China's Healthcare Industry Opportunities
China's Healthcare Industry Opportunities
Philips, Bridgetech, Medtronic, and Chindex Target Asian
Markets By Fei Wang www.China-AsiaStocks.com and
www.BiotechIndustryStocks.com February 2006
Most North American medical firms are currently facing a slow
down and a mature market in developed countries. In contrast,
many Chinese medical companies and companies doing business in
China are realizing their highest growth rates. Contributing
factors: China is a country with an aging population, a growing
middle class population, and a lower quality and problematic
public healthcare system. Throw in health care scares such as
SARS virus or Avian Flu and the already existing problems in
healthcare increase exponentially.
As a result, healthcare, one of the fastest growing markets in
China, has become one of the most attractive sectors to invest
in. However, challenges like redundant registration processes,
lack of transparency in decision making, and price control exist
in parallel. Public companies Metronic (NYSE: MDT), Bridgetech
(OTC.PK: BGTH), Chindex (NasdaqSC: CHDX) and Philips have all
gained access and are experiencing great success in this market
with significant profits.
Current China HealthCare Market
China's healthcare and medical technology market represents one
of the nation's fastest growing markets. It is predicted that
China's medical devices market will overtake Germany, Japan and
the United States by the year 2039, according to new research by
Research and Markets. The Advanced Medical Technology
Association (AdvaMed), indicates China's medical technology
market at $7 billion in 2004 and growing. According to China's
Customs Statistics, the US currently is one of the largest
suppliers of medical devices, comprising 34% of China's total
medical device import market, the highest among all countries.
More than 50% of Philips's (NYSE: PHG) revenue in the U.S. is
generated by its medical business. Currently, Philips is
expanding its reach into the China healthcare market. As stated
by company CEO Mr. Gerard Kleisterlee, in a speech on Healthcare
& China, "In China, healthcare market growth is expected to
reach roughly 10% over the next three years, making it the third
largest medical equipment market after the U.S. and Japan. In
the next five to seven years, China is even expected to surpass
Japan, making it the second largest market. For this reason, it
is hardly surprising that healthcare companies are rapidly
moving into China."
Bridgetech Holdings International, Inc. (OTC.PK: BGTH) is
capitalizing on China's demand for Western Healthcare by
establishing itself as the leader in the transfer of Western
technology to China. Michael Chermak, CEO and President of
Bridgetech commented, "The healthcare industry is just 4% of
China's GDP. This compares with over 14% in the US. The annual
growth rate over the last 5 years has been between 12% - 15%. It
is the fastest growing sector of China's economy."
Lawrence Pemble, Executive Vice President of Chindex, a leading
independent American provider of Western health-care products
and services in China (NasdaqSC: CHDