, with the former 2018, with total investments in the year to May 2017
averaging about 75 beds each and the latter 350.89 reaching roughly 11 billion yuan.92
FIGURE 22: NUMBER OF VISITS AND INPATIENTS AT PRIVATE AND PUBLIC HOSPITALS
30000 1600
1400
Number of hospital visits
25000
(per 100,000 persons)
(per 100,000 persons)

Number of inpatients
1200
20000
1000
15000 800
10000 600
400
5000
200
0 0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Private hospitals Publicly-owned hospitals Private hospitals Publicly-owned hospitals
86
Research and Markets, “China Hospital Industry Report,2019-2025”, May 2019
87
Frost & Sullivan estimates, reported by China Med Device, “Why China private hospitals’ revenue will tripe by 2019”, 10th April, 2018: https://chinameddevice.com/
why-china-private-hospitals-revenue-will-triple-by-2019/
88
Xinhua, “China unveils new initiatives to promote private healthcare”, China Daily, 12th June, 2019: https://www.chinadailyhk.com/
articles/216/127/244/1560336128499.html
89
Chenhui Deng, Xiaosong Li, Jay Pan, “Private hospital expansion in China: a global perspective”, June 2018: https://www.sciencedirect.com/science/article/pii/
S2414644719301381
90
Deloitte, “2020 global health care outlook”
91
Research and Markets, “China Hospital Industry Report,2019-2025”, May 2019
FIGURE 23: CHINA’S ONLINE HEALTHCARE MARKET shortfall in medical talent. AI offers the
(RMB BN) potential to provide higher quality care with
fewer doctors, and to redress the imbalance
200
of medical resources between urban and rural
areas.
150 The majority of current healthcare AI

initiatives in China are focused on diagnosis
of diseases with high incidence rates,
100 such as cancer. Other major categories of
healthcare AI applications include treatment
recommendations, database management,
50 genetic risk prediction, medical imaging and
voice-to-text for electronic health records.
All of China’s technology giants have ongoing

0
2013 2014 2015 2016 2017 2018 2019 2020E healthcare AI projects, and are joined by a
slew of start-ups including Yitu Healthcare,
Source: Analysys, The Economist
Airdoc, Deepwise and Infervision. In all, more
than 130 Chinese companies are working on
applying AI to healthcare. The overall market
Healthcare technology was estimated to be worth 20 billion yuan in 2018,95
China’s ambitions to become a leader in several and is tipped to expand by more than 50 per cent per
technologies is reflected in a robust and well-funded annum over the next few years.
healthcare technology segment that looks set to
expand with greater vigour in the wake of Covid-19. Medical robots and wearables
Other important segments in China’s healthcare
First off, the pandemic has led to a spike in demand technology market are high-tech medical devices and
for online medical consultations, which, along with wearables.
online pharmacy sales, is expected to make up a
combined online healthcare market worth nearly 200 At the top end of China’s high-tech medical device
billion yuan in 2020.93 Up to two-thirds of that figure manufacturing industry are medical robots, best
comes from online consultations, which provided an exemplified by Tinavi’s high-precision TiRobot
invaluable service during lockdowns, giving patients surgical robot system. Although domestically
remote access to healthcare services and helping to produced medical robots still lag foreign ones in
reduce the strain on overstretched brick-and-mortar terms of quality and capabilities, they are a priority
hospitals.94 area for advancement under the government’s Made
in China 2025 strategic plan.96
Healthcare AI
Another technology that promises to reduce the strain At the another end are wearables, which have the
on China’s medical resources is healthcare AI, which potential to form the basis of a more proactive
is seen as a critical priority in view of the country’s approach to monitoring and improving health and
92
Zheng Yiran, “Huge growth potential seen in nation’s private hospitals”, China Daily, 1st March, 2019: http://global.chinadaily.com.cn/a/201903/01/
WS5c789704a3106c65c34ec260.html
93
The Economist, “The smartphone will see you now”, 5th March, 2020: https://www.economist.com/business/2020/03/05/millions-of-chinese-cooped-up-and-
anxious-turn-to-online-doctors
94
Charlie Campbell, “How the Coronavirus Is Helping to Fix China’s Broken Healthcare System”, 6th May, 2020: https://time.com/5832584/coronavirus-covid19-
telehealth-online-healthcare/
95
Caroline Meinhardt, “The Hidden Challenges of China’s Booming Medical AI Market”, 24th June, 2019: https://www.chinabusinessreview.com/the-hidden-
challenges-of-chinas-booming-medical-ai-market/#:~:text=At%20an%20estimated%20market%20size,innovative%20AI%20products%20and%20solutions
96
Zhuang Pinghui, “China’s quest for the cutting edge in surgical robotics”, South China Morning Post, 9th October, 2018: https://www.scmp.com/news/china/
society/article/2167271/chinas-quest-cutting-edge-surgical-robotics
wellness, thereby helping to reduce the burden on the There are a slew of other intelligent healthcare
healthcare sector to carry out testing and deal with products under development. For example, Hinounou,
unhealthy citizens. a Shanghai-based start-up, aims to develop an
intelligent home wellness solution for the elderly,
China’s wearables market is expected to be worth providing healthcare monitoring services as well as
around US$6 billion this year,97 led by Huami, the companionship and tailored insurance.99 The solution
exclusive design and manufacturing partner for includes various take-home devices, such as a gene
Xiaomi’s smart bands, watches, scales and associated testing box, a finger pulse oximeter, a blood pressure
accessories. Huami ranks ahead of Apple and Fitbit as monitor, and an Internet of Things (IoT) scale that
the world’s leading wearable device company by units helps users check for several critical chronic diseases,
sold.98 blood oxygen levels, weight, and blood pressure.
The ultra-violet light emitting robot ”Unicom”, that can disinfect facilities amid the Covid-19 pandemic, at Roborn Technology’s
office in Cyberport, Hong Kong.
97
Statista: https://www.statista.com/outlook/319/117/wearables/china
98
Karen Chiu, “Xiaomi-backed fitness trackers sell way better than last year”, Abacus, 13th November, 2019: https://www.abacusnews.com/china-tech-city/xiaomi-
backed-fitness-trackers-sell-way-better-last-year/article/3037489
99
Dorcas Wong, “Investing in China’s Healthtech Industry”, China Briefing, 25th July, 2019: https://www.china-briefing.com/news/investing-chinas-healthtech-
industry
1.6: FUNDING
Significant new funding channels have opened list on Nasdaq in the US, but since April 2018, a total
to China’s healthcare sector in recent years. The of 16 such companies have listed in Hong Kong,
Hong Kong stock exchange introduced a listing compared to just two on Nasdaq. Nasdaq is likely
rule reform in April 2018 paving the way for to fall further out of favour as a listing destination
pharmaceutical and biopharma issuers to raise for Chinese companies following the exchange’s
funds via initial public offerings (IPOs) despite not proposal in May 2020 to increase scrutiny of foreign
meeting traditional listing criteria, IPOs, prompted by the scandal at
such as profits or revenue. Luckin Coffee, a Nasdaq-listed
Chinese start-up that was found
Shanghai’s financial regulators to have committed fraud and was
followed suit by allowing pre-profit/
“Hong Kong is the forced to delist in May.102
pre-revenue drug developers to
natural base for
Chinese companies
list on its Science and Technology Under Hong Kong’s biotech listing
looking to tap global
Innovation Board (Star), launched regime, drug and medical device
investors. Many also
in July 2019. Then Shenzhen enacted developers with no revenue or
believe that Hong
similar regulations on its secondary profit can go public if they meet
Kong is better placed
ChiNext bourse, which aims to than Shanghai and requirements including a market
attract innovative and fast-growing Shenzhen to help value of at least HK$1.5 billion
enterprises, especially those Chinese biopharma (US$194 million) upon listing and
involved in high-tech industries.100 and high-tech at least one drug candidate having
healthcare companies regulators’ consent to start Phase 2
Among these three competing IPO build international trials. On Shanghai’s Star market,
destinations, Hong Kong is the most relationships.” such companies need to achieve a
coveted among Chinese healthcare market value of over 4 billion yuan
companies given its mature and upon listing and have at least one
stable legal system and access to drug candidate with promising
international capital. market potential.
Hong Kong is the natural base for Chinese Early signs of recovery for healthcare venture
companies looking to tap global investors. Many capital
also believe that Hong Kong is better placed Chinese healthcare start-ups who have yet to
than Shanghai and Shenzhen to help Chinese achieve those valuations, along with those who are
biopharma and high-tech healthcare companies simply not yet ready or willing to go public, have
build international relationships, which are vital recourse to a vibrant venture capital market to fund
in fostering cross-industry collaboration and the their growth ambitions. Chinese healthcare firms
exchange of ideas.101 raised nearly US$7 billion in venture capital funding
in 2019, up 23 per cent from the US$5.7 billion
Prior to the Hong Kong rule change, pre-profit raised in 2018. The biggest increases in investment
innovative Chinese healthcare companies tended to into Chinese healthcare start-ups in 2019 went to
100
Eric Ng, “Shanghai and Shenzhen stock markets are shaping up as viable rivals to Hong Kong in the race for the biotech IPO crown”, South China Morning Post, 18th
May, 2020: https://www.scmp.com/business/companies/article/3084745/shanghai-and-shenzhen-stock-markets-are-shaping-viable-rivals
101
102
Yang Ge, “Trump Joins Call for Greater Oversight of U.S.-Listed Chinese Firms”, Caixin Global, 5th June, 2020: https://www.caixinglobal.com/2020-06-05/trump-
joins-call-for-greater-oversight-of-us-listed-chinese-firms-101563705.html
FIGURE 24: CHINA HEALTHCARE INITIAL PUBLIC OFFERINGS SINCE JULY 2018
Market YTD stock
Proceeds capitalisation price
Company Founded IPO (HK$bn) (HK$bn) change (%)* Business focus
2014 Jul 2018 3 3.3 -1 Develops and discovers anti-viral drugs to address
unmet needs in -viral, cancer, and fatty liver diseases.
2010 Aug 2018 6.8 105.2 +5 Develops molecularly targeted and immuno-oncology
drug candidates for the treatment of cancer.
2011 Sep 2018 0.8 4.9 -6 Develops clinical stage drugs focused on novel
therapies for the treatment of diabetes.
1991 Oct 2018 6.5 364.4 +52 Designs and produces medical equipment and
accessories for both human and veterinary use.
2011 Oct 2018 3.2 62.2 +71 Develops, manufactures, and distributes monoclonal
antibody drug candidates for the treatment
of oncology, ophthalmology, autoimmune,
cardiovascular, and other diseases.
2012 Dec 2018 2.9 34.1 +70 Develops and sells small molecule drugs, antibody
drug conjugates, and other products.
2015 Feb 2019 2.1 9.4 -14 Develops and commercialises innovative immuno-
oncology and precision medicines to address the
unmet medical needs of cancer patients.
2009 Mar 2019 1.2 41.1 +208 Develops and manufactures biological vaccine
products.
2018 May 2019 1.1 4.7 +9 Develops and produces new drugs and biosimilars for
cancers and autoimmune diseases.
2008 May 2019 1.4 11.8 +65 Provides target protein expression, structure
researching, hit screening, drug candidate
determination, and other services.
2015 Jun 2019 7.6 216 +45 Manufactures and sells anti-infectives, anti-neoplastic
agents, diabetes drugs, and other products.
2001 Aug 2019 1.2 25.7 Unchanged Produces and sells anticancer drugs, immunological
disease therapeutic drugs, metabolic disease
therapeutic drugs, and other products.
2010 Sep 2019 3.1 22 -2 Develops, produces and sells monoclonal antibody
products.
2009 Oct 2019 0.3 6.1 -3 Develops novel small molecule therapies for cancers,
hepatitis B and age-related diseases
2009 Nov 2019 0.5 2.5 -4 Develops and commercialises tumor drugs and
therapies.
2001 Nov 2019 1.3 3.9 4 Develops and manufactures anti-infective drugs,
antitumor agents, and monoclonal antibodies.
2008 Dec 2019 1.7 17.6 34 Discovers, develops and commercialises world-class
innovative therapeutics for cancer treatment.
2009 Dec 2019 2.4 25 63 Develops and sells cardiovascular devices.
2015 Mar 2020 2.1 18.7 48 Discovers, develops and commercialises best-in-class
and/or first-in-class drugs for the treatment of cancer
and autoimmune diseases.
2012 Apr 2020 2.4 21.5 15 Discovering and developing innovative biologics to
treat a broad spectrum of diseases e.g. oncology,
autoimmune and inflammatory, and cardiovascular
diseases).
2012 May 2020 2.3 16.6 5 R&D and production of interventional medical
products.
* As of 5th June, 2020

FIGURE 25: VENTURE CAPITAL FUNDING FOR CHINESE HEALTHCARE START-UPS, 2019
1600 1527 oY
%Y
2 3. 3 6977
5655
1200 1143
USD millions
800
644 637
548 526
413 431 2018 2019
390 384
400
159 176
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Note: Data compiled from 1/1/2019 to 31/12/2019. Only China-based healthcare companies are shown
on the data. Public trade companies are excluded. Only disclosed funding amount are taken in analysis.
Source: Crunchbase, EqualOcean analysis
companies involved in biopharmaceuticals and care, and the country also needs to develop and
high-tech medical devices.103 implement a comprehensive evaluation system
based on health outcomes and quality of care in
Although Covid-19 lockdowns prompted a steep order to make further improvements.
drop in overall venture capital funding in the
country in the first two months of 2020, deal- But that does not take away from the impressive
making activity had made a tentative recovery achievements. A decade ago, the poor often took
by March, with investors especially interested in a bad diagnosis as a death sentence while the rich
securing bargains in healthcare and education start- preferred to venture abroad for treatment.
ups.104
Now, having addressed the most glaring
It is too early to tell whether this rebound will be shortcomings of its healthcare sector, the country is
sustained. But if the robust fundraising efforts and pursuing a series of bold initiatives to not only close
outperformance of China healthcare companies the remaining gaps with developed countries, but
on public markets is any indication, there is a fair also to bring down prices of drugs and treatments,
chance that while overall China VC activity could curtailing the major players’ erstwhile capacity
drop in 2020, healthcare and technology might buck for rent-seeking, and setting its entire healthcare
the trend. sector on a more innovation-driven footing.
Challenges remain It will take several more years and even decades
Despite the significant progress made on reforming to realise the full consequences of some of the
China’s healthcare sector since 2009, challenges government’s reform measures. It is an ongoing
remain. The capacity and quality of primary experiment that will see several tweaks in response
healthcare still has a long way to go to be on par to upcoming successes and failures. But judging
with the standard of developed countries. A lot more by the segment trends revealed in the following
needs to be done to achieve a well-coordinated section, there is good cause for optimism.
and integrated healthcare sector based on primary
103
Gilson Tavares, “Looking Back at China’s Healthcare Industry in 2019”, Equal Ocean, 9th January, 2020: https://equalocean.com/healthcare/20200109-looking-
back-at-chinas-healthcare-industry-in-2019-nearly-usd-7-billion
104
Mercedes Ruehl and Ryan McMorrow, “China’s venture capital funding rallies after coronavirus lockdown”, Financial Times, 14th April, 2020: https://www.ft.com/
content/60359c79-0161-46e2-bed5-a30d372834b7
2: SEGMENT TRENDS
Revolutionary changes are afoot across each of rather than undermining the bottom lines of the
China’s major healthcare segments, driven by domestic pharma giants, Chinese government
massive government spending, disruptive regulation, measures to cut generic drug prices and foster
and the private sector’s eagerness to respond to the innovation could help finally set them in the right
government’s clarion call to upgrade the sector. direction. The country’s swelling ranks of nimble
biopharmaceutical companies intent on developing
Government regulation has trimmed the local new drugs for a variety of unmet needs will join the
pharmaceutical sector’s erstwhile capacity to profit charge.
from unproductive activity, which will likely lead
to a wave of industry consolidation and pressure More broadly, China’s other healthcare segments,
to innovate. Notably, much of the profit in the including medical devices and equipment, healthcare
past had gone to small producers of generics, and service providers and healthcare technology, will
China’s largest pharmaceutical companies actually also move up the value chain. Domestic companies
have much slimmer profit margins than their have plenty of pent-up demand to serve at home, but
global peers, along with much smaller research and will also increasingly focus their attention outwards,
development budgets as a proportion of revenue. pushing down prices, contributing to global advances
in diagnosis and treatment, and benefiting patients
Pharmaceuticals is demonstrably an industry everywhere.
where the biggest profits go to the innovators, so
2.1: PHARMACEUTICALS
The Chinese government has two seemingly biopharmaceutical companies develop and market
conflicting policy objectives with regards to the new and cutting-edge treatments for diseases with
pharmaceuticals segment. significant unmet needs (see section 2.2).
Firstly, it wants to ensure medication is affordable Affordability crisis brought into focus
and accessible for its citizens without creating an Although virtually all Chinese citizens are now
unsustainable burden on public coffers, and to covered by public health insurance schemes, out-
achieve that goal, has enacted measures to drive of-pocket expenses remain high and availability of
down the prices of drugs. So, although overall innovative, premium-priced medicines under the
healthcare spending is on track to keep growing schemes is low.
strongly, falling drug prices are tipped to erode
industry profits in the near term. The problem was highlighted in a 2018 hit film,
Dying to Survive (Wo bu shi yao shen), which was
Some worry that might jeopardise the second inspired by the real-life story of Lu Yong, a textiles
objective of encouraging domestic drug makers trader from the eastern province of Jiangsu.
to become more innovative and internationally Diagnosed with leukaemia in 2002, his best available
competitive. But the government is more optimistic. treatment option in China was Novartis’ Gleevec,
It is banking on the industry consolidating an expensive drug not covered by insurance and far
and moving to an innovation-focused footing beyond the affordability of the average Chinese. Lu
in order to remain profitable, bolstering that resorted to illegally importing a generic version of
vision with measures to help pharmaceutical and the drug from India for himself and more than a
thousand other patients. He was eventually arrested NHSA has already launched far-reaching changes to
in 2013 for illegally distributing the unapproved the way innovative, premium-priced medicines are
drug, but was acquitted in 2015 after hundreds of procured by the state and offered to those who need
the patients he had supplied with illegally imported them.
low-cost generics petitioned the court for leniency.1
The essential and reimbursable drugs lists
The film prompted Premier Li Keqiang to urge The NHSA has purview over two key lists
regulators to “speed up price cuts for cancer drugs” which largely determine the shape of the local
and “reduce the burden on families”. Soon after, pharmaceuticals market.
regulators moved to consolidate management of
basic medical insurance and drug procurement The first is the National Essential Drug List (NEDL),
under a single entity, the National Healthcare introduced in its current form in 2009, which
Security Administration (NHSA), bringing together includes all medicines that public hospitals and
functions previously handled by several different clinics in China need to stock for treating the most
departments. Given the authority to formulate and common illnesses. The NEDL initially included 307
enact powerful and comprehensive policies, the drugs, with the latest update to the list in October
2018 bringing the total to 685,
FIGURE 26: TOP FIVE GLOBAL PHARMACEUTICAL COMPANIES BY REVENUE including 417 chemicals and
biological products and 268
Employees 2019 Revenue Profit margin traditional Chinese medicines.
Company Founded ('000) (US$bn) (%)
Among the 165 drugs added in
(Switzerland) 1896 97.7 64.7 22.0 that most recent update were
11 cancer drugs and several
(US) 1849 88.3 51.8 31.5
paediatric medications (a
(Switzerland) 1996 109.0 48.7 24.1 newly-added category).2
(US) 1891 71.0 46.8 21.0

The other list, the National
(US) 1886 132.2 42.2* 18.4 Reimbursement Drug List
(NRDL), holds greater sway
*Pharmaceutical revenue only. Total revenue US$82.1 billion
on access to innovative and
Source: SCMP Research, Bloomberg data
premium medicines. Introduced
in 2000, the NRDL covers drugs
FIGURE 27: TOP FIVE CHINESE PHARMACEUTICAL COMPANIES BY REVENUE
reimbursable by the public
Employees 2019 Revenue Profit margin insurance schemes. It has two
Company Founded ('000) (US$bn) (%) categories, with category A
2003 93.8 60.1 1.5 covering established, generic
drugs that are reimbursed
1994 47.6 26.3 2.2
in full, and category B for
1997 25.9 9.2 4.9 costlier therapies reimbursed
in large part by the provincial
1993 8.0 5.0 7.9
governments, with co-pays of
1984 8.8 5.0 2.8 as low as 10 per cent.3 NRDL
payments are covered by
1
Linda Lew, “China cuts prices for 70 more drugs after talks with pharmaceutical firms”, South China Morning Post, 11th December, 2019: https://www.scmp.com/
news/china/society/article/3041496/china-cuts-prices-70-more-drugs-after-talks-pharmaceutical-firms
2
Jiangjiang He, Mi Tang, Ziping Ye, et al., “China Issues the National Essential Medicines List (2018 Edition)”, BioScience Trends: https://pubmed.ncbi.nlm.nih.
gov/30473550/
3
Karan Verma and Akash Saini, “The Evolving Dynamics of Access and Reimbursement in China”, Decision Resources Group, 8th August, 2019: https://
decisionresourcesgroup.com/blog/evolving-dynamics-access-reimbursement-china/#:~:text=What%20are%20the%20essential%20and,basic%20treatment%20
for%20all%20citizens
the country’s 2.34 trillion yuan national medical the price cuts. There is no available data on the net
insurance fund.4 impact of the NRDL negotiations on pharmaceutical
companies’ bottom lines thus far,
Although the NRDL was intended but Roche Pharmaceutical China
to be updated every two years, this claims that the inclusion of three key
only happened twice between 2000 products (Herceptin, Avastin and
“The hope for
and 2017. Crucially, throughout MabThera/Rituxan) on the NRDL in
pharmaceutical
that period there had been scant companies, 2017 was a key driver of its 28 per
coverage of premium-priced drugs especially with cent jump in revenue in 2018.6
for diseases with high unmet regards to their
clinical need, such as cancer, even innovative China added an additional 70 drugs to
though such drugs are approved medications, the NRDL in November 2019, bringing
and reimbursed under insurance is that volume the total number on the list to 2,709.
schemes in developed countries. increases following The NHSA said the additions saw an
With a view to affordably include inclusion on the average price drop of 60.7 per cent,
such drugs, the NHSA conducted reimbursement with the price of three hepatitis C
negotiations with drug companies list will more than treatments falling by more than 85
ahead of the third NRDL update in make up for the per cent. Importantly, the prices of
2017, offering inclusion on the list price cuts.” many of the imported drugs added to
in exchange for sizeable discounts. the list are the lowest in the world.7
Access to expensive oncology And crucially, lifesaving medications

therapeutics in particular has expanded under the are now within the means of patients. Take the
NRDL, with the inclusion of 41 innovative oncology case of 78-year-old Shanghai resident and lung
drugs (including PD-1) in 2018 and 2019,5 with price cancer patient Yang Songbo, whose medication,
concessions averaging 44 per cent to 61 per cent. Tagrisso, would have previously cost 51,000 yuan
The hope for pharmaceutical companies, especially (US$7,240) for a month’s supply of 30 pills. Even
with regards to their innovative medications, is though Shanghai’s average monthly wage ranks as
that volume increases following inclusion on the the highest in China, at 9,732 yuan, it would have
reimbursement list will more than make up for fallen far short. Following Tagrisso’s inclusion on the
FIGURE 24: DRUGS ADMITTED THROUGH THE PRICE NEGOTIATION PATHWAY
2016 PILOT 2017 2018

Number of
drugs added 3 Number of
drugs added 36 Number of
drugs added 17
• Viread 6
Oncology 5
Solid tumour
• Iressa Cardio 18
12 Hematology 12
• Conmana Other
Source: ZS research
4
Bloomberg, “How China’s New Drug-Buying Program Is Causing Pain”, 5th December, 2019: https://www.bloombergquint.com/quicktakes/how-china-s-new-
drug-buying-program-is-causing-pain-quicktake
5
State Medical Insurance Administration (SMIA)
6
Pharma Boardroom interview with ong Chow – General Manager, Roche Pharma China, 28th February, 2019: https://pharmaboardroom.com/interviews/hong-
chow-general-manager-roche-pharma-china/
7
FIGURE 29: NRDL NEGOTIATION OUTCOMES and expert advisory committees comprising
physicians and pharmaceutical experts.
2017 2018 2019
Furthermore, once drug makers submit a
Total submissions 44 18 119 price for a product, they will only be invited
Overall success rate 82% 94% 59% to negotiate further if that price is within
Average price cuts 44% 56% 61% 15 per cent of an undisclosed price set by
(vs. local pre-negotiation list or local price) the committees, leaving manufacturers no
Average time from launch to listing 7.0 years 3.8 years 2.9 years option to negotiate further if it does not.

Under pressure to improve reimbursement,
China is set to move to annual reviews and
adjustments of the NRDL and adopt a more
NRDL in September 2018, Yang can obtain the 30 pills transparent process, creating huge opportunities for
through public insurance with a 6,200 yuan co-pay.8 producers of innovative drugs in particular.9
This marks a turnaround from the hitherto situation Bulk-buying of generic drugs
of many branded versions of drugs selling for higher The NHSA is also using the lure of access to its
prices in China than in other major markets. The massive patient population to make drugs more
reason for that is multinational pharmaceutical affordable through a bulk procurement programme
companies usually cut the price of drugs when they for generic drugs, which account for 95 per cent of the
go off-patent and face competition from generic 170,000 drug approvals issued by the National Medical
versions. But such price drops were slow to happen Products Administration (NMPA, formerly known as
in China, partially because many local manufacturers the China Food and Drug Administration).10 A pilot
were unable to develop high-quality generic versions bulk-buy programme was launched in 2018, covering
to compete with off-patent branded medicines. 25 generic drugs in 11 cities. Prices of the generics fell
on average by 52 per cent, and one by as much as 90
The NRDL system could be improved per cent, resulting in billions of yuan in savings.
Although prices have dropped, access to expensive
treatments remains uneven because of constrained The bulk-buying programme was expanded to cover
public hospital budgets. Some hospitals simply do the entire nation in April 2019, driving an average
not prescribe expensive medications and some only 59 per cent price reduction in the prices of the drugs
prescribe them after other treatments have failed. included, according to the NHSA. And in December
Owing to this situation, anecdotal reports suggest 2019, the government opened bidding for 33 more
many patients are still buying cheaper generic drugs commonly used generics, including those used to
from places such as India, although presumably that treat diabetes, dementia and infections.
will become less common as the NRDL inclusion
negotiations expand. Under the expanded programme, up to six companies
are eligible to win bids for each drug and on bids won
The NRDL negotiation process could also be improved. by four or more companies the winning bidders could
Although global pharmaceutical companies welcome supply as much as 80 per cent of the national market
the initiative, the system has shortcomings from for that drug.11 If fewer than four winners are chosen
their point of view. There is no formal process for for a drug, the market share awarded to the winning
manufacturers to apply for a drug’s inclusion on the drug manufacturers will be progressively reduced
NRDL, with drugs selected by government officials to avoid concentration risks. If only one drug maker
8
Ibid.
9
Wenting Zhang and Taylor Watson, “There’s a New NRDL in Town”, CB Partners, 13th August, 2019: http://cbpartners.com/blog/china-theres-a-new-nrdl-in-
town.html
10
Angus Liu, “China pushes generics over brands with another round of new pharma policies”, Fierce Pharma, 5th April, 2018: https://www.fiercepharma.com/
pharma-asia/china-pushes-another-round-policy-favors-generic-drugs
11
Linda Lew, “China adds 33 drugs to its plan to offer patients more affordable treatment”, 31st December, 2019: https://www.scmp.com/news/china/society/
article/3043989/china-adds-33-drugs-its-plan-offer-patients-more-affordable
wins a contract, it will get just 50 per cent of that in layers of distribution intermediaries, is expected
drug’s total demand. to prompt a wave of consolidation across China’s
fragmented pharmaceuticals
Chinese generic drug makers industry over the next few years.
won bids for most of the 33 drugs
in the December 2019 bidding, There is a good chance the majority
including generic versions of of small domestic drug makers will
popular drugs such as Zytiga, for “The streamlining disappear since many do not have
prostate cancer, and Cialis, for
of China’s drug the resources to re-conduct clinical
erectile dysfunction. Bayer was able
distribution trials on their products to fulfil the
to win the bidding for its popular
system will not more stringent testing requirements
only contribute to
diabetes drug Acarbose by slashing on the safety and efficacy of generics
drugs becoming
its price 78 per cent below the price and biosimilars implemented by
more affordable,
ceiling set by the government in the then China Food and Drugs
but it should also
December 2019. This forced some Administration in 2015. The number
help shift the
Chinese generic providers out of industry’s focus to of companies in the segment could
the bidding. The latest round of innovation.” shrink from around 4,000 to less
the bulk-buy programme also saw than 1,000 by 2024.13
Eli Lilly and Sanofi cut their prices
to a level offered by local generic And the outsized profit margins
manufacturers in the first round enjoyed by China’s generic drug
held in September.12 makers for decades will come to
an end. Among the world’s top 100 producers of
The generic bulk-buy programme, along with more generics, Chinese firms had an average 74 per cent
stringent drug quality regulations and a reduction gross margin and 18 per cent profit margin in 2018,
FIGURE 30: CHINA PHARMACEUTICAL SALES (US$ BILLION)

140-170
CAGR CAGR CAGR 34

2008-2013 2013-2018 137 2018-2023
19% 8% 34 3-6% 32
95
24% 4% 21 0%
27 63
21% 12 11% 9%
54
40
40 16% 39 7% 3%
5
44
19 29
20% 17 11% 9%
7
2011 2013 2018 2023
Forecast
Original brands Non-original branded products Unbranded products OTC and other
Note: OTC = Over-the-counter

Source: IQVIA Market Prognosis, Sep 2018; IQVIA Institute, Dec 2018
12
Justin Thompson, “China’s Bulk-Buy Program Forces Drugmakers to Chop off Prices By 53%”, My Healthy Click, 20th January, 2020: https://www.myhealthyclick.
com/chinas-bulk-buy-program-forces-drugmakers-to-chop-off-prices-by-53/
13
Eric Ng, “Looking for trade war-proof stock ideas? China’s large pharma firms might be good medicine for investors’ portfolios, analysts say”, South China Morning
Post, 5th August, 2019: https://www.scmp.com/business/money/stock-talk/article/3021303/looking-trade-war-proof-stock-ideas-chinas-large-pharma
compared to a global average of 55 per cent and 9.5 profits from unproductive activity, it should also help
per cent, respectively.14 This was the result of long lags shift the industry’s focus to innovation.
in the approval for global pharmaceutical giants to
supply their new drugs to China, providing a sufficient In the past, drug distribution in China involved a
window for domestic generic producers to copy, test serpentine and non-transparent network of more
and get local approval for their medicines before the than 13,000 distributors that enabled unchecked
imports could gain market access. These lags are set to mark-ups and kickbacks. A pharmaceutical
shorten considerably under the new regulatory regime manufacturer usually sold a given drug to a first-tier
(see section 2.2). It should also be noted that China’s distributor, who in turn sold it to multiple second-
largest pharmaceuticals companies (see figure 27) or higher-tier distributors, before the drug reached
generally have significantly lower profit margins hospitals, clinics and pharmacies. The net effect was
than the generics manufacturing industry average wide discrepancies between the manufacturer price
because a significant portion of their revenues derive and price paid by end users.15
from distribution, which is characterised by slim
margins (see China’s “two-invoices system” below). After a decade of deliberation, the State Council
By contrast, the world’s leading pharmaceutical eliminated the multi-tiered system virtually
companies derive the majority of their revenues from overnight with new rules rolled out nationwide in
innovation and manufacturing. 2018 allowing a maximum of two invoices between
a manufacturer and a hospital. Each manufacturer
Cutting out the middlemen now sells to a single distributor, who in turn sells
The streamlining of China’s drug distribution system directly to hospitals under a so-called “two-
will not only contribute to drugs becoming more invoices system”16 designed to end the bloat in
affordable, but by eliminating the capacity to earn pharmaceutical distribution.
FIGURE 31: CHINA’S “TWO-INVOICES SYSTEM”
DRUG MAKER DRUG MAKER
Invoice 1
Multiple Two Tier 1
small-scale Invoices
distributors
System
and some only
Tier 1
distributors Invoice 2
END USERS (HOSPITALS, END USERS (HOSPITALS,

CLINICS, PHARMACIES) CLINICS, PHARMACIES)
Source: Fiducia China
14
Bloomberg, “Pharma firms face shake-up with China’s plan to bulk-buy drugs”, 2nd January, 2019: https://www.scmp.com/news/china/society/article/2180378/
chinas-new-drug-procurement-plan-set-hit-its-pharma-firms-profit
15
Yazan Saleh, “What China’s New Two-Invoices Policy Means For Pharmaceutical Manufacturers”, Decision Resources Group, 2nd August, 2017: https://www.
pharmaceuticalonline.com/doc/what-china-s-new-two-invoices-policy-means-for-pharmaceutical-manufacturers-0001
16
Florian Then and Kevin Wu, “Implementing a two-invoice system in China’s MedTech market”, McKinsey & Company, 5th May, 2017: https://www.mckinsey.com/
industries/pharmaceuticals-and-medical-products/our-insights/implementing-a-two-invoice-system-in-chinas-medtech-market
CASE STUDY: 111, INC. RESHAPES DRUG COMMERCIALISATION AND DISTRIBUTION IN CHINA
Dr Yu Gang was one of the co-founders of China’s them customised online stores on platforms such as
first online supermarket start-up, Yihaodian, in 2008. Alibaba Health or on its own 1 Drugstore.
That company went on to be acquired first by Walmart
then by Chinese e-commerce giant, JD.com. Seeking The second offering connects pharmacies to an online
to also bring the convenience of online purchasing doctor or pharmacist. “Some pharmacies don’t have a
to pharmacy prescriptions, and to help millions of doctor or pharmacist, so when a patient comes without
Chinese avoid lengthy waits at under-staffed hospitals a prescription they either have to lose the customer or
to pick up their medications, Yu then turned his sell the drugs to them without meeting compliance,”
attention to building 111, Inc. observed Yu. “We provide them with a solution where
patients access our online doctor or pharmacist, and
The company’s 1 Drugstore is China’s largest direct after consultations we can issue a digital prescription
sales online pharmacy by gross merchandise value and forward it to that pharmacy.”
since 2016.17 That business should receive a major
boost following the government’s move to lift the ban Another service enlarges the selection of pharmacies
on online prescription drug sales in November 2019, by giving them access to 111, Inc.’s inventory of over
though details of how such sales would be allowed to 200,000 stock-keeping units (SKUs). Noting that
proceed are still pending.18 pharmacies in China generally stock about 3,000 items,
Yu remarked “we enlarge their selection by 100-fold.”
And 111, Inc. has expanded its scope far beyond online
pharmacy sales over the years. It also runs 1 Clinic, an And 111, Inc. also empowers individual pharmacies
online hospital platform offering medical consultation with its customer relationship management (CRM)
and e-prescriptions, giving consumers access to over system, and in the process collects troves of valuable
3,000 doctors, which, along with other providers of data. “We constantly send the patients a lot of
telemedicine services, experienced a major spike in educational material through WeChat. For example,
business during the Covid-19 pandemic. for a diabetes patient, we send content about new
diabetes treatments. We also remind patients of the
But the company’s most significant contribution to importance of refilling their prescriptions,” said Yu,
China’s healthcare sector has perhaps come from claiming the system had led to a doubling of the refill
its foray into the business-to-business (B2B) realm rate among its pharmacy customers.
with a range of offerings that are fundamentally
reshaping drug commercialisation and distribution in The data 111 Inc. collects through its network
the country. The primary vehicle for its B2B offering provides valuable insights it can pass on to
is 1 Drug Mall, which serves a network of more than pharmaceutical companies, its other growing cohort
260,000 brick-and-mortar pharmacies, over half the of B2B customers. “We place more than 100 labels on
total of 480,000 across the country. patients to understand their behaviour and profile.
And more than 40 labels on business clients – the
China’s retail pharmacy segment is highly fragmented. clinics and pharmacies. We provide the analysis to
Half of its pharmacies are standalone stores and the the pharmaceutical companies to help them better
other half consists of chains, though even the largest understand the market and their customers,”
chain has less than 2 per cent market share, whereas revealed Yu.
in the US, CVS and Walgreens command up to 75 per
cent of the market.19 The company is also helping pharma companies
market their products under China’s evolving
Chinese pharmacies “don’t have scale, they don’t have regulatory regime. “A lot of drugs fell out of the
good systems, good data or good processes,” explained procurement list from public hospitals. They need
Yu, 111, Inc.’s co-founder and executive chairman. “We to look for new channels,” noted Yu. “The old way
are the technology enabler to help them.” of using sales reps proved to be ineffective. So, we
became the preferred channel for commercialisation of
The company provides four main offerings for its their drugs through our tech enabled omni-channels.
pharmacy clients. The first simply entails giving We directly serve the patients, pharmacies and doctors.
individual pharmacies an online presence by building We eliminate the unnecessary middle layers.”
17
Frost & Sullivan, 2018
18
Huang Jianwen, “Major Changes in the Newly Revised Drug Administration Law”, King & Wood Mallesons, 30th August, 2019: https://www.chinalawinsight.com/2019/08/
articles/healthcare/major-changes-in-the-newly-revised-drug-administration-law/
19
Corey Stern, “CVS and Walgreens are completely dominating the US drugstore industry”, Business Insider, 30th July, 2015: https://www.businessinsider.com/cvs-and-
walgreens-us-drugstore-market-share-2015-7
R&D in focus past year. Although that puts them well above the
Going forward, the Chinese pharmaceutical domestic industry average of about 5 per cent,21 it is
companies with the best chance of thriving are those far short of the global average of over 20 per cent.22
that are committed to research and development
(R&D). Among the established mainland China- Yet the tables are set to turn. China’s combined
listed players, Jiangsu Hengrui Medicine has made pharmaceutical and biopharmaceutical R&D spending
the biggest investment in R&D relative to revenue is forecast to grow at a 23 per cent compound annual
in 2019, at 17 per cent, equivalent to 3.9 billion rate in the five years to 2023, when it will reach
yuan.20 Boasting a research team of over 3,400 staff, US$49 billion (see figure 32). At that point, China’s
including more than 2,000 with degrees beyond R&D spending on drug discovery and testing will
post-graduate level, Hengrui has a wide range of account for 23 per cent of the world’s total.
products in the pipeline covering oncology auxiliary
treatments, immune and respiratory system Beyond finished drugs
related diseases, and other chronic diseases such as Although the vast majority of the finished drugs
diabetes. produced in China are for domestic consumption,
the country has become a leading supplier of basic
Among the other major established Chinese chemicals, intermediates and active pharmaceutical
pharmaceutical players, CSPC Pharmaceutical ingredients (APIs) to the global pharmaceutical
Group, Yipinhong Pharmaceutical, Zhejiang Jingxin industry. China produced 384.3 billion yuan worth
Pharmaceutical, Chengdu Kanghong Pharmaceutical of APIs in 2018.23 It is estimated that Chinese
Group and Tianjin Lisheng Pharmaceutical all manufacturers make around 40 per cent of all APIs
spend about 8 per cent or more of revenue on R&D, used worldwide.24
with most having made significant increases in the
FIGURE 32: CHINA R&D EXPENDITURE AND BREAKDOWN BY DISCOVERY, PRE-CLINICAL AND CLINICAL
60
50 Discovery Pre-clinical Clinical Total

2014-18 24.0% 15.9% 16.0% 16.9%
USD (billions)
40 2018-23E 23.8% 23.1% 23.0% 23.1%
32.5
30
27.0
22.0
20
17.7
14.2
9.5
11.6
10 9.7 6.4
7.9
7.1 8.0 5.2
6.4 4.1
2.9 3.3 5.1 6.2 7.3
1.9 2.1 2.4 4.1
1.1 1.2 1.4 1.7 2.2 3.3
0
2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Clinical Pre-clinical Discovery
Source: F&S, Pharmaron Beijing, CMBIS
20
Mengyao Zhang, “Jiangsu Hengrui, Chinese Cancer Drugmaker Emerging from the Shadows”, Equal Ocean, 22nd May, 2020: https://equalocean.com/
healthcare/20200522-jiangsu-hengrui-chinese-cancer-drugmaker-emerging-from-the-shadows
21
22
Amandeep Singh, “Pharmaceutical R&D global spending trends in 2019”, June 2019: https://www.prescouter.com/2019/06/pharmaceutical-rd-global-spending-
trends-in-2019/
23
China Ministry of Industry and Information Technology
24
The Conversation, “The world needs pharmaceuticals from China and India to beat coronavirus”, 25th May, 2020: https://theconversation.com/the-world-needs-
pharmaceuticals-from-china-and-india-to-beat-coronavirus-138388
Dependence on China for APIs is seen as FIGURE 33: SALES PROJECTIONS OF KEY SEGMENTS
a vulnerability. A representative of the OF CHINA’S PHARMACEUTICAL MARKET (RMB BN)
US Defense Health Agency argued that
MNC – original, patent expired MNC – original, patent valid
“the national security risks of increased Domestic innovative TCM & Ancillary drug Generics
Chinese dominance of the global API 1200
market cannot be overstated”. And when
global supply chains were threatened by
the Covid-19 crisis, it seemed to present an 900
imminent threat to the operations of the
world’s pharmaceutical giants, which are
600
predominantly American and European.25
These concerns, however, have not yet 300

materialised. Throughout the pandemic,
China refrained from imposing export
bans on pharmaceuticals, even as India 0
2018 2025
announced restrictions on the export of
Note: MNC = multinationals; TCM = traditional Chinese medicine
several APIs in early March 2020. Later in Source: Citi, IQVIA
the same month, the Indian government
announced a scheme to reduce its reliance
on Chinese APIs.26 Currently, Indian generic drugs the development of Traditional Chinese Medicine
manufacturers depend on China for an estimated 80 (TCM) as part of its Healthy China 2030 initiative.29
per cent of their APIs and chemical intermediates.27 The plan aims to facilitate growth in the TCM market
by implementing clear new standards for TCM
Among China’s largest API exporters is Zhejiang ingredients in order to guarantee consistency and
Hisun Pharmaceutical. It sells more than 130 kinds bolster consumer confidence
of APIs used in antibiotics and medicines that
treat cancer and cardiovascular diseases to over 70 President Xi Jinping has referred to TCM as a
countries and territories in North America, Europe, “treasure of Chinese civilization” in speeches, and it
Latin America and Asia, and to companies including has been backed by subsidies and propaganda. More
28
Merck and Bayer. ominously, critics of the merits of TCM have been
silenced, demoted and even jailed.30 Despite all that
Traditional Chinese Medicine in decline support, however, the prognosis for TCM sales is
And finally, although the focus of China’s healthcare negative, while both generics and innovative drugs
policy is very much on ‘Western’ medicine, the are poised for strong growth through 2025 (see
Chinese government does have a strategic plan for figure 33).
25
Ibid.
26
BioWorld, “India looks to cut reliance on China for APIs”, 6th April, 2020: https://www.bioworld.com/articles/434213-india-looks-to-cut-reliance-on-china-for-
apis
27
Elise Mak, “Could China’s coronavirus outbreak hurt the global drug industry?”, Al Jazeera, 26th February, 2020: https://www.aljazeera.com/ajimpact/china-
coronavirus-outbreak-hurt-global-drug-industry-200220051840577.html
28
Ibid.
29
Frost & Sullivan, Growth Insights on China’s Pharmaceutical Industry, Forecast to 2025
30
Adam Minter, “Will Beijing Silence Critics of Folk Medicine”, Bloomberg, 12th June, 2020: https://www.bloomberg.com/opinion/articles/2020-06-12/will-beijing-
silence-critics-of-folk-medicine
Visitors join in a workshop on acupuncture that has

been organised for the public in order to enhance
people’s knowledge of and interest in Chinese
medicine at Dr. and Mrs Hung Hin Shiu Chinese
Medicine Museum, Baptist University, Hong Kong.
2.2: BIOPHARMACEUTICALS
AND CONTRACT SERVICES
China’s biopharmaceutical segment is undergoing begun filtering through to the market, perhaps best
a seismic shift, expanding rapidly in breadth and exemplified by Hutchison China MediTech’s (Chi-
depth since the government kicked off a wave Med’s) Elunate, an oral treatment for metastatic
of reforms in 2015 to fast-track the approval of colorectal cancer, which in 2018 became the
innovative drugs.31 first drug for a major cancer type to completely
clear the stages of discovery, development and
The new regime, which also includes a potential commercialisation in China.35
local study waiver for products targeting rare
diseases or diseases with substantial unmet It should be noted that all the world’s
needs,32 stands to benefit the global pharma giants, major pharmaceutical companies have
especially those focused on oncology. biopharmaceuticals, also commonly referred to
as biologics, as a key and increasing part of their
The likes of Merck, Roche and Bristol Myers Squibb product portfolios. So, categorising a company
are positioned to serve the country’s substantial as belonging to the biopharmaceuticals segment
unmet cancer needs. Multinationals that already is often just a way to communicate that it has a
have a significant presence in
China are also particularly well
placed to make quick market FIGURE 34: PROPORTION OF BIOPHARMACEUTICAL AND
gains, including the Upjohn
CONVENTIONAL DRUGS IN TOTAL PHARMACEUTICAL SALES
division of Pfizer, AstraZeneca, 100%
Sanofi, Bayer, Novo Nordisk, 90%
Novartis and Roche. These
80%
companies have the most
established sales channels 70%
72 71 70 70 69
and experience navigating 79 79 78 76 75 73
60% 83 82 81
the complexities of the China
50%
market.33
40%
Given the market potential, 30%
China has become a top priority
20%
for the leaders of most of the 27 28 29 30 30 31
21 21 22 24 25
global pharma giants.34 But it 10% 17 18 19
is domestic entrepreneurs who 0
have really been galvanised by 2010 2012 2014 2016 2018 2020E 2022E
the emerging opportunity. The Biotechnology Conventional/Unclassified
first fruits of their effort have Source: EvaluatePharma, CMBIS
31
Frank Le Due, “5 Key Elements of Chinese Biopharma’s ‘Cambrian Explosion’”, McKinsey, 16th March, 2019: https://www.linkedin.com/pulse/5-key-elements-
chinese-biopharmas-cambrian-explosion-franck-le-deu/
32
David Xie, Xiaofeng Li and An Li, “The rewards of regulatory change”, Deloitte Insights, 18th April, 2019: https://www2.deloitte.com/us/en/insights/industry/life-
sciences/innovative-biopharma-china-regulatory-change.html
33
Moody’s Investors Service, “Sector In-Depth: Global Pharmaceuticals”, 24th September, 2019
34
Franck Le Due, “China has become a CEO-level priority for multinational pharma companies”, McKinsey & Company, 27th August, 2019: https://www.
drugdiscoverytrends.com/next-generation-of-biosimilars-and-biobetters-challenges-and-opportunities/
35
Angus Liu, “Eli Lilly, Chi-Med’s Elunate becomes first China-made cancer drug to win a key nod”, Fierce Pharma, 5th September, 2018: https://www.fiercepharma.
com/pharma-asia/eli-lilly-and-chi-med-s-elunate-first-china-made-cancer-drug-to-win-a-key-nod
substantial focus on drug research and discovery, In any case, the production of actual
rather than necessarily describing the dominance of biopharmaceuticals in China has much room to
biopharmaceuticals in its intended product mix. grow. In addition to the impetus provided by the
surge in overall healthcare expenditure, the shift
It can also be used to distinguish newer players from away from generics to innovative treatments
those with established portfolios of both generic prompted by the new regulatory regime will lead
and innovative drugs. The classification does create to biopharmaceutical revenues becoming more
potential for confusion. Chi-Med, for example, has prominent in the country’s drug mix.
stressed that its focus is on chemical drugs – still
the mainstay of the drug industry – rather thanAs of 2018, biopharmaceuticals made up just 12 per
biologics, yet it describes itself as an “innovative
cent of China’s overall drug market, but is on track
biopharmaceutical” company. to quickly close the gap with the global average,
which itself is set to expand from 25 per cent to
31 per cent by 2023 (see figure 34).
Biopharmaceuticals are set to make
FIGURE 35: BIOPHARMACEUTICALS SALES AS A PROPORTION up over half the world’s 100 top-
OF TOP 100 DRUG SALES selling drugs by 2024 (see figure 35).
100% Among the ten drugs tipped to be
90% the world’s best-selling in 2024, six
80% are expected to be biologics, namely:
48
51 Humira, Keytruda, Opdivo, Dupixent,
70% 68 Eylea and Stelara (see figure 36).
60%
50% The regulation-driven support of
40% innovative drugs and erosion of
30% generic prices (see section 2.1) will
49 52
20% see the global pharma giants pivot
32
away from their focus on supplying
10%
generics to China towards providing
0 innovative drugs. AstraZeneca, for
2010 2017 2024E
Biotechnology Conventional one, expects new and innovative
treatments to contribute 60 per cent
Source: EvaluatePharma, CMBIS
FIGURE 36: GLOBAL 10 BEST-SELLING DRUGS

20
18
16
Worldwide sale in US$bn
14
12
10
8
6
4
2
0
Humira Keytruda Rvlimid Opdivo Eliquis Imbruvica Ibrance Dupixent Eylea Stelara
2017 2024E
Source: EvaluatePharma, CMBIS
CASE STUDY: CHI-MED BELIEVES INNOVATION DELIVERS BEST VALUE TO PATIENTS
Hutchison China MediTech Limited (Chi-Med) stands success of probably a handful of companies including
apart within the crowded field of Chinese biopharma Chi-Med, and also BeiGene, WuXi AppTec and
companies seeking to develop oncology therapies. For Innovent Biologics. A handful of five or six companies
one thing, it was founded in 2000, a good decade or that have created great value during that time,”
more before most of the others. It also has a steadfast observed Hogg. “That now has attracted the attention
focus on creating novel drugs and taking them to of the global investing community, the financial
international markets. community, and there has been an enormous influx
of investment into the industry, essentially sprouting
“We are making major strides in bringing home- hundreds of small biotech companies all eager to
grown Chinese innovation to patients across the replicate what we have done and what some of these
world,” said Chi-Med CEO Christian Hogg. The other companies have done.”
company’s vision is to become a global leader in the
discovery, development and commercialisation of Despite the rapid recent influx of new companies into
targeted therapies and immunotherapies in oncology the segment, Hogg believed Chi-Med’s first mover
and autoimmune diseases. “Because clinical resources advantage will pay dividends for years to come. “What
are limited, it is important for the industry to focus on people are going to realize is that it took us twenty
developing innovative drugs, using limited resources years to establish a highly potent discovery engine
for drug candidates that truly deliver value to patients, in China. It is no matter if you have all the financial
instead of pursuing me-too or generic drugs,” resources you need, it still is going to take you five to
explained Hogg. ten years to create a platform of R&D [research and
development] that is capable of producing global
In November 2018, Chi-Med launched its first in- quality novel drug innovation,” he said.
house discovered drug, Elunate (fruquintinib), for
treating colorectal cancer, making the company the Chi-Med has benefited significantly from regulatory
first to bring a China-discovered and -developed reform, which has accelerated drug approval and
drug in an oncology indication to be unconditionally broadened access to innovative drugs through
approved through a randomised clinical trial in the inclusion on the National Reimbursement Drug List
country. The company has several further launches (NRDL). “About 15 years ago, getting approval to
anticipated for 2020 and 2021 “from recently filed or start clinical trials took 18 months; now, it is down to
imminent NDA submissions for our drug candidates 60 days,” claimed Hogg. “The acceptance of foreign
surufatinib and savolitinib in China and the US,” clinical data also expedited the approval process so
revealed Hogg. that the patients can access innovative drugs as soon
as possible.”
A global registration study of fruquintinib is also
underway in the US, Europe and Japan. “We believe Chi-Med has also benefited from the Priority Review
that the potential launches of multiple new oncology programme for novel drug candidates, introduced in
products will address a broad range of unmet medical 2016, which sped up the approval fruquintinib and
needs and benefit a large number of patients across looks to do the same for surufatinib, the company’s
the globe, propelling Chi-Med rapidly forward to first unpartnered oncology drug. In addition, Chi-
become a global biopharmaceutical company,” said Med takes advantage of the Marketing Authorisation
Hogg. Holder system, which allows it to “outsource
certain non-core aspects of the manufacturing and
Hogg stressed that although investor interest commercialization process,” noted Hogg.
has recently spiked in China’s biopharmaceutical
segment, there were some lean times in the past. Looking ahead, China’s National Medical Products
“Chi-Med have been doing this for twenty years and Administration has accepted Chi-Med’s New Drug
we have gone through periods where there was less Application for savolitinib for the treatment of non-
interest in biotech in China. It was really only the most small cell lung cancer with MET Exon 14 skipping
committed long-term investors and people who were mutations for review based on a Phase II registration-
actually involved with it and sticking to it during those intent trial, effectively equivalent to the US Food
difficulties, particularly the global financial crisis and Drug Administration Breakthrough Therapy
when access to capital was limited.” Designation system, a process designed to expedite
the development and review of drugs that are intended
China’s targeted efforts to promote drug innovation to treat serious or life-threatening conditions.
since 2015 “have seen a real revolution, driven by the
of its China revenue by 2024, up from just a fraction Since 2015, the CDE’s manpower boost along with
currently.36 streamlining of internal processes has helped it
clear a backlog of 22,000 new drug approval (NDA)
Fast-tracking drug approvals applications.37 And that has not been achieved by
The Center for Drug Evaluation (CDE), operating cutting corners. Regulatory standards have been
under the remit of China’s NMPA, is at the centre toughened with a view to bringing them in line with
of reforms to hasten the development of new global standards and enhancing overall industry
drugs, and also improve the quality of China’s supervision. The stricter standards could also help
pharmaceutical products, by bolstering the review keep NDA numbers manageable in future, with
process. about 3,000 applications for presumably poorer
quality “me-too” drug approvals having been
Following the State Council’s issuance of a reform withdrawn following the announcement of new
plan to accelerate new drug approvals, the CDE rules.38
headcount was expanded from 120 in 2014 to more
than 800 by 2018. The goal is to increase that Approval times for the remaining applications
number further to 1,600 by 2020. That would be a have declined steeply. Prior to 2017, new brand-
start towards closing the gap with the US, where thename drugs often took an extra five to seven years
Food and Drug Administration (FDA) has more than to reach the China market after their debut in
7,000 drug reviewers. developed markets because of lengthy approval
procedures including clinical trials
and drug evaluations. By 2017, the CDE
FIGURE 37: CHINA DRUG LAG COMPARED TO THE US AND EUROPE completed its review of Merck’s human
papillomavirus (HPV) vaccine Gardasil
2010 2011 2012 2013 2014 2015 2016 2017
9 in just eight days, shortening the
overall approval period for the drug
85 MONTHS to three years. Overall, the so-called
drug lag between NMPA approval and
approvals by the US FDA had come down
from 85 months prior to 2017 to 28
84 MONTHS
months by 2018 (see figure 37), with the
lag set to shrink further as the NMPA
continues its push to bring China’s drug
review system up to speed with those of
developed countries.
2015 2016 2017 2018
Covid-19 has reignited drug review
28 MONTHS momentum
Reports suggested the CDE’s
momentum had slowed by 2019
owing to a budget crunch, leading
31 MONTHS to concerns among drug makers
that the recent reductions in review
times could stagnate, especially given
the increasing volume of products
Source: Deloitte
36
Bloomberg, “AstraZeneca Sees 60% of China Sales From New Drugs in Five Years”, 10th September, 2019: https://www.bloomberg.com/news/articles/2019-09-09/
astra-sees-60-of-china-sales-from-new-drugs-amid-approval-binge
37
Liang Zheng, Ren Bo, Di Ning, Wang Luyao and Han Wei, “Why China’s Drug-Review Revamp Is Stalling”, Caixin Global, 10th June, 2019: https://www.caixinglobal.
com/2019-06-10/in-depth-why-chinas-drug-review-revamp-is-stalling-101424807.html
38
The Economist, “China’s pharmaceuticals industry is growing up”, 28th September, 2019: https://www.economist.com/business/2019/09/28/chinas-
pharmaceuticals-industry-is-growing-up
submitted for approval. But those worries have since including I-Mab, were founded in the wake of the
dissipated. The Covid-19 outbreak provided a stark 2015 reforms. Most, including CanSino, have yet
reminder of the importance of a robust healthcare to turn a profit, and many are pre-revenue. It will
sector, reigniting the campaign to speed up drug take a while for many to see returns from their
development. development pipelines, given that it takes a decade
or more to see drug discovery efforts through to
Encouraged by the prospect of regulatory support commercialisation.
– which also includes tax incentives and other
concessions as part of the government’s broader Take Chi-Med’s Elunate, for example. The research
push to boost the country’s biotechnology sector39 – discovery process began in 2007, with eleven years
China’s nimble biopharma players, including I-Mab passing before it was approved for sale.41 Moreover,
Biopharma and CanSino Biologics, have been quick drug discovery is a highly risky endeavour. The
to respond. The former has advanced a therapeutic failure rate of the global industrial drug discovery
targeting cytokine release syndrome (CRS), a business stands at greater than 90 per cent.42
condition associated with severe cases of Covid-19 Chi-Med also took a decade to create and refine a
that could cause respiratory distress, circulatory lymphoma drug candidate just now undergoing
collapse, multi-organ failure and death.40 And early human clinical trials.43
CanSino, of course, is leading the field with its
vaccine candidate. Fortunately, China’s growing ranks of upstart
biopharma firms have access to plenty of funding
CanSino, founded in 2009, is among the oldest in both public and private markets to fund their
of China’s biopharma players, most of which, research and development (R&D) efforts until they
FIGURE 38: THE DRUG DEVELOPMENT PROCESS

GMP & non-GMP production
Process chemistry Commercial manufacturing
Drug Post-market
Pre-clinical Clinical trials FDA review safety
discovery monitoring
Phase IV
Screening -250
-5
IND Submission
IND Submission
from One FDA-

10,000+ approved
compounds drug
Clinical samples
• DMPK Phase I Phase II Phase III
• Pharmacological studies
• Safety studies
• Biological analysis, etc. 20-100 100-500 1000-5000
Estimated
time taken 1-2 years 2-4 years 6-7 years 0.5-2 years 8 years
Cost* US$400m-450m US$200m-250m US$70m-80m US$180m-200m US$400m-500m
Success rate -2.5% -0.05% -0.01%
* The cost is based on out-of-pocket cost, not capitalized cost
Source: Nature Review-Drug Discovery, CMBIS
39
Shi Wei Jun, “Biopharma Boom”, CKGSB Knowleedge, 18th February, 2020: https://knowledge.ckgsb.edu.cn/2020/02/18/innovation/china-biopharma-boom/
40
Eric Ng, “Chinese biotechs, flushed with funds and armed with ideas, join the race to find a coronavirus cure as pandemic ravages the world”, South China Morning
Post, 28th March, 2020: https://www.scmp.com/business/companies/article/3077246/chinese-biotechs-flush-funds-and-armed-ideas-join-race-find
41
Chi-Med, “Chi-Med Announces First Commercial Launch of Fruquintinib Capsules (Elunate®)”, 26th November, 2018: https://www.chi-med.com/a181126/
42
Derek Lowe, “The Latest on Drug Failure and Approval Rates”, Science Translational Medicine, 9th May, 2019: https://blogs.sciencemag.org/pipeline/
archives/2019/05/09/the-latest-on-drug-failure-and-approval-rates
43
FIGURE 39: CLINICAL TRIAL APPLICATIONS BY COMPANY TYPE IN CHINA
China biotechs
China pharmacos +32% p.a.
MNC pharmacos in China
200
183
150
43% 48%
114
45%
39%
38% 31%
29%
39%
22% 5220% 22% 26%
2016 2017 2018 2019YTD
Note: As of 25th October 2019
Source: GBI; McKinsey analysis
can start generating returns. They are poised to make the established pharma companies with relatively
an outsized contribution to drug innovation relative big revenue streams that are currently developing
to the established pharmaceutical giants, having biologics are Jiangsu Hengrui Medicine, Zheijiang
already started to test a larger share of new drug Hisun Pharmaceutical and Chengdu Kanghong
candidates. In the year to October 2019, 45 per cent of Pharmaceutical Group.44
the 150 clinical trial applications in China were made
by biopharmaceutical companies, compared to 29 In-licence deals
per cent by pharmaceutical firms and 26 per cent by In order to secure marketable drugs ahead of their
multinational pharmas (see figure 39). own development efforts coming to fruition and also
as a means to hedge against the risk of individual
Not to be outdone, the country’s more established product failures, a common strategy among new
players have also redoubled their development biopharma companies has been to licence foreign
efforts, with many having tripled their R&D spending drugs, either already approved or in late-stage
between 2016 and 2018 (see figure 40). Among development, for the domestic market.45 That is
FIGURE 40: R&D SPENDING OF CHINESE DRUG MAKERS

5000
4500
4000
3500
3000
RMB mn
2500
2000
1500
1000
500
0
Beigene Hengrui Fosun Sino CSPC Innovent Shanghai Junshi 3SBio
(Pharma Biopharm Biopharm
R&D)
Source: Company data, CMBIS 2016 2017 2018
44
Vicky Xia and Leo Cai Yang, “Trends To Watch In China’s Biopharma Industry”, BioPlan Associates, 18th October, 2019: https://www.pharmaceuticalonline.com/
doc/trends-to-watch-in-china-s-biopharma-industry-0001
45
important since a compound

entering Phase 1 clinical
FIGURE 41: CHINA BIOPHARMA IN-LICENCE DEALS BY TREATMENT AREA trials has a mere 7 per cent
37 64 72 Upfront
probability of success, while
investment one making it to Phase 3
Owner Asset Acquirer (US$m)
trials has a more than 60
BA3071 20 per cent chance of making it
38% Oncology
49% through to launch.46
55% INCMGA0012 18
Enoblituzumab 16
Auto- In-licencing deals, whereby
15% Sacituzumab
3% immune 65 China biopharma players
govitecan
5% AI acquire assets from foreign
16% 13%
8% Inebilizumab 20 firms, outnumber out-
licencing deals by a ten to
SPR206/ 2 one margin. The number of
32% 33% 35% Others SPR741
in-licence deals rose from
37 in 2017 to 64 in 2018, and
2017 2018 2019YTD reached 72 as of October
2019.47 Moreover, there
Note: As of 25th October 2019. Including CNS, sensory organ, metabolism, CVD, musculousculo-skeletal
system, dermatology, genitourinary system and sex hormones, respiratory system. seems to be a tentative
Source: Source: GBI; press search; McKinsey analysis move for Chinese companies
to start in-licencing more
assets for treatment areas
FIGURE 42: NUMBER OF MOLECULES IN PHASE 1-3 CLINICAL TRIALS beyond oncology, an
IN CHINA AND US area that is in danger of
Treatment
Area oversaturation.
~1300 ~11000
Oncology
Anti-infective Oncology is also the
31%
49% Alimentary/ dominant treatment area
Metabolism targeted by ongoing clinical
15%
Neurology trials in China (see figure
15% 16% CVD 41). Despite the country’s
Others huge unmet needs in
15% 21% oncology therapy, there
11% 9% is a real risk of the field
1%
8% 8% becoming too crowded
with poorly differentiated
China US molecules.48 It is therefore
encouraging that a greater
Note: As of 25th October 2019. PharmaProject may underestimate China data. proportion of in-licence
Others include blood, musculo-skeletal system, immunology, respiratory system, dermatologicals, deals in 2019 targeted other
genito urinary system, sensory organ, hormone, etc.
Source: PharmaProject; McKinsey analysis treatment areas such as
auto-immune diseases.49
46
47
McKinsey & Company, “Running on the China bridge to innovation”, November 2019
48
Franck Le Deu, “5 Key Elements of Chinese Biopharma’s ‘Cambrian Explosion’”, McKinsey & Company, 16th March, 2019: https://www.linkedin.com/pulse/5-key-
elements-chinese-biopharmas-cambrian-explosion-franck-le-deu/
49
CASE STUDY: ZAI LAB FOCUSES ON BUILDING STRONG IN-LICENCED PIPELINE

The development of China’s biopharmaceutical Investigational New Drugs (INDs) each year,
segment has benefited tremendously from the according to Du.
return of Chinese-born executives with Western
educations and experience gained at global The leading product in Zai Lab’s portfolio is
pharmaceutical firms. In the six years to 2018 alone, Zejula. The company bought the exclusive rights
an estimated 250,000 of the 2 million returnees to to develop and commercialise the drug in China
China work in the life sciences.50 from Tesaro (now part of GlaxoSmithKline. The
domestic development effort culminated in Zejula
Dr Samantha Du, an industry veteran known as being granted approval by China’s National Medical
the godmother of Chinese biopharma, is founder, Products Administration (NMPA) in December 2019
chairwoman and CEO of Zai Lab. Du started her to be used as a maintenance therapy for patients
career with Pfizer, where she led the development with recurrent ovarian cancer.51 Ovarian cancer
and launch of two global drugs. Before co-founding is one of the most common gynaecologic cancers
Zai Lab in 2014, she served as co-founder and chief in China with more than 52,000 newly diagnosed
scientific officer at Chi-Med then managed China cases and 23,000 deaths in the country each
healthcare investments for Sequoia Capital. year. Zejula will compete in the domestic market
against AstraZeneca’s established PARP inhibitor
With seven offices globally across China, Hong Lynparza.52
Kong and the US, Zai Lab is an innovative, research-
based, commercial stage biopharmaceutical Zai Lab also received approval in May 2020 for
company focused on supplying transformative Optune, a novel treatment for newly diagnosed and
medicines for cancer, autoimmune and infectious recurrent glioblastoma (GBM) that uses electric
diseases. fields tuned to specific frequencies to disrupt cancer
cell division.53 GBM is the most common form of
During her tenure at Chi-Med, Du had overseen primary brain cancer, and Optune is the first new
multiple drug discoveries, including Elunate, which treatment for it approved in China in over 15 years.
went on to become China’s first approved home-
grown cancer drug. But with Zai Lab she took a Another promising product in Zai Lab’s portfolio
different approach, embracing the in-licence model is omadacycline, used to treat various bacterial
to acquire rights to innovative drugs from leading infections, which was granted priority review status
global pharmaceutical companies, which Zai Lab by China’s NMPA in May 2020. Priority review
co-develops and commercialises in China. status is intended to accelerate the approval of new
drugs with significant clinical value. “The NMPA’s
Zai Lab claims to have thus built the strongest decision to grant priority review to our NDA [New
late-stage oncology portfolio with global first- Drug Application] for omadacycline underscores
in-class and/or best-in-class profile within the importance of addressing a growing unmet
China’s biopharmaceutical segment. The company need of bacterial resistance in China with an
is supplementing that pipeline with in-house innovative medicine,” said Du.54
discovery efforts, aiming to produce 1-2 global
50
Shannon Ellis, “Biotech booms in China”, Nature, 17th January, 2018: https://www.nature.com/articles/d41586-018-00542-3
51
Zai Lab, “Zai Lab Announces NMPA Approval of ZEJULA® (Niraparib) in China as Maintenance Therapy for Patients with Recurrent Ovarian Cancer”, 27th December,
2019: https://zailab.gcs-web.com/node/7826/pdf
52
Jiayu e Huang, “Zai Lab CEO discusses drug development, cancer drug Zejula’s prospects”, S&P Global Market Intelligence, 22nd May, 2019: https://www.spglobal.
com/marketintelligence/en/news-insights/latest-news-headlines/zai-lab-ceo-discusses-drug-development-cancer-drug-zejula-s-prospects-51888345
53
Zai Lab, “China NMPA Approves Optune® for the Treatment of Newly Diagnosed and Recurrent Glioblastoma”, 13th May, 2020: https://zailab.gcs-web.com/
node/8131/pdf
54
Zai Lab, “Zai Lab Announces NDA for Omadacycline Granted Priority Review by China’s NMPA”, 6th May, 2020: https://zailab.gcs-web.com/node/8121/pdf
FIGURE 43: CHINA BIOSIMILARS IN DEVELOPMENT AND

PROJECTED MARKET GROWTH
limited generic competition
30
28 in a bid to encourage
25 domestic manufacturers to
25 24
develop cheaper generics or
Number of biosimilars
biosimilars.55 Developers of
20
18 these priority drugs stand to
15 receive rapid approvals and
15 the local biosimilar market is
13
12
tipped for strong, sustained
10 growth over the next few years,
with revenues forecast to reach
5 US$3.6 billion by 2025.
0 But China’s biopharmaceutical

Humira Rituxan Herceptin Avastin Enbrel Remicade Lantus
(Adalimumab) (Rituximab) (Trastuzumab)(Bevacizumab) (Etanercept) (Infliximab) (Insulin glargine) segment is not just geared
towards biosimilars. A
$4000 handful of Chinese companies
3557 are working on truly novel
$3500 therapies, including Hua
2988 Medicine (see case study
$3000
2588 below), which is developing
Revenue in US$m
$2500
2209 what could prove the first
$2000 1899 treatment to truly address
1610 the underlying cause of
$1500 1384
diabetes. The Western model
980
$1000 of translating basic science
648
405 discoveries into treatments
$500
187 through university research
0 laboratories, which function
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 as incubators for biopharma
Note: As of September 2019 start-ups, is still in its infancy
Source: Frost & Sullivan
in China, but is developing
quickly.56
Mostly “me-too” drugs
The majority of the high-end drugs under Optimistically, China’s capacity to create first-in-
development in China are biosimilars, commonly class and best-in-class drugs could rival that of
referred to as “me-too” or “me-better” drugs, that America and Europe before 2030. That goal will be
are structurally similar to existing drugs, rather than supported by billions in investment and enabled by a
offering a truly novel mechanism of action. talent pipeline including both the country’s legions
of science graduates as well as returnees from leading
Dozens of biosimilars are under development by universities and major pharma labs abroad. Since
Chinese companies (see figure 43), and authorities 2013, some 250,000 returnees have joined China’s
want even more as part of the ongoing campaign life sciences industry. Still, a shortage of talent is
to make treatments more affordable. On 21st June viewed as a potential bottleneck to development,
2019, the National Health Commission released and industry players suggest the competition for
a list highlighting 34 older drugs that face no or qualified and capable staff is fairly intense.57
55
Xinhua, “China encourages production of 34 generic medicines”, 24th June, 2019: http://english.nmpa.gov.cn/2019-06/24/c_387726.htm
56
57
CASE STUDY: HUA MEDICINE PURSUES GLOBAL FIRST-IN-CLASS INNOVATION
The spread of Covid-19 has been fast and far, the second generation of anti-diabetes drugs,
but it is unlikely to ever approach the scale of which also target the primary symptom of
diabetes, a debilitating disease afflicting 450 diabetes, namely high blood sugar, rather than
million people around the world, who largely fixing the body’s inability to maintain blood
suffer in silence. China has 120 million diabetics, glucose levels within a narrow, healthy range by
and perhaps more alarmingly, 400 million pre- itself – a process known as glucose homeostasis.
diabetics,58 with the prevalence of the disease
having surged from just 2.4 per cent in 1994 to The root cause of diabetes is an impairment of
11.6 per cent in 2010.59 the body’s “glucose sensor”, as Chen describes
it. “By fixing the glucose sensor, we
“Diabetes is a pandemic that has can restore the automated control
an immediate impact on the health of blood glucose.” It is hypothesised
of our community,” remarked that the sensor function is performed
Dr Chen Li, founder and CEO by glucokinase regulator enzymes in
of Hua Medicine. In addition to “Diabetes is pancreatic beta-cells, and notably,
adversely affecting the immediate a pandemic one of the key researchers who
functioning of the human body, that has an contributed to understanding the
“uncontrolled blood glucose leads immediate functioning of glucokinase, Dr
to many complications, including impact on the Franz Matschinsky, is one of Hua
kidney disease, loss of eyesight and health of our Medicine’s scientific advisers.61
ulcers in the foot that may lead to community.”
amputation. Cardiovascular disease Several global pharma giants had
and stroke, and Alzheimer’s and sought to develop drugs to repair
cognitive disease are also clearly the function of glucokinase, but all
related to uncontrolled blood such attempts had failed around
glucose.” the 12-week mark. On 18th June
2020, Hua Medicine announced its therapy,
Hua Medicine stands apart from most of the dorzagliatin, in development since 2012, had
rest of the Chinese biopharmaceutical field with made it past the crucial 52-week end goal of its
its commitment to developing global first-in- Phase 3 trial. Dorzagliatin was proven to be safe
class drugs, eschewing “me-too” and “me- and efficacious, demonstrably leading to blood
better” projects. Founded in 2011, the company glucose reduction and improved pancreatic
has focused its energies almost solely on beta-cell function with low incidence of
developing the first ever drug that addresses the hypoglycaemia.62
underlying cause of Type 2 diabetes, rather than
its symptoms. The next step for Hua Medicine is gaining
marketing approval for dorzagliatin from
The global diabetes market is currently dominated Chinese regulators. The company is particularly
by insulin, which has been around since the 1920s excited by the prospect that for the first time,
and continues to generate over US$30 billion in a revolutionary drug with the potential to
annual sales.60 Before insulin was made available, profoundly improve individual lives and societies
diabetes was a swift death sentence. Then came will be available in China before anywhere else.
58
Hua Medicine (Interview with Dr Chen Li)
59
Wenhui Mao, Chi-Man Winnie Yip and Wen Chen, “Complications of diabetes in China: health system and economic implications”, BMC Public Health, 6th March,
2019: https://bmcpublichealth.biomedcentral.com/articles/10.1186/s12889-019-6569-8
60
Zion Market Research, Insulin Market: Global Industry Perspective, Comprehensive Analysis and Forecast, 2018-2025
61
Franz M. Matschinsky and David F. Wilson, “The Central Role of Glucokinase in Glucose Homeostasis: A Perspective 50 Years After Demonstrating the Presence of
the Enzyme in Islets of Langerhans”, Frontiers in Physiology, March 2019: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6435959/
62
Hua Medicine, “Hua Medicine Successfully Completes SEED (HMM0301), Dorzagliatin’s Phase III Monotherapy Trial”, 18th June: https://www.globenewswire.com/
news-release/2020/06/18/2049926/0/en/Hua-Medicine-Successfully-Completes-SEED-HMM0301-Dorzagliatin-s-Phase-III-Monotherapy-Trial.html
Global ambitions Pharma, CStone Pharmaceuticals, TopAlliance

China’s emerging biopharma segment has plenty of Biosciences (a wholly-owned subsidiary of Shanghai
domestic opportunities to tap into, Junshi Biosciences), Alphamab Oncology,
but its ambitions are also global. The Bio-Thera Solutions, Hua Medicine and
government, too, wants to foster the “The government Shanghai Henlius Biotech (see figure 44).
rise of national champion companies wants to foster the
that will eventually not only rise of national But along with competition abroad, there
dominate the local market, but also champion will also be partnerships. A high-profile
make inroads abroad, taking market companies that collaboration agreement in the oncology
share from foreign competitors. The will eventually not space, announced in November 2019, was
biggest prize is the US market, the only dominate made by BeiGene and long-established
only one bigger than China’s. the local market, US biopharma giant Amgen. Amgen
but also make acquired a 20.5 per cent stake in BeiGene
In 2018, Chinese companies started
inroads abroad, for approximately US$2.7 billion in cash.
26 multi-regional clinical trials,
taking market In July 2020, BeiGene sold a further
share from foreign
up from four in 2013.63 In 2019, a 14.3 per cent stake to Amgen for US$2.1
competitors.”
alone launched 11 new overseas billion.64 BeiGene will commercialise
clinical trials, bringing its total to 39 three of Amgen’s assets in China, with
overseas trials across 34 countries. the parties sharing profits and losses
Among other Chinese biopharmas that expanded equally.65 The two have also committed to jointly
their global footprint in 2019 were Ascentage advance 20 medicines from Amgen’s innovative
FIGURE 44: OVERSEAS CLINICAL TRIALS
39 trials (11 new trials in 2019)

Expand to 10 new countries in 2019, reaching 34 in total
6 trials (1 new trial in 2019)

in US and Australia
3 trials in Australia
in US and Singapore

in US and Australia
3 trials in US, Australia and New Zealand

Note: As of 7th November, 2019
Source: Clinicaltrials.gov; press search; company websites; McKinsey analysis
63
64
Eric Ng, “BeiGene, once a target for short sellers, attracts jumbo deal from Amgen, hedge fund eyeing China’s red-hot pharmaceutical sector”, 13th July, 2020:
https://www.scmp.com/business/companies/article/3092962/beigene-once-target-short-sellers-attracts-jumbo-deal-amgen
65
Amgen, “Amgen Enters Into Strategic Collaboration With BeiGene To Expand Oncology Presence In China”, 31st October, 2019: https://www.amgen.com/media/
news-releases/2019/10/amgen-enters-into-strategic-collaboration-with-beigene-to-expand-oncology-presence-in-china/
oncology pipeline in China and globally. FIGURE 45: MARKET SHARE OF CHINA BIOLOGICS
According a July 2020 presentation by OUTSOURCING PROVIDERS (2018)
Beigene, of the 28 drug candidates it was
developing, 13 were in collaboration with
Amgen.
Contract services Others

Another fast-growing part of the JHL Biotech 8%
2%
biopharmaceutical segment both in China BI Biopharmaceuticals
and globally is contract services. Demand 3%
for contract research organisation (CRO) GenScript
3% WuXi AppTec
services in particular has been expanding, Chempartner 75%
9%
given the trend for pharmaceutical
companies to outsource an increasing
proportion of their R&D budgets in order
to achieve enhanced efficiency and cost
control. Source: Frost & Sullivan, WuXi AppTec, CMBIS
By far the biggest CRO provider in China is

WuXi AppTec, which also ranks as one of the world’s new system, each drug needs an appointed market
leading biologics outsourcing companies. In the rush authorisation holder (MAH) that is liable for any
to develop innovative drugs, China’s CRO market safety or efficacy issues that arise.
is forecast to register compound annual growth of
almost 30 per cent to US$21.4 billion by 2023 (see Demand for contract manufacturing is expected
figure 45). to grow strongly in coming years, driven by the
strong pipeline of biosimilars and swelling ranks of
Contract manufacturing in China, meanwhile, is in domestic biopharma start-ups that either do not have
its nascency. It only became possible following the sufficient funding to build their own manufacturing
2019 revision of the Drug Administration Law, which facilities, or prefer to focus their efforts on drug
ended the previous requirement for drug developers discovery and development.66
to manufacture their own products. Under the
FIGURE 46: CHINA-BASED CRO AND CDMO MARKET BREAKDOWNS

25 9
CRO MARKET CDMO MARKET
8
Discovery Pre-clinical Clinical Total Small molecule drugs Biologics Total
20
2014-18 35.4% 22.2% 31.3% 29.2% 7 2014-18 14.1% 38.9% 19.8%
2018-23E 30.1% 20.1% 33.2% 29.6% 2018-23E 20.8% 41.0% 28.9% 4.4
6
15 13.3
US$bn
5
US$bn
3.2
10.4
10 8.0 4 2.3
6.0 3 1.6
4.4 3.9 1.1
5 3.2
2 0.8 4.1
3.2 2.7 0.6 3.3
1.1 2.3 2.3 2.7
1.3 1.7 1.5 1.9 4.2 0.3 0.5 2.2
1.3 2.7 3.4 1 1.6 1.9
0.7 0.9 1.0 1.5 2.0 1.4
0 0.3 0.4 0.6 0.7 1.1 0.9 1.0 1.1
0
2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Clinical Pre-clinical Discovery Biologics Small molecule drugs
Source: Frost & Sullivan, Pharmaron Beijing, CMBIS
66
Vicky Qing Xia and Leo Cai Yang, “Contract BioManufacturing in China: Creating a New Segment”, BioPlan Associates, 4th October, 2018: https://www.
contractpharma.com/issues/2018-04-01/view_features/contract-biomanufacturing-in-china-creating-a-new-segment/
Rather than outsourcing all manufacturing, however, plants, three said they would fully leverage CMOs,
most Chinese biopharmas will ultimately probably and seven said they would use both, relying on in-
use a mix of in-house plants and CROs. Of 15 leading house plants for commercial-stage products and
biopharma players surveyed by McKinsey,67 five CMOs for their clinical-stage needs.
intended to run manufacturing solely from in-house
FIGURE 47: CHINESE BIOPHARMAS ARE BUILDING IN-HOUSE MANUFACTURING CAPACITY
Suzhou
$500m investment Jiangsu
Annual capacity: 78kl
Shanghai Annual capacity:
Shanghai
20-20 products
$280m investment
50k sqm Zhejiang
$785m investment
Hangzhou
Annual capacity: In partnership
15 million vials with Hangzhou
government
$10m initial investment Guangdong

Guangzhou $30m initial
4.2k sqm investment
100k sqm
100k sqm Annual capacity: 24kl
Annual capacity: 26kl
Source: Company website; literature research; McKinsey pharma manufacturing benchmarks (POBOS)
Suzhou, China
67
McKinsey 2019 China Biotech CEO survey
2.3: MEDICAL DEVICES AND SUPPLIES

Medical devices and supplies can be broadly The second category is disposable medical supplies,
divided into two categories. The first is medical which are often one-time use, non-durable products
devices, which refers to a wide variety of durable that are used both by healthcare professionals and
equipment ranging from bedpans to closed-loop at home by individuals. They include items such as
artificial pancreas systems. It also includes in-vitro needles and syringes, bandages, colostomy bags
diagnostics (IVD) products such as reagents, test and surgical masks. Although the domestic Chinese
kits and blood glucose metres, as well as radiation- market for such products is only worth a small
emitting electronic products with medical uses such fraction of the market for medical devices, China is
as diagnostic ultrasound products, X-ray machines a major exporter of them. As the Covid-19 pandemic
and medical lasers. China’s total domestic market began its global spread, China shipped about US$10
for medical devices was worth around US$52 billion billion worth of medical supplies in the two-month
in 2018.68 period between 1st March and 30th April 2020.
FIGURE 48: TOP FIVE GLOBAL MEDICAL DEVICE COMPANIES BY REVENUE Medical devices are the
priority area
2019 revenue Of the two categories, medical
Company Headquarters (US$bn)
devices, and high-tech devices
United States 29.9 in particular, are the focus
of government efforts to
United States 27.0
encourage innovation and
United States 24.4 move domestic manufacturers
Netherlands & United States 20.7
up the value chain. As with
pharmaceuticals, these
United States 19.8 efforts are also accompanied
Source: SCMP Research, Bloomberg data by measures to rein in costs
of more general devices. In
FIGURE 49: TOP FIVE CHINESE MEDICAL DEVICE COMPANIES BY REVENUE May 2019, the government
announced a plan to make
2019 revenue costly medical devices more
Company (US$bn) Main product areas
affordable. Jiangsu and Anhui
2.3 Patient monitoring and life support, in-vitro
provinces took the lead,
diagnostics and medical imaging
piloting bulk procurement
1.2 Sterilisation, radiation diagnosis, radiotherapy,
under the guidance of the
surgery and syringes
National Healthcare Security
1.2 Medical testing services including diagnostic
Administration.69
services and health examinations
1.1 Cardiovascular interventions, structural
Anhui chose to focus on two
heart diseases, cardiac rhythm management,
anaesthesia and critical care, in-vitro categories of implants used
diagnostics and general surgery during spine and eye surgeries,
0.7 Respiratory, cardiovascular and endocrine leading to an average price
systems reduction of 53 per cent in
68
U.S. Food & Drug Administration, “How to Determine if Your Product is a Medical Device”: https://www.fda.gov/medical-devices/classify-your-medical-device/
how-determine-if-your-product-medical-device
69
Wang Xiaoyu, “Bulk purchases of medical devices to be expanded”, China Daily, 16th December, 2019: https://www.chinadaily.com.cn/a/201912/16/
WS5df6da2ea310cf3e3557e46b.html
the former category and 20 per cent FIGURE 50: CHINA MEDICAL DEVICE MARKET (US$ BILLION)
in the latter. In Jiangsu, 55 public
2017 2018 2019 2018 to 2019
health facilities grouped together to (%)
collectively negotiate prices of stents
Domestic production 46.0 52.1 59.0 13.3
and pacemakers with manufacturers,
achieving respective savings of 51 per Export 15.2 16.1 17.1 6.2
cent and 38 per cent. Import 14.9 16.3 17.7 9.0

Domestic consumption 45.7 52.3 59.6 14.0
Following the tentative successes in
Source: SCMP Research, International Trade Administration
Anhui and Jiangsu, bulk procurement of
medical devices is set to spread across
the country. Distribution of medical devices has implantables, health monitoring, remote medicine
also been streamlined to lower costs and eliminate and rehabilitation equipment. The government
corruption, with the two-invoice system (see section also wants to see Chinese companies make further
2.1) rolled out nationwide in 2018 covering both advances in surgical robot systems and biological
pharmaceuticals and medical devices.70 As with 3D printing. The latter has potential in several
pharmaceuticals, these measures will likely lead to a applications such as organ transplants, tissue repair
wave of industry consolidation in the medical device and dentistry.73
segment and a greater emphasis on innovation as
the capacity to derive profits from low-value items Imports dominate the high-end
diminishes. China’s medical device imports consist almost
entirely of high-end equipment produced by the
Made in China 2025 likes of Medtronic, the DePuy Synthes division
The government’s Made in China 2025 strategic of Johnson & Johnson, Thermo Fisher Scientific,
plan, unveiled in 2015, calls for a greater focus on Philips Healthcare and GE Healthcare. Although such
innovation, listing high-tech medical devices and imports are rising in line with the overall expansion
biopharmaceuticals as one of ten priority areas in China’s healthcare expenditure, their share of
slated to receive official support as part of an domestic consumption has declined over the past
overarching mission to bring Chinese manufacturing few years as local manufacturers respond to the
up the value chain, create national champions and government’s call for greater self-sufficiency (see
lower dependence on foreign sources for high-tech figure 50).
products. The plan has already prompted several
Chinese provinces to impose procurement and Given the pressing need to upgrade the country’s
insurance policies that favour domestic producers medical infrastructure, especially in lower-tier
71
over imports. facilities and rural areas, and the lack of currently
available local alternatives in many key areas such
Made in China 2025 calls for the domestic share of as high-end diagnostics, it is not clear that the
mid- to high-end medical devices to reach 50 per government’s ambitious near-term targets for local
cent in 2020 and 70 per cent by 2025. By 2030, it sourcing can be achieved.
envisages China’s production of medical devices
to be worth 1.2 trillion yuan, with 85 per cent of Moreover, despite the newfound bias for domestic
core components manufactured domestically.72 procurement, foreign manufacturers can still be
The focus areas include medical imaging, clinical included in government procurement if they set up
diagnostics, advanced treatment, high-value manufacturing in China. Therefore, multinational
70
Frances Wu, Abigail Higgins and Angela Wang, “Changes in China: How Can Medtech Companies Succeed?”, Health Advances Blog, 11th November, 2019: https://
healthadvancesblog.com/2019/11/11/changes-in-china-how-can-medtech-companies-succeed-part-one/
71
Michael Collins, “Protected at Home, China’s Medical Device Industry Looks Abroad”, Council on Foreign Relations, 3rd December, 2019: https://www.cfr.org/blog/
protected-home-chinas-medical-device-industry-looks-abroad
72
Alice Tse and Julianna Wu, “Why ‘Made in China 2025’ triggered the wrath of President Trump”, 11th September, 2018: https://multimedia.scmp.com/news/china/
article/made-in-China-2025/index.html
73
Liu Zhihua “3D printing injects future into medical industry” China Daily, 16th December, 2019: https://www.chinadaily.com.cn/a/201912/16/
WS5df6d90ca310cf3e3557e459.html
medical device makers will increasingly set up 2020, including a single order for nearly 10,000 items
production in China to serve the local market, including ventilators, imaging devices and patient
especially because it can bring the added benefits of monitors from Italy alone.76
lowered costs and greater market familiarisation.74
Previously, there had been concern that Mindray’s
At the same time, Chinese medical device exports, which account for over 40 per cent of its
manufacturers are clearly becoming more sales, might suffer from US-China trade tensions.
internationally competitive and focused on overseas The company is also facing several patent disputes
expansion. with rivals including Edan Instruments, Shenzhen
Dymind Biotechnology and Siemens.77
Among those with strong potential to win greater
market share overseas are Venus Medtech, Acotec Another potential pandemic beneficiary is Jiangsu
Scientific Co., and Micro-Tech (Nanjing). Venus Yuyue Medical Equipment & Supply, China’s sixth
is the market leader in transcatheter aortic valve largest medical device manufacturer by sales.
replacement in China, Acotec specialises in drug- The Shenzhen-listed firm derives 70 per cent
coated balloon catheters and Micro-Tech in of its revenue from ventilators, disinfectants,
gastrointestinal equipment including stents and thermometers and devices that measure blood
biopsy forceps.75 oxygen and feed patients drugs in the form of a fine
spray.78
Covid-19 beneficiaries
Several Chinese medical device manufacturers Other companies likely to have benefited financially
have reaped a financial windfall from the Covid-19 from Covid-19 are Genscript Biotech Corporation,
pandemic. The biggest winner is also the largest a Nanjing-based therapeutics research service
company in the space, Shenzhen Mindray Bio- provider that supplies virus diagnostic kits. Another
Medical Electronics. Mindray said it received a huge is Yestar Healthcare Holdings, which distributes
spike in orders from around 100 countries in March medical film and in vitro diagnostic (IVD) blood
FIGURE 51: MEDTECH FOCUS AREAS UNDER THE MADE IN CHINA 2025 PLAN
High-value
Imaging medical consumables Gene
equipment (e.g. degradable vascular stents) sequencing
Medical Remote diagnosis

robots and treatment device
Source: State Council, China
74
Daniel Allen, “China’s Medical Devices Market: A Must-Win Proposition”, East West Bank, 30th March, 2020: https://www.eastwestbank.com/ReachFurther/en/
News/Article/China-Medical-Market-A-Must-Win-Proposition
75
Chad Bray, “Chinese heart valve replacement maker Venus Medtech plans to raise up to US$381 million in Hong Kong IPO”, South China Morning Post, 26th
November, 2019: https://www.scmp.com/business/china-business/article/3039410/chinese-heart-valve-replacement-maker-venus-medtech-plans
76
Daniel Ren and Eric Ng, “Singapore’s wealthiest man is US$1 billion richer every month as Mindray’s ventilators fly off production line on Covid-19 demand”, South
China Morning Post, 24th April, 2020: https://www.scmp.com/business/companies/article/3081286/singapores-wealthiest-man-us1-billion-richer-every-month
77
Isabelle Li and Wang Luyao, “”, Caixin Global, 24th April, 2019: https://www.caixinglobal.com/2019-04-24/medical-device-giant-mindray-posts-strong-growth-
in-first-report-after-homecoming-101408136.html
78
Eric Ng, “Investors reap windfalls picking coronavirus winners among medical equipment suppliers, mask producers as China searches for cure”, South China
Morning Post, 11th February, 2020: https://www.scmp.com/business/markets/article/3049873/investors-reap-windfalls-picking-coronavirus-winners-among-
medical
and tissues diagnostic kits. And major suppliers include Shanghai-listed Zhende Medical,
of low-end products such as masks and protective Shenzhen-listed Allmed Medical Products and
gear, that proved invaluable during the pandemic Winner Medical Group.79
CASE STUDY: VENUS MEDTECH SEEKS TO BECOME AN INTERNATIONAL PLAYER
Venus Medtech is on a mission to become a global other such products in China, but also has a clear
leader in the development and commercialisation goal of breaking into international markets. It
of transcatheter solutions for structural heart has plans to enter Europe in the latter part of
diseases. 2020 and the US by 2021. “Within three to five
years, I think our business will be 60 per cent
The company became the first mainland Chinese from China and 40 per cent international,”
medical device-maker to list in Hong Kong, noted Zi.
raising US$308 million through its initial public
offering (IPO) in December 2019. Around 80 Venus has been a beneficiary of the Chinese
per cent of the IPO proceeds are earmarked for government’s Made in China 2025 strategic
research and development, as the company plan, receiving “sponsorship and support” for
seeks to become “a more international player,” the development of several products. Zi observed
according to the company’s co-founder and CEO, that over the past two decades, investors in
Eric Zi. “We want to be an innovative company, China have focused heavily on internet-based
we want to get respect in the industry,” he added. businesses while perhaps not investing enough
to move the country’s manufacturing sector
Venus was founded in 2009 and is China’s leading up the value chain. The main thrust of the
manufacturer of transcatheter aortic valve government’s Made in China 2025 strategic plan
replacements (TAVRs), with a nearly 80 per cent is to rectify that, shifting the focus to high-tech
share of implanted devices.80 The company’s manufacturing, he explained.
core product, accounting for about 95 per cent of
revenue as of 2019, is the self-developed VenusA- One of the biggest challenges to realising the
Valve, the first TAVR approved by China’s NMPA, vision of Made in China 2025 is “domestic
which went to market in August 2017. Only a copycats,” said Zi, who not only violate
handful of TAVRs have been approved since then.81 the intellectual property (IP) of foreign
manufacturers, but also increasingly that of
Similar to stents, TAVRs are used to replace a innovative Chinese companies. Venus has
narrowed aortic valve that fails to open properly. encountered copies of its products in China,
They are implanted in a minimally invasive including the Venus-P Valve, the world’s first
procedure whereby doctors insert a catheter in self-expandable interventional pulmonary valve.
a patient’s leg or chest and guide it to the heart.
The natural valve is not removed during the “We are thinking of ways to prevent that,”
procedure, which can improve survival rates noted Zi. Certainly, Venus has been proactive
for people who are either considered at risk of in securing its IP. The company holds over 193
complications from traditional surgical aortic issued patents and had a further 196 patent
valve replacement or are unable to undergo open- applications as of November 2019. The next
heart surgery. step will be enlisting the government’s help in
protecting that IP. “We would like to provide
Venus plans to leverage its experience with the education and more evidence to the government
VenusA-Valve to develop and commercialise to help us on that,” he said.
79
Eric Ng, “Investors reap windfalls picking coronavirus winners among medical equipment suppliers, mask producers as China searches for cure”, South China
Morning Post, 11th February, 2020: https://www.scmp.com/business/markets/article/3049873/investors-reap-windfalls-picking-coronavirus-winners-among-
medical
80
Frost & Sullivan
81
Isabelle Li, “First Chinese Medical Device-Maker to List in Hong Kong Surges 30% On Debut”, 11th December, 2019: https://www.caixinglobal.com/2019-12-11/
first-chinese-medical-device-maker-to-list-in-hong-kong-surges-30-on-debut-101493210.html
2.4: HEALTHCARE SERVICE PROVIDERS

The most glaring shortcoming of FIGURE 52: HOSPITAL BEDS PER 1,000 PEOPLE BY COUNTRY
healthcare provision in China is that it COUNTRY BED PER 1K COUNTRY BED PER 1K
is too top-heavy. Overall, the country
Japan 13.1 Portugal 3.4
has more hospital beds per 1,000 people
than many developed countries (see Korea 12.3 Netherlands 3.3
figure 52) and its density of doctors, at 2 Russia 8.1 Finland 3.2
per 1,000, is not far off the average of 2.1
Germany 8.0 Italy 3.0
across nations classified as “upper middle
income” by the World Bank.82 But where Austria 7.4 Israel 3.0
it falls short is in primary care. China has Hungary 7.0 Spain 3.0
one general practitioner for every 4,500 Czech Republic 6.6 Ireland 3.0
people, compared to the World Health
Poland 6.6 Iceland 2.9
Organization’s international standard of
one for every 1,500-2,000 people.83 Lithuania 6.6 Turkey 2.8
France 6.0 United States 2.8
Healthcare in China is often described as
Slovak Republic 5.8 New Zealand 2.6
an “inverted pyramid” that sees many
people bypass general practitioners and Belgium 5.6 United Kingdom 2.5
go straight to hospital-based specialists.84 Latvia 5.6 Canada 2.5
The result is constant queues at major Estonia 4.7 Denmark 2.5
public hospitals, with half of all the
Switzerland 4.5 Sweden 2.2
country’s outpatient visits occurring at its
Tier 3 facilities, referring to the best and Luxembourg 4.5 Chile 2.1
biggest institutions which account for 8 Slovenia 4.5 Colombia 1.7
per cent of China’s hospitals (see figure
China 4.3 Mexico 1.4
53).85
Greece 4.2 Costa Rica 1.1
A major pillar of China’s ongoing Australia 3.8 Indonesia 1.0
healthcare reform is therefore the Norway 3.6 India 0.5
strengthening of its primary healthcare
Note: As of March 2020
infrastructure.
Source: OECD
Among specific measures introduced by the low-tier hospitals for minor or acute illnesses.86
government are allowing private providers to open Still, the Tier 3 hospitals remain severely
clinics with more streamlined processes, loosening overcrowded while the Tier 1 institutions are
restrictions for doctors to see patients in multiple substantially under-utilised. In 2017, utilisation
locations and offering incentives for patients to go to of hospital beds at Tier 3 stood at 98.6 per cent,
82
World Bank: https://data.worldbank.org/indicator/SH.MED.PHYS.ZS
83
Andy Ho, “How global tech can drive local healthcare innovation in China”, World Economic Forum, 20th June, 2019: https://www.weforum.org/agenda/2019/06/
how-global-tech-can-drive-local-healthcare-innovation-in-china/
84
Bridie Andrews and Mary Brown Bullock, “Medical Transitions in Twentieth-Century China”, Indiana Univeristy Press, 2014: https://www.jstor.org/stable/
j.ctt16f992b
85
Under China’s three-tier classification system for hospitals, Tier 3 hospitals are those with over 500 beds and that are generally located in major cities, with multiple
specialty departments. Tier 2 hospitals are medium-sized city or county institutions which also have a number of departments, and Tier 1 are small-sized township
hospitals providing primary care. – Pacific Bridge Medical, “China’s Hospital Market”, 1st January, 2011: https://www.pacificbridgemedical.com/publication/
chinas-hospital-market/
86
Sidney Leng, “China’s fragmented health care system under increasing pressure as nation rapidly ages”, South China Morning Post, 11th June, 2019: https://www.
scmp.com/economy/china-economy/article/3013976/chinas-fragmented-health-care-system-under-increasing
compared to a recommended 80 per cent limit for 2019, with the issuance of a joint notice from 10
large hospitals.87 national-level government departments outlining
controls on the number and scale of public hospitals
Promoting private hospitals in order to make room for the development of private
Unable to right the inverted pyramid on its own hospitals. The notice detailed efforts to increase land
and with healthcare expenditure placing a steadily supply and cut taxes for private grassroots clinics in
increasing strain on public coffers, the government particular.88
has realised the involvement of the private sector
will be crucial to further augment primary as well as The private sector and investors have responded,
secondary and tertiary care. with the number of private hospitals having climbed
steadily over the past decade to over 21,000 by 2019.
To that end, promoting the development of private Private hospitals now outnumber public ones (see
hospitals also features prominently in healthcare figure 55), although they are generally much smaller
reform. That effort was taken up a notch in June and handle only about 15 per cent of all patients, with
public hospitals receiving the rest. The
private sector accounted for about 12 per
FIGURE 53: DISTRIBUTION OF OUTPATIENT VISITS BY
cent of healthcare service revenue in 2018,
HOSPITAL CATEGORY
# of annual hospital outpatient visits (mn) although capacity and demand expansion
forecast to increase that to 19 per cent by
Tier III: Tier III:
2,232 (8%) 1,628 (50%) 2023 (see figure 56).
Tier II: Tier II:

7,944 (27%) 1,217 (37%) One of the obstacles to further developing
Tier I: the private hospital sector is public
Tier I:
9,282 (32%) 218 (7%) perception. Many ordinary Chinese
Unrated: Unrated: associate private facilities with either
9,682 (33%) 207 (6%) inferior care or even corrupt practices,
# hospitals in China and regard them as too expensive for the
Note: As of 2016 services they provide.89 That perception
Source: Frost & Sullivan
is steadily shifting, with
Covid-19 again playing a
FIGURE 54: UTILISATION OF HOSPITAL BEDS part in introducing many
Tier III Tier II Tier I Chinese to the offerings
of private hospitals and
2010 102.9% 87.3% 56.6%
showing them the benefits
2013 102.9% 89.5% 60.9% of an alternative approach
to managing their health
2014 101.8% 87.9% 60.1% (see case study).
2015 98.8% 84.1% 58.8%

Several high-profile
2016 98.8% 84.1% 58.0% operators have appeared
in China’s blossoming
2017 98.6% 84.0% 57.5% private hospital market.
Among the best known are
Note: Missed data in 2011 and 2012
United Family Hospital,
Source: National Health Commission
87
Hamid Ravaghi, Saeidi Alidoost, Russell Mannion and Victoria D. Bélorgeot, “Models and methods for determining the optimal number of beds in hospitals and
regions: a systematic scoping review”, BMC Health Services Research, 6th March, 2020: https://bmchealthservres.biomedcentral.com/articles/10.1186/s12913-020-
5023-z
88
Ni Dandan, “To Ease Health Care Burden, China Promotes Private Clinics”, Sixth Tone, 13th June, 2019: https://www.sixthtone.com/news/1004131/to-ease-health-
care-burden%2C-china-promotes-private-clinics
89
Collective Responsibility, “Chinese Healthcare Trends: Rising Hospital Privatization”, 2nd July, 2018: https://www.coresponsibility.com/chinese-healthcare-
trends-rising-hospital-privatization/
FIGURE 55: CHINA PRIVATE HOSPITALS OVERTAKE PUBLIC CARE of 80 per cent from 2012 to 2018, with
No. of public hospitals No. of private hospitals total investments between the beginning
25000 of 2017 and May 2017 reaching roughly
11 billion yuan.90
20000
The role of private insurance
China is also intent on promoting private
15000 health insurance in order to pick up the
slack from public insurance, which is
intended to cover emergency and basic
10000
needs. In the wake of the Covid-19
pandemic, the government issued fresh
5000 guidelines calling for the bolstering of
public insurance coverage for critical
illness and major diseases, concurrent
0 with accelerating the development of
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: National Health Commission
private health insurance, expanding its
scope and increasing tax incentives.91
Aier Eye Hospital, Beijing Jiangong Hospital, Concord The government first introduced tax incentives
Medical Services, Xi’an International Medical for private health insurance in July 2017, offering
Investment, Wenzhou Corelle and dental-hospital tax breaks of up to 1,080 yuan (US$150) a year for
operator TC Medical. Investment in China’s private individuals buying eligible insurance products. The
medical institutions grew at a compound annual rate incentives are considered low, serving primarily
FIGURE 56: HEALTHCARE EXPENDITURE IN CHINA

Revenue for healthcare services in China – hospitals & primary care Premium healthcare expenditure* in China
(US$bn) CAGR CAGR (US$bn) 40 CAGR CAGR
1009 13-18(%)18-23(%) 13-17(%) 17-23(%)
C AG R
19% 22% 21%

~11%
38% 23% 20%

C AG R
~21%
609
AG R 544 12%
%C
~12 488 11%
434 10% 81%
389 9% 11% 9%
340 8% R 13
8% % C AG 25% 22%
88% ~24 10 62%
89% 40%
90% 8
91% 7 41%
92% 5 41%
92%
41%
42% 60%
59% 59%
58% 59%
2013 2014 2015 2016 2017 2018 2023E 2013 2014 2015 2016 2017 2023E
Private Public 1st tier 2nd tier
* Annual high-end medical spending by residents (Expatriate, Local out of Pocket, Local Insured Patients) in Tier 1 & Tier 2 cities of China. Local out of Pocket is defined as affluent households
with annual income > RMB 324K. Assumed addressable population all live in Tier 1 and Tier 2 cities; Tier 1 cities: Beijing, Shanghai, Guangzhou and Shenzhen; Tier 2 cities: 46 cities incl. Tianjin,
Nanjing, Hangzhou, Chongqing, Chengdu, Ningbo and etc.
Source: NHFPC, Company Analysis
90
Zheng Yiran, “Huge growth potential seen in nation’s private hospitals”, China Daily, 1st March, 2019: http://global.chinadaily.com.cn/a/201903/01/
WS5c789704a3106c65c34ec260.html
91
Xinhua, “Opinions of the CPC Central Committee and the State Council on deepening the reform of the medical security system”, 5th March, 2020: https://www.
tellerreport.com/news/2020-03-05---opinions-of-the-cpc-central-committee-and-the-state-council-on-deepening-the-reform-of-the-medical-security-
system-.H145yDA4I.html
as a means to promote awareness of private health insurance industry. Penetration of private health
insurance among the population and foster the insurance in China remains low but is growing fast,
mindset that purchasing private insurance to having registered 30 per cent compound annual
supplement mandatory public schemes is necessary growth between 2010 to 2015.93 With the Covid-19
and advantageous.92 outbreak serving to re-emphasise the importance
of health and hygiene, and the government now
While the monetary incentive provided by the tax cut committed to increase tax incentives, that growth is
is modest, the government measure provides much- likely to accelerate (see figure 57).
needed awareness and trust in the private health
FIGURE 57: CHINA COMMERCIAL HEALTH INSURANCE MARKET

Commercial health insurance GWP* High-end private health insurance addressable population
(US$bn) (‘000) CAGR CAGR
797
12-18(%) 18-23(%)
22%
R
C AG
R
C AG
%
15% 15%
%
483
~18
~33
294
343
R
AG
%C
~17 247
R 240
% C AG 179
28% 25%
~40 131 183 314
94
139
59 106
23 64 103
13 25 40
2012 2014 2016 2018E 2023E 2012 2014 2016 2018E 2023E
1st tier 2nd tier
* Include all local and foreign players. Health insurance GWP (gross written premium) includes premium sold by both life and P&C insurers
Source: United Nations, China Insurance Yearbook, CIRC, McKinsey Global Institute, Company Analysis
Two doctors put a nucleic acid testing

sample for Covid-19 into a tube at
Chaoyang Park, Beijing, China.
92
Ni Dandan, “Can Tax Breaks Boost Private Health Insurance in China?”, Sixth Tone, 11th August, 2017: https://www.sixthtone.com/news/1000669/can-tax-breaks-
boost-private-health-insurance-in-china%3F
93
Health Advances Blog, “Better Market Access in China – Government Improves Pricing and Reimbursement Environment”, 16th April, 2019: https://
healthadvancesblog.com/2019/04/16/better-market-access-in-china-government-improves-pricing-and-reimbursement-environment/
CASE STUDY: UNITED FAMILY LEADS THE WAY

FIGURE 58: UNITED FAMILY HEALTHCARE
WITH RELATIONSHIP-BASED CARE
REVENUE PRE- AND POST-SARS (RMB MN)
Beijing is intent on shifting the focus of healthcare 650
600
from treatment to prevention. To that end, private 550
hospital operators like United Family Healthcare 500 Growth rate increase
compared to pre-SARS
could play an important role in providing an example 450 period
for the public sector. 400
350
300
Currently, the “inverted pyramid” of China’s 250
200 SARS
healthcare system sees most patients bypass general epidemic
150
practitioners, who are in short supply, and go
100
straight to specialists in large public hospitals to 50
treat their ailments. 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: United Family Healthcare
“What we do differently is we partner with patients
to coordinate their care starting from a relationship
that helps them make proactive decisions in their By reaffirming the importance of healthcare, the
health, from vaccinations to diet. We first try to help Covid-19 pandemic is likely to result in a boost to
them stay healthy. Then, if they get sick, we care United Family’s business, just as the Sars outbreak
for them in a specialised way,” explained Roberta of 2002-03 did. Such events tend to make people
Lipson, United Family’s founder and CEO. more inclined to devote a greater proportion of their
income to bettering their chances of staying healthy
That kind of relationship is missing in the public or improving their healthcare experience.
system. “There is nobody who can help oversee their
total health package. There is no continuity,” added Lipson stresses that she would not characterise
Lipson. United Family’s offering as a “luxury service”
that is the preserve of the wealthy. Instead, “we’re
The entry point for patients at United Family’s approaching both the affluent class as well as the
hospitals is primary care physicians, including professional middle class who are increasingly
paediatricians and family medicine doctors. Notably, aware of the importance of health to their lives,” she
given the acute shortage of such doctors in China, revealed.
United Family started training its own. “China has
realised that prevention, and early intervention Lipson said that although the government has sought
and management of chronic disease is something to encourage the development of private sector
they would like to strive for, but that is not how the hospitals in spirit for some time now, implementation
training goes in the country. It is very hard for public took quite a while. “Support of that spirit has been
hospitals to make that transition,” observed Lipson. coming slowly but surely,” she observed, pointing out
that in the past two years her company had received
Nationwide, United Family Healthcare operates nine an unprecedented level of support from local health
hospitals and 14 clinics, with further facilities under bureaus when opening new hospitals. Some localities
development. In contrast to most of the country’s have even allowed United Family’s hospitals to
other private operators, which tend to focus on single participate in social insurance schemes.
specialities, it is a comprehensive provider providing
entire “lifecycle” healthcare services from prenatal One of the specific government policies to support
care and paediatrics through to various specialities the development of private healthcare facilities,
and rehabilitation. introduced in 2009, allows public sector physicians
to work at multiple sites, paving the way for them
United Family’s first hospital, Beijing United to take part-time positions with private hospitals.94
Family Hospital, opened in 1997, billed as the first United Family has made good use of this policy to give
international standard hospital in China. At the specialists from public hospitals, who may be wary
beginning, virtually all patients were expatriates, but of coming over to the private sector, a taste of what
over the years, as United Family expanded, it began that would entail. “As they develop confidence that
attracting an increasing number of locals, who now the private sector is a good platform for them, many
comprise about 75 per cent of clients. come over full time,” said Lipson.
94
Ni Dandan, “Multisite Policy Gives Doctors a Taste of Private Medicine”, Sixth Tone, 30th June, 2017: https://www.sixthtone.com/news/1000442/multisite-policy-gives-
doctors-a-taste-of-private-medicine
2.5: HEALTHCARE TECHNOLOGY

Healthcare technology (healthtech) is a very broad AI comes into its own
and somewhat amorphous segment ranging from Roborn’s products are powered by AI technology,
genomics and robotics to clinical administration and which has blossomed in China after the government
fitness apps. There is also considerable crossover unveiled a grand vision to promote it in 2017.
among the other segments, such as cutting- Covid-19 provided an opportunity to showcase the
edge medical devices and the use of genomics and country’s AI capabilities, with several AI solutions
artificial intelligence (AI) in drug discovery. quickly repurposed for use in epidemic prediction,
patient diagnosis and the search for a vaccine.
China has three prominent healthtech categories.
The first, AI-based healthcare As soon as the new virus came to
solutions, covers a variety of functions light, many of the country’s leading
including imaging and diagnostics, “China’s heavy healthtech providers, including start-
predictive analytics and risk scoring, investments ups and the healthcare arms of its tech
and hospital decision support. The in healthcare giants, shifted their focus to help deal
second is online patient management, technology with the emerging pandemic. Among
of which telemedicine is a major proved their them was Infervision, a developer of
and fast-growing component. The worth during the AI-based medical imaging systems. In
third is wearables, of which China Covid-19 pandemic. January 2020, the company redirected
is a major manufacturer and which, Particularly valuable all its 200 research and development
in combination with emerging apps was healthtech that specialists to swiftly convert its
and software solutions, could play an helped minimise software for lung cancer diagnosis to
increasing role in patient monitoring
human-to-human help doctors screen patients suspected
and preventive care.
contact and thereby of being infected with Covid-19.96
slowed the spread of
the virus.”
China’s healthtech proves its worth “Our AI system helps hospitals
China’s heavy investments in identify suspected cases quickly so
healthcare technology proved their that quarantine measures can be
worth during the Covid-19 pandemic. Particularly started, instead of waiting for the RT-PCR test
valuable was healthtech that helped minimise results, which could take days,” said Chen Kuan,
human-to-human contact and thereby slowed the founder and CEO of the five-year-old start-up.
spread of the virus. These included online medical “Once confirmed, our system can also accurately
consultation platforms and robots to screen measure progression of the infection.”
potential carriers. One noteworthy supplier of the
latter is Hong Kong start-up Roborn Technology, The RT-PCR, a lab technique known as reverse
which, in fifteen days, produced a prototype robot transcription polymerase chain reaction, detects
equipped with thermal scanners that can live- the virus in nasal swab samples. In addition to being
stream temperature readings to a control centre time consuming, the technique also reportedly leads
and send alerts, winning a contract from the local to many false negatives, so that lung CT scans can
government. Roborn then turned its attention help provide “an important make-up” in diagnosis,
to developing and piloting robots equipped with explained Chen.
ultraviolet light for disinfection.95
95
Eric Ng, “Hong Kong start-up Roborn joins race to pioneer UV light disinfecting robots”, South China Morning Post, 8th June, 2020: https://www.scmp.com/
business/article/3087921/hong-kong-start-roborn-joins-race-pioneer-uv-light-disinfecting-robots
96
Eric Ng, “Chinese medical imaging start-up faces twin hurdles in US market for coronavirus screening amid political row”, South China Morning Post, 10th April,
2020: https://www.scmp.com/business/article/3079187/chinese-medical-imaging-start-faces-trust-deficit-crack-us-market
CASE STUDY: BAIDU’S HEALTHCARE SOLUTIONS RANGE FROM AI TO WEARABLES

China’s tech giants have an extraordinary ability Concerned, she went to a local hospital in Beijing,
to make rapid inroads into new sectors, and their where she was promptly diagnosed.”
healthcare initiatives are no exception.
Another major Baidu AI healthcare initiative
The healthcare division of China’s leading search is its clinical decision support system (CDSS),
engine operator, Baidu, runs a telemedicine designed to assist doctors with diagnoses and
platform hosting over 100,000 doctors offering treatment recommendations, providing an often
online consultations 24 hours a day. During the indispensable second opinion. CDSS covers more
Covid-19 pandemic, the platform was made than 4,000 diseases and is available at more
available for free to those suffering flu symptoms, than 1,000 healthcare institutions across 18
and as of 26th April 2020, had handled a provinces in China. “After examining relevant
staggering 54.5 million inquiries. patient data and symptoms, it provides a list of
the three most-likely conditions with 95 per cent
Baidu Health General Manager Huang Yan accuracy, along with a detailed analysis of the
predicts an inexorable expansion of telemedicine results.”
services, enabling patients to deal with up to
70 per cent of their issues without having to According to Huang, there are four major factors
leave home, with visits to brick-and-mortar driving the transformation of healthcare in China:
facilities only needed for more in-depth physical government policy support, cost pressures, the
examinations and surgeries. rising demand for quality services, and, of course,
technological advancements.
Beyond telemedicine, where China’s tech
giants, including Baidu, really shine is in their Perhaps the most significant change will be a
use of artificial intelligence (AI) to tackle a host shift in focus “from reactive treatments towards
of healthcare issues. These solutions, when comprehensive health management,” said
eventually rolled out at scale, could play a vital Huang. Cloud services will play an integral role in
role in providing sufficient, affordable and equal that shift. “Massive amounts of patient data will
access to healthcare across the country’s urban be collected on the cloud, which, for the first time,
and rural areas. will allow us to generate algorithms complex
enough for proactive health management,” said
One such solution is Baidu’s AI-powered Huang. For instance, “wearable devices collecting
screening tool to detect a variety of eye disorders biological data will provide a real-time, all-
and diseases, including diabetic retinopathy, around picture of health.”
macular degeneration and glaucoma, using scans
of the internal surface of the eye. The system Baidu is working on a new system that will
provides results within ten minutes and has an leverage wearables and be integrated in its Xiaodu
accuracy rate of 94 per cent, which is on par with smart speaker, providing at-home support
the abilities of senior doctors in the country’s to patients suffering chronic diseases. The
lower tier hospitals, said Huang. system collects patient data through connected
wearables, allowing for constant, convenient
Crucially, the system paves the way for much monitoring. Patients are issued reminders to
wider early screening, “particularly in less take medication and given the latest relevant
developed regions where people don’t have information on their conditions.
access to regular screenings,” said Huang. Baidu
has used the system to conduct free internal The system was trialled in a pilot programme
screenings for its staff. “One of those screened in Jinan, the capital city of eastern China’s
was a canteen worker, whose screening report Shandong province. Patients using the system
showed signs of diabetic retinopathy. She was reportedly saw significant improvements in
surprised because no one had told her she controlling their blood pressure and blood sugar
had diabetes, much less diabetic retinopathy. levels.
Prior to the outbreak, Infervision had supplied its research platform. And like Infervision, Damo created
imaging software for respiratory and bone disease a system to detect Covid-19 infection from lung CAT
diagnosis to 350 hospitals in ten countries, although scans, with an accuracy rate of up to 96 per cent.
its attempts to enter the US market have thus far
proved futile, meeting with apparent regulatory The country’s other tech giants, Baidu, Tencent,
resistance. Chen believes US-China tensions could Huawei and DiDi, have also joined the battle against
be partly to blame (see section 3.1). Other leading Covid-19, making their cloud computing platforms
Chinese start-ups offering AI-based medical and supercomputing facilities available for free
imaging and diagnostics are Deepwise, Airdoc and to researchers in the search for treatments and
Yidu Cloud. Established players are also active in vaccines.100 Baidu open-sourced its LinearFold
the space, including Tencent, Alibaba, algorithm, which can be used to predict
Baidu and Ping An Technology. the RNA structure of a virus in order to
better understand how it invades cells.
From genome sequencing to the “Remote This, in turn, helps in the search for a
vaccine search healthcare vaccine.
Before AI was used in diagnosis, it provided through
was tasked with sequencing the virus telemedicine Start-ups, too, have been offering
genome. It took scientists about five platforms also their services for free to speed the
months to sequence the genome for has an important search for a Covid-19 vaccine. To
the severe acute respiratory syndrome role to play that end, Hong Kong-based Insilico
(Sars) virus after its emergence in in redressing Medicine, which has developed an AI-
late 2002. Using AI, Chinese scientists China’s current based drug discovery platform, has
sequenced the coronavirus that causes unequal access to partially opened up its database of drug
Covid-19 within a month of the first healthcare.” compounds to global pharmaceutical
confirmed cases emerging in Wuhan companies.101 Previously, Insilico had
at the end of 2019, then published signed drug discovery deals with Pfizer
the sequence and shared it with and China’s Jiangsu Chia Tai Fenghai
researchers around the world.97 Pharmaceutical. Insilico’s platform could shorten the
time needed for drug discovery and pre-clinical stages
AI was then put to use in detection, treatment and by a factor of 15, leading to substantial savings in
finding a vaccine. Damo Academy, the research drug development costs, which currently average an
institute of e-commerce behemoth Alibaba Group estimated US$2.1 billion.102
Holding,98 developed an AI algorithm to identify the
presence of the virus in 30 minutes.99 The algorithm Addressing shortages and imbalances
powers a whole-genome detection platform, which AI has a broader role to play in China’s healthcare
is faster and better than the traditional nucleic-acid reform by providing solutions to the country’s doctor
approach that detects only part of a genome. Damo shortage and the quality gap between urban and
Academy also developed an epidemic prediction rural areas. A variety of AI-based solutions promise
platform giving insight into the likely size, spread and to reduce physician workloads and provide more
duration of outbreaks, as well as an AI-based drug reliable diagnoses and treatment recommendations,
97
Zhuang Pinghui, “Chinese laboratory that first shared coronavirus genome with world ordered to close for ‘rectification’, hindering its Covid-19 research”, South
China Morning Post, 28th February, 2020: https://www.scmp.com/news/china/society/article/3052966/chinese-laboratory-first-shared-coronavirus-genome-
world-ordered
98
Alibaba owns the South China Morning Post
99
Andy Chun, “In a time of coronavirus, China’s investment in AI is paying off in a big way”, 18th May, 2020: https://www.scmp.com/comment/opinion/
article/3075553/time-coronavirus-chinas-investment-ai-paying-big-way
100
Arjun Kharpal, “China’s giants from Alibaba to Tencent ramp up health tech efforts to battle coronavirus”, CNBC, 3rd March, 2020: https://www.cnbc.
com/2020/03/04/coronavirus-china-alibaba-tencent-baidu-boost-health-tech-efforts.html
101
Eric Ng, “Can AI speed up a cure for coronavirus? This Hong Kong start-up opens its resources to global drug firms for free”, South China Morning Post, 17th
February, 2020: https://www.scmp.com/business/article/3050832/can-ai-speed-cure-coronavirus-hong-kong-start-opens-its-resources-global
102
Deloitte Global Life Sciences Outlook 2020
increasing overall healthcare capacity and putting to continue using them even after the pandemic
lower-tier hospitals in poor regions on an equal passes and charges are reinstated. By 2022, the
footing with top-tier ones in rich cities. platforms’ combined revenue is forecast to reach
255 billion yuan. Without Covid-19, that shift in
Remote healthcare provided through telemedicine consumer behaviour would have taken perhaps five
platforms also has an important role to play more years.
in redressing China’s current unequal access
to healthcare. The country has over 1,000 such According to preliminary data from the National
platforms, including ones run by tech giants JD.com, Health Commission, the Covid-19 outbreak
Baidu, Tencent and Alibaba. Other major names prompted a 20-fold increase in the number of online
in the segment include 111, Inc., Tencent-backed diagnoses and 10-fold jump in prescriptions among
WeDoctor and the Good Doctor subsidiary of Ping some online healthcare platforms.104 Overall, China
An Insurance, all of which experienced a pandemic- is expected to register over one billion online health
induced boom in online consultations (see figure 59). consultations in 2020, up from the previous forecast
of 310 million before Covid-19 struck.
Most of these platforms provided free services in
response to the Covid-19 crisis, leading to a spike in Unsurprisingly, the significantly improved business
sign-ups. Ping An Good Doctor, for example, saw a prospects of China’s leading telemedicine providers
ten-fold jump in new registrations in the days after have led to steep jumps in their stocks prices. While
the pandemic struck.103 Owing to the platforms’ China’s healthcare stocks have proved one of the
convenience and low cost, many new users are likely top performing equity classes globally in the first
FIGURE 59: INCREASE IN ONLINE CONSULTATIONS (PER CENT, DECEMBER 2019 TO JANUARY 2020)
Dec 2019 Jan 2020

Platform
New users 900%
Ping An Good Doctor

Online consultations 800%
by new users
Active users 215%

Ding Xiang Yuan
Active users 30%

Chunyu Doctor
Source: Company websites for Ping An Good Doctor, Ding Xiang Yuan and Chunyu Doctor
103
Eric Ng, “Ping An Good Doctor, China’s largest health care platform, reports jump in users amid coronavirus, smaller than expected annual loss”, South China
Morning Post, 12th February, 2020: https://www.scmp.com/business/article/3050074/ping-good-doctor-chinas-largest-health-care-platform-reports-jump-
users
104
Yusuf I. Tuna, “Meet Wang Shirui: One of the Minds Behind China’s Blooming Online Healthcare”, Equal Ocean, 9th May, 2020: https://equalocean.com/
healthcare/20200509-meet-wang-shirui-one-of-the-minds-behind-chinas-blooming-online-healthcare
FIGURE 60: CHINA TELEMEDICINE REVENUE (RMB BN) market is by far the largest in the world, and
bigger than the next 10 markets combined. Its
Market scale
estimated US$1.5 trillion in e-commerce sales
last year was two and a half times greater than
the US$600 billion recorded in the US, with
+50.4% the gap set to widen further over the coming
255 years given China’s higher growth rate.106
163
106 An emerging healthcare powerhouse
47 70
22 32 China’s healthcare sector has begun its
2016 2017 2018 2019 2020E 2021E 2022E ascent of the value chain. That journey will
Source: Chanye Information, Vcbeat, Equal Ocean analysis see the rise of several national champions
that will increasingly take market share
from multinationals and contribute to global
half of 2020, leading telemedicine providers Ping An advances in drugs, medical devices and healthcare
Healthcare and Technology and Alibaba Health have technology. In the process, they will make treatments
significantly outperformed the rest of the field, and more affordable and accessible for patients
notably fared much better than Meinian Onehealth, everywhere.
China’s largest provider of brick-and-mortar
medical check-ups (see figure 62). Healthcare systems the world over are facing a
sustainability crisis driven by spiralling costs of key
The rest of the online healthcare market is made up products, ageing populations and, now, the likely
of online pharmacy sales, forecast to reach as much emergence of more frequent pandemics and acute
as US$12 billion in 2020.105 Given that the Chinese health crises.107 The rise of China as a global healthcare
population has firmly embraced purchasing goods powerhouse therefore cannot come soon enough.
and services through the internet and mobile apps,
the potential for online healthcare services in the But it will be far from smooth sailing. As detailed
country is massive. China’s overall online retail in the next section, significant challenges stand in
FIGURE 61: NUMBER OF ONLINE HEALTH CONSULTATIONS IN CHINA, IN MILLIONS

+224%
CAGR CAGR 1200
12-20* 33.9%
12-20** 55.07% 1003
1000
800
600
400
310
200
0
2012 2013 2014 2015 2016 2017 2018 2019 2020* 2020**
Note: 20* shows the market size in 2020 that was estimated before Covid-19, whereas 20** shoes the market size in 2020 that is estimated after Covid-19. Online consultations include both free
and charged consultations.
Source: Frost & Sullivan, Equal Ocean analysis
105
Patrick Burton, “China: Prescription Drugs Available Online via Loophole”, Pharma Boardroom, 5th October, 2018: https://pharmaboardroom.com/articles/china-
prescription-drugs-available-online-via-legal-loophole/
106
Lambert Bu, Jacob Wang, Kevin Wei Wang, and Daniel Zipser, “China digital consumer trends 2019”, McKinsey Digital, September 2019: https://www.mckinsey.
com/~/media/mckinsey/featured%20insights/china/china%20digital%20consumer%20trends%20in%202019/china-digital-consumer-trends-in-2019.ashx
107
Kate Whiting, “Coronavirus isn’t an outlier, it’s part of our interconnected viral age”, World Economic Forum: https://www.weforum.org/agenda/2020/03/
coronavirus-global-epidemics-health-pandemic-covid-19/
FIGURE 62: PERFORMANCE OF TELEMEDICINE STOCKS VERSUS BROADER CHINA HEALTHCARE ETF
(23rd December 2019 to 31st July 2020)
Wuhan lockdown
250 Ali Health
The first (0241:HKEX)
reported Ping An Good Doctor
death in (1833:HKEX)
China
200
Hwabao CSI
Medical ETF*
(512170:SH)
150
Meinian OneHealth
100 (002044:SH)
Dec 23 Jan 13 Jan 23 Jul 31
Note: Index based on the daily close price data

*This particular ETF has been chosen as it is one of the largest healthcare ETFs based on the Net Asset Value (NAV) listed on the mainland’s exchanges
Source: Shanghai, Shenzhen and Hong Kong stock exchanges
the way, from the risk of inadequate quality control having highlighted how trade barriers can exacerbate
to fallout from geopolitical rivalry, including the health crises.108 In the wake of the pandemic, both
tariffs and investment restrictions that play a wider the US and China granted exclusions from import
role in the US-China battle for supremacy in the tariffs on a wide range of medical products.109 The
technologies of the future. hope is that the crisis might also beget a more
enlightened approach to dealing with international
It could be that Covid-19 sparks a reassessment of flows of lifesaving technologies. So far, there is little
such restrictions in the healthcare realm at least, indication that hope will be realised.
A man talks with a doctor through an AI-powered 24/7 medical treatment platform booth, run by Ping An Good Doctor,
in Zhejiang, China.
108
OECD, “COVID-19 and international trade: Issues and actions”, 12th June, 2020: http://www.oecd.org/coronavirus/policy-responses/covid-19-and-international-
trade-issues-and-actions-494da2fa/
109
Reuters, “Coronavirus: US excludes Chinese face masks and medical gear from trade war tariffs”, 7th March, 2020: https://www.scmp.com/news/world/united-
states-canada/article/3074052/coronavirus-us-excludes-chinese-face-masks-and
3: RISKS AND OPPORTUNITIES

The latest wave of China’s healthcare reform has players and industry consolidation, and could also
been in progress since 2009, but kicked into high jeopardise some of the established players by eroding
gear from 2015 with measures to support greater their already slim profit margins.
innovation in drugs and medical devices.
Among other dangers is the tendency for
Then, in 2020, the Covid-19 crisis further development efforts to crowd into popular fields
accelerated the sector’s transformation. It exposed such as oncology for drug discovery and medical
lingering systemic weaknesses and redoubled imaging and diagnosis in artificial intelligence-based
the government’s resolve to upgrade the entire healthcare technology. Another recurrent concern
sector. It also showcased the merits and speeded in China is quality control, a failure of which has the
up the adoption of healthcare technology. And it potential to deal a critical reputational blow to the
demonstrated the potential for the burgeoning sector’s development. And as with any sector that
private hospital market to help improve overall rapidly becomes a prime target for investor interest
patient capacity, alleviate the burden of healthcare and funding, there is a chance that exuberance could
provision on government finances, and generate give way to disappointment when results do not
competitive pressure on public hospitals to provide come fast enough.
higher quality care.
The following section outlines these and other
China appears headed in the right direction, but potential impediments to the continued progress of
significant uncertainty remains over the long- China’s healthcare reform, before delving into the
term impacts of several measures and efforts. Bulk domestic and global impacts of that journey. As with
procurement of drugs and medical devices, for China’s emergence as a major economic power, its
example, promises to reduce prices and pressure rise as a crucial market for and supplier of world-
Chinese companies to pivot from manufacturing class healthcare products and services will have
copies to developing high-value new products to profound implications for people and businesses
remain profitable. It will lead to the closure of weaker everywhere.
3.1: TRANSPARENCY IN FOCUS

Despite all the progress made in upgrading strain of viral pneumonia in late December 2019,
China’s healthcare sector and raising standards to but official investigations only began at the end of
international levels, several remaining weaknesses the month and some medical staff were disciplined
were laid bare during the Covid-19 crisis. Most for warning their colleagues.1 The slow response
tellingly, the pandemic revealed the pitfalls of allowed the virus to spread, and has earned China
the system’s pervasive lack of openness and widespread global condemnation.
transparency, which discouraged local authorities
from reporting problems to Beijing. What is worse, the 2002-03 Sars outbreak had
already brought China embarrassment and
Frontline doctors in Wuhan, the probable ground highlighted the shortcomings of its opaque
zero of the epidemic, had warned of a mysterious governance in healthcare and other areas. It
1
Zhuang Pinghui, “China admits coronavirus exposed ‘weak links’ in health system as government promises to strengthen disease response”, 23rd May, 2020:
https://www.scmp.com/news/china/society/article/3085772/china-admits-coronavirus-exposed-weak-links-health-system
had prompted the government to vow to resolve just ten days.5 The pandemic also demonstrated
structural issues and invest heavily in building an China’s improving medical capabilities, and is likely
advanced reporting system for infectious diseases to to spur further Chinese innovation in a wide range
prevent future cover-ups.2 But nearly two decades of areas, including pharmaceuticals, telemedicine
later, Covid-19 confirmed that mission is far from and artificial intelligence.6
complete.
There is reason to believe the pledge of systemic
Chinese authorities only announced that the disease reform in the wake of Covid-19 is different.
was contagious on 20th January 2020, raising The shortcomings of public health emergency
questions about whether the direct reporting and management were acknowledged in the 2020
early warning system was functioning properly. government work report, delivered in May, in what
Although that is a marked was recognised as a rare governmental
improvement from the five months admission of weakness. At the time,
that passed before the government Premier Li Keqiang personally vowed
came fully clean about Sars, it is still
“Of course, to reform the disease prevention and
considered too long.3 Dr Liu Guoen,
while exposing control system, and ensure information
director of the Peking University
the system’s was released in a timely, open and
weaknesses,
China Center for Health Economic transparent manner.7
Covid-19 also
Research, suggested that rather than
showcased a few of
looking into the technical aspects of Sceptics question how deep or sustained
its strengths. Most
the system, the investigation into its such reform will be. What is clear,
notable was its
failure should focus on the way it is ability to mobilise a though, is that Covid-19 has provided
administered. huge, coordinated a renewed impetus to the effort to
national response upgrade China’s overall healthcare
“The current direct reporting system to the outbreak.” sector. That effort had appeared to
is advanced in the technical sense, be losing momentum in some areas
but the mechanism of responsibility during 2019 owing to China’s slowing
and obligations is not clear, which economy and pressure on local
affects how the system functions,” said Liu. government budgets. The pandemic provided a
“Centralised authorisation comes at a price and that timely reaffirmation that improving healthcare
is time we can’t afford to lose when an infectious is a pressing priority, without which economic
disease epidemic happens.”4 development could be scuppered.
The benefits of centralised authority The Chinese government is therefore likely to

Of course, while exposing the system’s weaknesses, significantly increase its healthcare spending
Covid-19 also showcased a few of its strengths. following Covid-19. To be sure, spending on non-
Most notable was its ability to mobilise a huge, pandemic containment activities may actually fall
coordinated national response to the outbreak, slightly in 2020 as the government finds its budget
perhaps best exemplified by the construction of a constrained by the country’s slowing growth.
1,500-bed hospital and another with 1,000 beds in But given recent investor enthusiasm for China’s
Hubei province, of which Wuhan is the capital, in healthcare sector, the consensus view is clearly
2
Ibid.
3
Wang Xiangwei, “Coronavirus response highlights flaws in the way China’s bureaucracy handles a crisis”, 25th January, 2020: https://www.scmp.com/week-asia/
opinion/article/3047606/coronavirus-response-highlights-flaws-way-chinas-bureaucracy
4
5
Caroline Kwok, “China to open second coronavirus hospital built in 10 days, with more beds than first”, South China Morning Post, 5th February, 2020: https://www.
scmp.com/video/china/3049156/china-open-second-coronavirus-hospital-built-10-days-more-beds-first
6
Mark Magnier, “Coronavirus reveals lingering problems in Chinese health care system despite reforms, US experts say”, South China Morning Post, 8th May, 2020:
https://www.scmp.com/news/world/united-states-canada/article/3083421/coronavirus-reveals-lingering-problems-chinese
7
that Covid-19 will lead to long-term positive Although several Chinese healthcare companies,
implications for the sector, just as the Sars outbreak and particularly those making ventilators and
of 2002-03 did. In response to that previous disposable medical supplies, have reaped significant
outbreak, China’s public-sector expenditure on financial windfalls from the pandemic (see section
healthcare increased almost 14-fold between 2003 2.3), the long-term benefits will be much more
and the end of 2018.8 widely dispersed across various segments.
3.2: QUALITY CONCERNS

Beijing has been generous with policy and funding whooping cough and tetanus vaccines produced
support to develop its healthcare sector and set by Wuhan Institute of Biological Products and
ambitious targets for achieving self-reliance in Changchun Changsheng Bio-technology.11 That and
certain technologies and contributing to global other incidents involving vaccines have led to many
breakthroughs. Chinese who can afford to do so avoiding locally
produced drugs for much pricier foreign alternatives
The trouble is, the system that prevented the early or choosing to travel abroad to be inoculated. These
reporting of Covid-19 could also lead to companies, incidents hardly inspire confidence among potential
researchers and local officials cutting corners to foreign buyers of Chinese drugs and other medical
meet these targets. Already, a number of scientific supplies.
papers published internationally by Chinese
scientists were found to rely on falsified data. Stricter oversight of drug quality
China has made substantial progress in solving the
China was also embarrassed during the recent issue of poor-quality drugs. The government in 2016
pandemic after millions of items of exported issued its guidelines on “conducting consistency
personal protective equipment (PPE) turned out evaluations of the quality and efficacy of generic
to be defective.9 This led to China releasing new drugs”, mandating all generics pass an equivalency
guidelines imposing penalties on researchers test by the end of 2018 or face having their
and institutes involved in academic misconduct, registration licences and eligibility for government
including plagiarism, fabrication of data and tendering withdrawn.12 The introduction of the
research conclusions, ghost-writing and peer mandatory bioequivalence test, known as the
review manipulation.10 Generic Quality Consistency Evaluation (GQCE), is
the cornerstone of China’s more stringent oversight
Quality has been a recurrent concern in the of drug quality.
pharmaceuticals segment, in particular. China has
suffered a spate of scandals involving substandard or The government also approved a new law in
fake drugs over the years, coming to a head in 2018 April 2019 imposing much stiffer penalties
when it was discovered that half a million children on pharmaceutical companies found guilty of
in Chongqing, Hebei and Shandong provinces had manufacturing or selling substandard or counterfeit
been immunised with substandard diphtheria, drugs. In a further sign of the new zero-tolerance
8
Peggy Sito, “What has China’s public healthcare system learned from the twin coronavirus outbreaks of Sars and Covid-19?”, 14th March, 2020: https://www.scmp.
com/business/china-business/article/3075095/what-has-chinas-public-healthcare-system-learned-twin
9
Ibid.
10
Zhuang Pinghui, “China to crack down on fraud in scandal-hit scientific research amid ZTE wrangle”, Zhuang Pinghui, 31st May, 2018: https://www.scmp.com/
news/china/policies-politics/article/2148585/china-crack-down-fraud-scandal-hit-scientific-research
11
Alice Yan, “China’s dodgy drug makers face hefty fines after public review of draft vaccine management law”, 20th April, 2019: https://www.scmp.com/news/china/
society/article/3007005/chinas-dodgy-drug-makers-face-hefty-fines-after-public-review
12
Liu Zhihua, “Generic drug approvals boost pharma firms’ global ambitions”, China Daily, 7th March, 2019: https://www.chinadaily.com.cn/a/201903/07/
WS5c80933da3106c65c34ed511.html
policy on shoddy drugs, in November 2019, the Quality players stand out
former head of the now-defunct China Food and While China’s established pharmaceutical
Drug Administration was sentenced to 16 years in companies have taken clear steps towards improving
prison after he was convicted of taking bribes in quality, it is some of the disruptive biopharma
exchange for drug approvals.13 players that truly stand out with their dedication to
achieving the highest standards. Many were indeed
The new regulatory environment will no doubt deter set up with a core mission to pursue innovation and
companies from wilfully compromising quality. produce globally competitive products, to which
But for companies in China’s end quality is paramount. Among
biopharmaceuticals segment these, Innovent Biologics, Zai Lab,
focused on high quality and forging Hua Medicine, Hutchison China
a new, innovation-focused path for MediTech (Chi-Med), Alphamab
the healthcare sector, the concerns “In a further sign of the Oncology and Harbour BioMed
are different. new zero-tolerance have been recognised for their
policy on shoddy dedication to research and ensuring
Among their top worries is that drugs, in November quality that has either earned them
drug development could be 2019, the former head partnerships with leading global
compromised given the need to of the now-defunct players or made them well placed
make quick progress on clinical
China Food and Drug to make inroads into international
development, especially since
Administration was markets with their product
the country’s clinical trials
sentenced to 16 years pipelines.
in prison after he was
system and contract research and
convicted of taking
manufacturing infrastructure China’s other healthcare segments
bribes in exchange for
are still immature.14 There is also also have companies that are intent
drug approvals.”
widespread acknowledgement of on pursuing quality, including
the need to be proactive in ensuring Venus Medtech and Shenzhen
quality of manufacturing at scale as Mindray Bio-Medical Electronics
many leading Chinese biopharmas in the medical devices category and
plan to develop in-house manufacturing. United Family Healthcare and Quality Healthcare
Medical Services in the healthcare service providers
Ensuring quality is a vital differentiator in a highly field. In January 2020, Hong Kong-based Quality
competitive market, providing a signal that is Healthcare became the first foreign-owned facility
picked up on by key opinion leaders, regulators, in Guangzhou to qualify for direct reimbursement
healthcare providers and even patients.15 That, in by mainland China’s national health service. Quality
turn, can help companies demand higher prices Healthcare believes that the availability of world-
and grab greater market share. On the other hand, class medical services and education within the
failure to ensure quality can damage reputations, Greater Bay Area – consisting of nine mainland
sink businesses and, more broadly, do significant Chinese cities in Guangdong province and the two
damage to the prospects of a relatively new special administrative regions of Hong Kong and
industry striving to make its mark both in China Macau – is crucial to attracting foreign talent for its
and around the world. further development.16
13
Xinhua, “Former senior food, drug administration official convicted of bribery, abuse of power”, 15th November, 2019: http://www.xinhuanet.com/
english/2019-11/15/c_138558289.htm
14
McKinsey China and the world 2019 survey
15
Franck Le Due, “5 Key Elements of Chinese Biopharma’s ‘Cambrian Explosion’”, McKinsey, 16th March, 2019: https://www.linkedin.com/pulse/5-key-elements-
chinese-biopharmas-cambrian-explosion-franck-le-deu/
16
Eric Ng, “China’s aim to integrate Greater Bay Area comes together with Hong Kong health care providers playing a leading role”, 20th June, 2020: https://www.
scmp.com/business/companies/article/3089800/chinas-aim-integrate-greater-bay-area-comes-together-hong-kong
3.3: GEOPOLITICAL CHALLENGES

Already, China’s healthcare players are facing Furthermore, in spite of the political rhetoric,
significant headwinds from heightened geopolitical decoupling the US pharmaceutical supply chain
tensions, especially in the US. from China requires surmounting several intractable
obstacles. In particular, even if APIs and finished
It was revealed in May 2020 that US President drugs were increasingly made in the US, the country
Donald Trump would soon sign an executive would still be dependent on China for raw materials
order requiring federal agencies to purchase only and chemical precursors. The adoption of more
American-made medical products. Trump trade stringent environmental standards in the US led
adviser Peter Navarro explained the order would to its chemical industry moving to China decades
help spur domestic medical manufacturing after the ago, and bringing it back would entail changes to
Covid-19 pandemic purportedly exposed America’s regulation that might not be palatable.20
over-reliance on China for medical supplies.17
Scrutiny of Chinese investments
The announcement created concern within the Another important part of the shift in political
US government and medical industry given the sentiment towards China has been greater scrutiny
possibility that China could retaliate by curbing of Chinese investments in sensitive industries,
shipments of medical supplies needed to deal with including biotechnology and health-related
the Covid-19 outbreak. But the executive order technologies. In the US, for example, the Committee
will probably only be signed after the crisis abates. on Foreign Investment in the US (CFIUS) decided in
Indeed, ahead of the signing of the order, the US has 2018 to increase oversight on foreign investments
actually granted expedited exclusions from import in several critical industries, including the life
tariffs for dozens of medical products from China, sciences, through the Foreign Investment Risk
including face masks, hand sanitising wipes and Review Modernization Act (FIRRMA).21 And the
examination gloves.18 European Union Foreign Investment Screening
Regulation, which was tabled in 2017, came into
The executive order would be the fifth to reflect force in April 2019.22
the Trump administration’s much-touted
“Buy America” principles. Just before the new Increased foreign investment oversight, along with
announcement, Trump had signed a similar order Beijing’s imposition of more restrictive outbound
directing the government to buy only American- capital controls towards the end of 2018 and greater
made power components for the national power uncertainty around US-China relations contributed
grid. It is part of a wider policy of reducing reliance to a major pullback in foreign direct investment
on China for sensitive technologies and a shift in (FDI) from China into the US and Europe in 2019.23
US-China relations from engagement to strategic Chinese companies’ previously robust outbound
competition.19 merger and acquisition (M&A) activity in the
17
Charley Lanyon, “Coronavirus: Donald Trump to force government to buy US medical supplies in extended ‘Buy America’ programme amid concerns over China,
says trade adviser”, 5th May, 2020: https://www.scmp.com/news/world/united-states-canada/article/3082837/coronavirus-donald-trump-extend-buy-america-
medical
18
Reuters, “Coronavirus: US excludes Chinese face masks and medical gear from trade war tariffs”, 7th March, 2020: https://www.scmp.com/news/world/united-
states-canada/article/3074052/coronavirus-us-excludes-chinese-face-masks-and
19
David Shambaugh, “In a fundamental shift, China and the US are now engaged in all-out competition”, South China Morning Post, 11th June, 2015: https://www.
scmp.com/comment/insight-opinion/article/1819980/fundamental-shift-china-and-us-are-now-engaged-all-out
20
Benjamin Shobert, “What Covid-19 reveals about the risks of global medical supply chains”, National Bureau of Asian Research, 1st April, 2020: https://www.nbr.
org/publication/what-covid-19-reveals-about-the-risks-of-global-medical-supply-chains/
21
Miyu Ono and Hannah Cabot, “The Disappearance of Chinese Capital in US Biotechnology”, Back Bay Life Science Advisors, 5th September, 2019: https://www.bblsa.
com/industry-insights/2020/1/7/the-disappearance-of-chinese-capital-in-us-biotechnology
22
European Commission, “EU foreign investment screening regulation enters into force”, 10th April, 2019: https://ec.europa.eu/commission/presscorner/detail/en/
IP_19_2088
23
Jodi Xu Klein, “Chinese investments in US dip to lowest level since 2009 with outlook for 2020 bleak amid global pandemic”, 11th May, 2020: https://www.scmp.
com/news/china/article/3083888/chinese-investments-us-dip-lowest-level-2009-outlook-2020-bleak-amid
pharmaceutical FIGURE 63: MAINLAND CHINA OUTBOUND PHARMACEUTICAL MERGER

(see figure 63) and AND ACQUISITION DEALS (2016 TO 2019)
medical device
60 5000
(see figure 64)
industries has dried 50 4000
up. The number of
such deals in the 40
Value (US$m)
3000
Volume
pharmaceutical 31
30 7
industry in the US fell 5
2000
from 34 in 2018 to 16 20
in 2019 and in Europe 25 24
15 1000
from nine to one over 10 15
the same period.24 2 3 5
0 0
Deal numbers in 2016 2017 2018 2019
the medical device Deal volume – SOE Deal volume – POE Deal volume – Financial buyer
industries of the Deal value – SOE Deal value – POE Deal value – Financial buyer
US and Europe also Source: Thomson Reuters, China Venture and PwC analysis
declined.
The Covid-19 pandemic looks set to bring further companies threatened by takeover, particularly by
impediments to China’s acquisition of foreign Chinese firms.25
assets.
Several other countries took similar action in the
In late March 2020, the European Union released wake of the Covid-19 crisis. Australia announced
updated guidance for FDI screening, urging member temporary measures to review FDI in all industries
states to support
European public
security by preventing FIGURE 64: MAINLAND CHINA OUTBOUND MEDICAL DEVICE MERGER
“critical assets” in AND ACQUISITION DEALS (2016 TO 2019)
healthcare-related
35 3000
industries, including
medical products, 30 2500
7
protective equipment,
medical research and 25 2000
Value (US$m)
Volume
biotechnology, from 13
20 6 1500
falling into foreign
hands. Margrethe 15 22 1000
Vestager, the EU 14 5
14
competition policy 10 500
head, went so far 3 6
0 0
as to suggest that 2016 2017 2018 2019
governments should Deal volume – SOE Deal volume – POE Deal volume – Financial buyer
consider taking Deal value – SOE Deal value – POE Deal value – Financial buyer
ownership stakes in Source: Thomson Reuters, China Venture and PwC analysis
24
PwC, “China M&A 2019 review & 2020 outlook: Pharmaceutical Sector”, April 2020: https://www.pwccn.com/en/healthcare/publications/china-ma-2019-review-
and-2020-outlook-in-pharmaceutical-and-life-science-sectors-1.pdf
25
Reuters, “Vestager urges stakebuilding to block Chinese takeovers”, 13th April, 2020: https://www.reuters.com/article/us-health-coronavirus-antitrust-eu/eus-
vestager-says-eu-nations-should-buy-stakes-to-block-chinese-takeovers-ft-idUSKCN21U0TI
from March 2020, and India, expressing concern of licencing opportunities will be temporarily slowed
a Chinese takeover of critical assets, also tightened owing to the need to postpone or cancel industry
relevant regulations.26 forums and other face-to-face meetings.27 But
going forward, the pandemic could actually make
Multinationals are more active in China multinationals more likely to invest in China by
Although China is facing greater barriers in having demonstrated the relative resilience of
acquiring healthcare-related assets overseas, China’s pharma segment and the stability and
multinational companies have become more active integrity of its supply chain.
in opening facilities in China, both with a view to
supplying the local market and taking advantage In April 2020, AstraZeneca reiterated that Covid-19
of lower costs for manufacturing and research and would not interfere with its investment plans in
development. In the pharmaceutical segment alone, the country.28 Meanwhile, German drug maker
since the end of 2018, many of the global giants Boehringer Ingelheim is on track to open its second
have set up local innovation platforms and start-up digital laboratory in the country in July 2020, at
incubators (see figure 65). which time China is expected to be among the few
countries in the world whose drug manufacturing
The Covid-19 outbreak does not appear to have will have returned largely to normal in the wake of
dented their resolve to invest in China – although Covid-19. Moreover, despite foreign investment
discussion of future investment, partnership and restrictions, Chinese firms remain free to in-
licence foreign drugs, either
FIGURE 65: CHINA INVESTMENTS BY MULTINATIONAL already approved or in late-stage
PHARMACEUTICAL COMPANIES development, for the domestic
market (see section 2.2).29 In-
Company Date licencing foreign assets is a
Nov 2018 Contract for Global Research Institute in common strategy among China’s
Suzhou focused on oncology, auto-immune newer biopharma companies to
and metabolic diseases
secure marketable products ahead
Mar 2019 Opened INNOVO Innovation platform in Beijing of their own drug development
to partner with local academic institutions and
start-ups
efforts coming to fruition.
Jun 2019 Opened JLAB in Shanghai, the company’s first

incubator outside North America
Talent is less constrained
And Chinese firms also continue to
Oct 2019 Opened Roche Innovation Center Shanghai
enjoy unrestricted access to foreign
focused on antibiotics, hepatitis B and auto- talent. Several innovative Chinese
immune diseases. drug developers, including BeiGene
Sep and Opened I-Campus in Wuxi and a US$1 billion and WuXi AppTec, have established
Nov 2019 fund to invest in local start-ups. Also unveiled offices in the US from Greater
plans to upgrade current R&D platform and set
Boston to Silicon Valley, poaching
up an AI-innovation centre in Shanghai
staff from the biggest American
Oct to Nov Opened innovation hubs in Shanghai and
pharmaceutical companies with
2019 Guangzhou for collaborations among local
governments, academic institutions and start- the promise of better pay and
ups a more entrepreneurial work
Source: Press releases; McKinsey & Company, “Running on the China bridge to innovation 2019”
26
Anastasia Ufimtseva, Daiel Shapiro and Jing Li, “How coronavirus is changing the rules on foreign investment in essential areas”, The Conversation, 6th May, 2020:
https://theconversation.com/how-coronavirus-is-changing-the-rules-on-foreign-investment-in-essential-areas-135660
27
Elise Mak, “See today’s BioWorld Despite disruptions, COVID-19 could have silver linings for biotech industry”, 23rd March, 2020: https://www.bioworld.com/
articles/433851-despite-disruptions-covid-19-could-have-silver-linings-for-biotech-industry
28
Chen Tong, “Foreign pharmaceutical firms up investments in China amid COVID-19”, CGTN, 23rd April, 2020: https://news.cgtn.com/news/2020-04-23/Int-l-big-
pharma-increases-investments-in-China-during-COVID-19-PVLe4LfJug/index.
29
environment.30 The primary focus of those offices is for instance, is facing opposition from industry
to commercialise products in the US market, but they players in the US for an AI-powered heart-attack risk
could also generate innovation that filters back to warning system, even though the product has been
China. approved by the US FDA.32
Furthermore, talent will prove increasingly critical Lepu says the system can correctly identify 107 heart
in supporting China’s climb up the healthcare value symptoms 95 per cent of the time and costs just US$2
chain. The country’s biopharmaceuticals segment per patient over a 24-hour heart monitoring period,
faces a significant talent shortage, with the majority compared to an accuracy rate of 70 per cent for human
of industry players characterising the competition doctors.
for staff as intense.31 Though salaries are lower in
China, the domestic industry will The company claims US healthcare
increasingly need to tap into talent operators either see the efficiency-
wherever available in order to keep enhancing analytics system as a
growing. threat to their income generation
“There is a growing or want to develop their own
Given the increase in global trend for the US to try systems and have been loath to
pharmaceutical companies in China, to dissuade its allies embrace the product. Another issue
as well as Chinese companies’
from doing business standing in Lepu’s way is hospital
access to foreign talent, it seems
with innovative administrators’ conservative stance
intensifying protectionism should
Chinese healthcare towards new technology because of
companies, in much
prove less of a hindrance to China’s high litigation risks.
the same way as it
progress in developing healthcare-
encouraged them
related technologies, and drug Beyond vested interests, there is
to block Chinese
innovation in particular, than in a growing trend for the US to try
telecoms giant Huawei
other high-tech sectors. from participating in to dissuade its allies from doing
the development of business with innovative Chinese
If anything, by giving urgency to their 5G networks.” healthcare companies, in much the
China’s pursuit of self-reliance in same way as it encouraged them
essential technologies, the current to block Chinese telecoms giant
geopolitical climate could well Huawei from participating in the
hasten China’s rise as a healthcare development of their 5G networks.
innovator. Not to mention that governments placing
foreign investment restrictions on their healthcare- One Chinese healthtech company that raised the ire
related industries could in the process deprive of the US government during the Covid-19 pandemic
them of vital capital for growth, which could lead to is Shenzhen-based BGI Group, which built a testing
China’s well-funded companies becoming even more centre in Abu Dhabi in 14 days, capable of running tens
competitive. of thousands of tests a day, at a time when the US was
struggling to come up with enough tests at home.33
Export drags
However, China could face significant resistance from BGI, formerly known as Beijing Genomics Institute,
various vested interests when it comes to exporting won tens of millions of dollars in contracts from the
the fruits of its healthcare innovation efforts, despite United Arab Emirates, Israel and Saudi Arabia, all
their competitiveness. Beijing-based Lepu Medical, traditional US allies. The US responded by warning
30
Preetika Rana, “China Biotechs Lure Industry Talent in the U.S.”, The Wall Street Journal, 16th June, 2019: https://www.wsj.com/articles/china-biotechs-lure-
industry-talent-in-the-u-s-11560690000
31
McKinsey China and the world 2019 survey
32
Eric Ng, “Chinese medical device maker’s US$2 a day heart attack risk warning system faces resistance in US”, South China Morning Post, 28th October, 2019:
https://www.scmp.com/business/companies/article/3034738/chinese-medical-device-makers-us2-day-heart-attack-risk-warning
33
Bloomberg, “Chinese genetic firm BGI raises White House ire with Middle East coronavirus tests while US struggles to provide adequate kits” 20th May, 2020:
https://www.scmp.com/business/companies/article/3085268/chinese-genetic-firm-bgi-raises-white-house-ire-middle-east
those countries they may be giving Beijing access to BGI has assisted 80 nations with testing and is in
critical personal data, with one US official describing talks to help construct laboratories in more than ten
BGI as the “Huawei of genomics.” countries, according to the company. Thus far, US
objections do not appear to have dented its business
BGI has denied the allegations, insisting that only in other markets, but persistent attempts by the US
its customers for the newly built labs, who are to convince allies to cut ties with Chinese healthcare
either local health authorities or institutions, would players could ultimately create a drag on their
manage patient samples and access patient data. exports.
3.4: OVERCROWDING AND EXUBERANCE

Domestically, there is a danger that China’s better” molecules with a known mechanism of
healthcare players, and particularly the innovators, action (MOA). There are a few notable exceptions,
could be doing both themselves and the industry as such as Hua Medicine’s first-in-class glucokinase
a whole a disservice by crowding into popular fields. modulator (see case study in section 2). But
for China to truly start contributing to global
Of these, cancer is the most crowded given its innovation, the drug, device and healthcare
disproportionately high incidence in the country technology players will need to embrace a greater
and the acute need for more affordable treatments. willingness to strike out in new directions.
As discussed in biopharmaceutical segment trends
(see section 2.2), nearly half of Chinese clinical trials Several companies have signalled their intentions
are devoted to oncology, although there does seem to do just that. In the medical device category,
to be a tentative shift towards a greater proportion Venus Medtech looks set to enter new international
of drug development in other treatment areas. In markets with self-developed world-first products
particular, the CAR-T and PD-1 immunotherapy (see case study in section 2.3). But innovation does
oncology segments have been highlighted as not necessarily have to entail physical products.
potentially overcrowded.34 Leading digital and mobile healthcare platform 111,
Inc. for example, has brought innovative processes
Cancer is also the main target of artificial to reshape drug distribution and commercialisation
intelligence-based medical diagnosis. But it is across China (see case study in section 2.1).
far from China’s only major disease, with the
other important ones including cardiovascular, Other areas are in danger of becoming too crowded
respiratory and infectious diseases and diabetes. As after the Covid-19 crisis. The pandemic saw a
yet, these other areas do not seem to have received dramatic spike in demand for telemedicine services,
sufficient attention. prompting existing providers to boost their services
and new ones to enter the market. While the overall
Moreover, because China lacks experience pursuing prospects for telemedicine in China are bright,
genuine breakthroughs in drug development its there might not be enough business for all the new
chances are proportionately limited in contributing entrants who look set to continue flooding in.
to new discoveries.
As with other internet-based platforms, there is a
The vast majority of drug development projects good chance that the biggest telemedicine providers
in China today are based on “me-too” or “me- will develop sufficient scale and following to
34
effectively keep new entrants at bay. The tech giants also significant concerns about profitability given
in the space, including Tencent Trusted Doctors, government efforts to suppress prices to ensure
Ping An Good Doctor, Alibaba Health Information affordability.
Technology and Baidu Health, are already among
the biggest and are likely to grow much further Another crucial consideration is that many of the
given their ability to leverage their massive user drugs currently in development by pre-profit
bases and wide-ranging ecosystems biopharmaceutical companies
to drive business to their online garnering massive investments
healthcare platforms. are bound to fail before they can
be commercialised. As few as 7 per
Is a bubble brewing? cent of drugs entering clinical trials
“China’s
And as with any sector that will eventually receive marketing
healthcare sector
has recently seen an influx of approval.35 And even if they do reach
arguably remains
investor interest and significantly the market, success is far from
undervalued
outperformed the broader market relative to its guaranteed owing to intensifying
index, especially in the wake of prospects and competition. Such concerns weighed
the Covid-19 pandemic, there is a global healthcare heavily on the sector in 2019, but
possibility that a correction in Chinese benchmarks.” Covid-19 seems to have shifted them
healthcare investments might be in to the rear view mirror.
the works.
On the other hand, China’s healthcare
Several healthcare-related companies sector arguably remains undervalued
have taken advantage of buoyant relative to its prospects and global
investor sentiment to raise nearly US$8 billion in healthcare benchmarks. The bulls point out that
funding via heavily over-subscribed initial public while healthcare is the second largest sector by
offerings in the year-to mid-May 2020. But while market capitalisation in the US, it ranks eighth in
the pandemic served to emphasise the recession- China, suggesting it has a long way to grow in the
resistant quality of healthcare offerings and is latter country.36 But that ignores another important
likely to pave the way for much greater government question: is healthcare in the US too expensive and
policy and funding support for the sector, there are unsustainable?
A self-service comprehensive medical system at Zhuhai People’s Hospital, China.
35
36
Chelsea Rodstrom, “China Sector Analysis: Health Care”, Global X by Mirae Asset, 25th April, 2019: https://www.globalxetfs.com/china-sector-analysis-health-
care/
3.5: A NEW MODEL

China’s efforts to ensure healthcare expenditure financial strain on the government from its virtually
remains sustainable is giving rise to a new model universal public health insurance will intensify.
which could serve as an example for other countries. Growth in spending by China’s basic public health
insurance fund exceeded growth of income in 2018,
A potential new model of sustainability with the fund expected to slip into a deficit from
In the US, healthcare expenditure has arguably 2020 given the country’s ageing population and
spiralled out of control, accounting for almost 18 per mounting demands for expensive treatments.40
cent of GDP in a system often described as “broken”
and characterised by high spending but mediocre In order to lessen the burden of healthcare provision
outcomes.37 Healthcare expenditure accounts for on public coffers, China is seeking to rein in drug
about 10 per cent of GDP in the UK and Canada, and and medical device prices through bulk procurement
about 5 per cent in Singapore, which nevertheless programmes and by demanding hefty discounts
achieves one of the world’s best healthcare from manufacturers in exchange for access to the
outcomes.38 vast patient population covered by its national
public health insurance schemes. Given
where it is at in its healthcare journey,
FIGURE 66: CURRENT HEALTH EXPENDITURE (PER CENT OF GDP) China has little to lose in trying out
China United States United Kingdom
such radical policies. The Chinese
Canada Singapore government is also unhindered by
20 vested interests and has the ability
to implement change with little
resistance.
15
There is clearly a desire to institute

similar policies in the US. In December
10
2019, the Democrats passed a bill in
the House of Representatives giving
5 the government authority to negotiate
prices with drug makers for Medicare
– the federal government’s health
0 insurance plan for the elderly – which
2000 2016
is forbidden by legislation passed in
Source: World Health Organization Global Health Expenditure database
2003.41 However, the bill is highly
unlikely to get through the Senate.
Republicans and the drug industry are
In China, healthcare expenditure accounts for 5 heavily opposed to it, even though Speaker Nancy
per cent of GDP and is set to climb higher because Pelosi pointed out it actually delivers on President
of the country’s ageing population and mounting Trump’s promise to “negotiate” the cost of drugs
demands for expensive treatments.39 With “like crazy”.42
healthcare spending set to outstrip GDP growth, the
37
Lisa Rapaport, “U.S. health spending twice other countries’ with worse results”, Reuters, 14th March, 2018: https://www.reuters.com/article/us-health-spending/
u-s-health-spending-twice-other-countries-with-worse-results-idUSKCN1GP2YN
38
The Economist Intelligence Unit, “Health Outcomes and Cost”, March 2018: https://ulinkassist.com/singapore-ranked-2nd-in-healthcare-outcomes-by-eiu/
39
Peggy Sito, “How Wuhan and the coronavirus are shaping China’s medical reforms”, South China Morning Post, 11th April, 2020: https://www.scmp.com/business/
companies/article/3079266/how-wuhan-and-coronavirus-are-shaping-chinas-medical-reforms
40
National Health and Family Planning Commission
41
Berkeley Lovelace Jr., “House passes Speaker Nancy Pelosi’s drug pricing bill”, CNBC, 12th December, 2019: https://www.cnbc.com/2019/12/12/house-passes-
speaker-nancy-pelosis-drug-pricing-bill.html
42
Ibid.
The bill gives US voters a preview of the Democratic Fundamental contributions to healthcare AI
Party’s platform on healthcare ahead of the 2020 While China could have profound impacts on global
elections. The shift in priorities following Covid-19 pharmaceutical prices in the near term, it will take
could well lead to greater bi-partisan support of a good deal longer for it to rival the US and Europe
such measures. So could any successes achieved by as a major source of high-quality, innovative
China’s drug negotiation efforts, especially in light treatments. Indeed, it will take a good deal longer
of growing pressure within the US to not be outdone for China’s drug development infrastructure to even
in any critical realm by China. The latter has already reach maturity.
succeeded in achieving “the lowest prices in the
world” for many imported drugs, Where China could more quickly
including those from the US. That contribute to global healthcare
cannot sit well with Republicans.43 innovation is by developing
applications using artificial
China effects on global drug “The hope is still intelligence (AI) technology, for
markets that immense which data is the most crucial
Beyond exerting downward pressure demand from the ingredient.
on prices of existing drugs, China China market will
will also increasingly provide a new drive improvements China has more permissive data
source of supply for medicines. to the bottom lines policies than the US or Europe,
of global pharma where interoperability issues also
This will be particularly felt in
giants. But the prevent the sharing of patient data
oncology, where the bulk of China’s
ultimate China between individual healthcare
drug development is centred.
effect on their facilities. Interoperability poses
businesses is far
Shanghai Junshi Biosciences, which less of an issue in China, where
from certain at this
gained conditional marketing even a single hospital can generate
stage.”
approval in December 2018 for sufficient data to train machine-
the first domestically developed learning algorithms.
PD-1 checkpoint inhibitor, Tuoyi
(toripalimab), began offering One application jointly developed
the treatment for a third of the price of Merck’s by China’s Yitu Technology and researchers at
competing product, Keytruda.44 the University of California San Diego is a natural
language processing system capable of diagnosing
China could emerge as a reference country for common childhood conditions at comparable
pricing in other emerging markets, and increasingly accuracy to experienced paediatricians. The data set
in developed markets. to train the algorithm included multiple visits by
nearly 600,000 individual children visiting a single
This could put pricing pressure on established hospital in Guangzhou.45
multinational pharmaceutical companies around
the world in an expanding range of product The Covid-19 pandemic showcased China’s
categories. The hope is still that immense demand strength in AI, with companies quickly repurposing
from the China market will drive improvements to their technology for epidemic prediction,
the bottom lines of global pharma giants. But the patient diagnosis and vaccine development. That
ultimate China effect on their businesses is far from demonstration will no doubt create strong demand
certain at this stage. for China’s AI-based healthcare solutions around
the world.
43
44
Jiayue Huang, “Junshi CEO discusses Chinese pricing plans for Keytruda competitor”, S&P Global Market Intelligence, 4th January, 2019: https://www.spglobal.com/
marketintelligence/en/news-insights/trending/nJ8xb4O04fMFf-Sx0wpe6Q2
45
Sarah Dai, “Chinese, US scholars jointly develop AI model to improve diagnosis of sick children”, South China Morning Post, 13th February, 2019: https://www.scmp.
com/tech/venture-capital/article/2185975/chinese-us-scholars-jointly-develop-ai-model-improve-diagnosis
Inequalities will be addressed FIGURE 67: URBAN/RURAL DISTRIBUTION OF CHINA’S HEALTHCARE

At home, China’s AI companies CAPACITY (2017)
will help address the quality and Resources per 100,000 people
capability gaps in healthcare
provision between urban and 3.97
Doctors
rural in China. Apart from the 1.68
glaring resource gap between
urban and rural areas (see
figure 67), a more intractable 5.01
Nurses
issue is the gap in quality of 1.62
diagnosis and treatments,
which means that although
Medical Technical 10.87
rural healthcare facilities are
Personnel 4.28
under-equipped, they are also
under-utilised owing to the
tendency for rural patients to 8.75
Beds in Medical
avoid them and flock to the Institutions 4.19
cities in search of reliable care.
0 3 6 8 11
A combination of increased
adoption of telemedicine and Urban Rural
use of AI in rural hospitals Source: 2018 China Statistical Yearbook, NBSC
to augment their diagnostic

and treatment capabilities
could finally solve this issue, which has long been a private sector entrants with a more customer-
government policy priority. And again, in addressing centric approach and the competitive pressure
a pressing domestic need, China could be first to they will exert on state-owned enterprises. It will
market with solutions that could help support the be a different type of competition than elsewhere,
provision of sustainable healthcare everywhere. guided by a government that has already shown its
determination to control prices in an experiment
The rise of the private sector that could perhaps head off the market distortions
Finally, although it was the government that issued experienced in developed markets.
the call for healthcare reform, going forward, it will
be the private sector that leads the charge, solving It is too soon to tell whether this new model will
problems according to market demand. succeed, and it is certainly a risk given the capacity
for price curbs to lead to supply disruption of vital
The government is seeking to clearly delineate drugs and medical equipment. Even if it does work,
the functions of the public and private sectors in it might prove a model that could only ever succeed
healthcare provision, with the latter tasked with in China given the country’s immense scale and
ensuring basic protection from critical illness level of development.
and major disease, and the latter supplying
supplementary care. In addition, the government is What is certain is that China’s high-profile
promoting the development of private hospitals and journey will prompt a widespread re-evaluation of
health insurance schemes as a means to alleviate healthcare policy. And that might just lead to a new
the strain on public coffers. paradigm for dealing with one of the world’s most
urgent common challenges.
In coming years, this will give rise to a much
different Chinese healthcare sector, driven by new
CONCLUSION
It is a testament to the Chinese government’s strength applications were made at the end of 2019 and are
of will that the country’s overstretched healthcare likely to proceed given the fact that, if anything, these
sector did not crumble under the strain of the Covid-19 companies have met with a more enthusiastic market
pandemic. As unswayed as ever by competing response in the wake of Covid-19.46 An index of Hong
interests, Beijing quickly brought the pandemic to Kong-listed biotechs gained 14 per cent in the year-to
heel through the swift and decisive imposition of mid-May, while the benchmark Hang Seng Index fell
lockdowns and diversion of scarce medical resources by about 15 per cent over the same period.47
to where they were needed. Now, China can return its
focus to ongoing healthcare reforms and the mission Hong Kong’s biggest Chinese healthcare IPO as of
to provide accessible and affordable healthcare to all mid-2020 was from Akeso Biopharma, Inc., which
its citizens, with the Covid-19 crisis likely to result in focuses on oncology and immunology, and raised
a redoubling of those efforts. US$330 million in April, becoming the city’s thus
far largest IPO of the year. Other major transactions
Sitting still is certainly not an option. In light of include Beijing-based cancer drugs developer
China’s rapidly ageing population and the surge in InnoCare Pharma’s US$289 million IPO in March48 and
lifestyle-related diseases such as heart ailments, medical device maker Peijia Medical’s US$302 million
cancer and diabetes, the demands on its healthcare listing in May, both of which were substantially
sector are intensifying. Fortunately, the country’s oversubscribed. A few days after the Peijia IPO, on 18th
growing wealth and capacity for innovation offer May, Chinese prostate and breast cancer drugs maker
vital resources to help bridge the gap. There is also no Kintor Pharmaceutical raised US$240 million through
doubting the government’s resolve. Failure to provide an IPO that was more than 500 times oversubscribed.49
adequate healthcare could undermine the legitimacy
of the regime. China shows its resilience
Investors were no doubt also encouraged by China’s
Investor interest surges ability to weather the pandemic and bounce back more
China’s healthcare players, and its innovative, young quickly than many other countries. Even at the height
biopharmaceuticals firms in particular, have become of the outbreak in January and February 2020, there
a prime target for international investors since the was no sign of delays in drug approvals and China’s
outbreak of Covid-19, raising US$7.9 billion in the year regulatory pathways remained open.50 The NMPA
to mid-May 2020 via initial public offerings (IPOs) granted 164 drug approvals in the first quarter of
in Hong Kong, Shanghai and Shenzhen. Among these 2020, compared with 141 in the same period of 2019.
three listing destinations, Hong Kong is the preferred
base for Chinese companies looking to attract global Drug manufacturing resumed fairly quickly following
investors and build international relationships. China’s initial lockdown, although it is not clear how
long it will take to return to full capacity. In addition,
Looking ahead, Chinese biopharma IPOs in Hong Kong there were disruptions to clinical trials because of
show no sign of abating. A number of such listing quarantine measures and a lack of clinical capacity,
46
Lina Lee, “China’s life sciences industry remains opportune despite Covid-19 coronavirus”, Allen & Overy, 30th March, 2020: https://www.allenovery.com/en-gb/
global/news-and-insights/publications/chinas-life-sciences-industry-remains-opportune-despite-covid-19-coronavirus
47
Julie Zhu and Kane Wu, “China healthcare investment booms on virus-related spending bets”, 15th May, 2020: https://www.reuters.com/article/us-health-
coronavirus-china-investment/china-healthcare-investment-booms-on-virus-related-spending-bets-idUSKBN22Q3OE
48
Eric Ng, “Chinese cancer drugs developer InnoCare raises US$289 million after Hong Kong IPO is nearly 300 times oversubscribed”, South China Morning Post, 20th
March, 2020: https://www.scmp.com/business/companies/article/3076048/chinese-cancer-drugs-developer-innocare-raises-us289-million
49
Eric Ng, “Chinese prostate, breast cancer drugs maker Kintor’s IPO more than 500 times oversubscribed as Hong Kong biotech investment fever continues”, South
China Morning Post, 19th May, 2020: https://www.scmp.com/business/companies/article/3085051/chinese-prostate-breast-cancer-drugs-maker-kintors-ipo-
more-500
50
Sizhe Chen, Franck Le Deu, Gaobo Zhou and Josie Zhou, “How COVID-19 changes the game for biopharma in China”, 24th April, 2020: https://www.mckinsey.com/
industries/pharmaceuticals-and-medical-products/our-insights/how-covid-19-changes-the-game-for-biopharma-in-china
FIGURE 68: CHINA DRUG APPROVALS DURING THE PEAK OF ITS COVID-19 OUTBREAK
Number of approved NMPA applications Approved applications in 2020
68
80 1
74 10
68 58
70 2
60 11
58
50 38 0
40 38 9
57
30 35
32 45
20 29 Normal track
Priority track
10 2019 (excl. special track)
2020 Special track

0
Jan Feb Mar Jan Feb Mar
Source: GBI Research, NMPA, McKinsey analysis
with most of the disruptions unsurprisingly occurring recognised as an innovator, rather than merely a low-
at facilities in Hubei, the Chinese epicentre of the cost “copycat” producer.
outbreak. A fair number of clinical trials also resumed
quite promptly, according to anecdotal reports from And somewhat paradoxically, recent US-China trade
clinical operations directors.51 tensions could actually serve to protect China’s
innovators as they increasingly start producing
Ascent of the value chain world-leading technologies in the healthcare
Beyond pharmaceuticals, biopharmaceuticals and realm. The phase one China-US economic and trade
medical devices, investors are also drawn to the agreement, signed in January 2020, specifically
healthcare technology and healthcare service provider strengthened intellectual property (IP) protection
segments. The common theme across all these in China for pharmaceutical companies through the
segments is a greater focus on quality and innovation inclusion of a chapter on IP. That chapter sought to
and convergence to developed world standards. And resolve a number of issues relating to IP protection
in the healthcare technology segment in particular, and enforcement, including, among other things,
Chinese companies are in several instances already patents, pharmaceutical-related IP and trade secrets.
leading the world, including in their application of If enacted properly through Chinese legislation, the
AI-based healthcare solutions and their widespread phase one trade agreement could help transform
provision of telemedicine services. China’s patent system to safeguard both domestic and
international healthcare innovators.52
As it has done in AI and other technology sectors,
China could perhaps breed several national champions That will be key, because the entire world is facing an
in its healthcare sector. These firms could perhaps acute healthcare challenge in an era of unprecedented
establish innovation platforms domestically to lead longevity and rapidly ageing populations. Healthcare
the way for other Chinese firms, as well as vying needs to become more accessible, affordable and
for market share in international markets. Greater efficient, while quality is improved and a multitude of
innovation and competition will help bring new unmet clinical needs are tackled. All that would simply
treatments and make healthcare more affordable not be possible without some serious innovation, with
everywhere. China could also realise its ambition to be China well-positioned to play a leading role.
51
Sizhe Chen, Franck Le Deu, Gaobo Zhou and Josie Zhou, “How COVID-19 changes the game for biopharma in China”, 24th April, 2020: https://www.mckinsey.com/
industries/pharmaceuticals-and-medical-products/our-insights/how-covid-19-changes-the-game-for-biopharma-in-china
52
Allen & Overy, “Phase One Sino–U.S. trade agreement and the pharmaceutical industry”, 19th February, 2020: https://www.allenovery.com/en-gb/global/news-
and-insights/publications/phase-one-sino-us-trade-agreement-and-the-pharmaceutical-industry
HONG KONG BEIJING NEW YORK
19/F, Tower One, Times Square, Rm. 3-5/ 3-7, Tower D, 142 W 57th Street, 11th Floor,
1 Matheson Street, Guanghualu SOHO 2, New York,
Causeway Bay, No. 9 Guanghua Street, NY 10019,
Hong Kong Chaoyang District, USA
Beijing, China, 100020
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About SCMP Research

About the China Healthcare Report 2020

• An up-to-date and comprehensive review of the latest

• Segment analysis of the various sectors in healthcare and in-

• Insights on market trends and risks and opportunities

China Healthcare Report 2020 | August 2020

3. RISKS AND OPPORTUNITIES 72

China Healthcare Report 2020 | August 2020

China Healthcare Report 2020 | August 2020

China Healthcare Report 2020 | August 2020

MSCI China All Shares Health Care 10/40 Index

Travel restrictions placed on 80

China Healthcare Report 2020 | August 2020

Beyond the demographic opportunity of providing leading to significant overall improvements in

China Healthcare Report 2020 | August 2020

The dearth of GPs is the

China Healthcare Report 2020 | August 2020

China Healthcare Report 2020 | August 2020

China Healthcare Report 2020 | August 2020

1.2: MARKET SIZE

industry has also been

China Healthcare Report 2020 | August 2020

primary care services, and new But it may not be desirable to

FIGURE 6: PER CAPITA HEALTHCARE EXPENDITURE OF MAJOR COUNTRIES IN 2017

6,000 5,332 5,033 4,755 4,380 4,169 3,859

China Healthcare Report 2020 | August 2020

1.3: GOVERNMENT POLICIES

FIGURE 7: REVENUES OF PUBLIC HOSPITALS

China Healthcare Report 2020 | August 2020

China Healthcare Report 2020 | August 2020

FIGURE 7: MATERNAL MORTALITY RATE BY INCOME LEVEL OF PROVINCES, 2005-17

China Healthcare Report 2020 | August 2020

1.4: MAJOR DISEASES

Cancer 8*43 The government has made finding a vaccine a

Workers in the catering industry of Beijing’s Xicheng

China Healthcare Report 2020 | August 2020

FIGURE 11: LIFE EXPECTANCY AT BIRTH (YEARS)

affluence, have become far more prevalent, Cardiovascular disease

FIGURE 12: POPULATION OVER 65 AS A PERCENTAGE OF TOTAL POPULATION IN CHINA

China Healthcare Report 2020 | August 2020

2.8k Stroke +73%

2.4k Neoplasms +79%

Lung cancer +204%

0.4k Neonatal -54%

FIGURE 14: LEADING CAUSES OF “YEARS OF LIFE LOST” (1990-2017)

China Healthcare Report 2020 | August 2020

Plavix, a blood thinner, are used

0 a staggering increase since 1980,

China Healthcare Report 2020 | August 2020

China Healthcare Report 2020 | August 2020

vs Another issue in China is late screening

55% in US The availability of cancer drugs in China,

FIGURE 19: CANCER INCIDENCE IN CHINA VS OTHER MAJOR COUNTRIES

China Healthcare Report 2020 | August 2020

China Healthcare Report 2020 | August 2020

1.5: MAIN SEGMENTS

China Healthcare Report 2020 | August 2020

regulations and a reduction in layers of distribution companies belong to the biopharmaceuticals

China Healthcare Report 2020 | August 2020

China Healthcare Report 2020 | August 2020

China Healthcare Report 2020 | August 2020

Healthcare service providers China’s private hospitals mainly target affluent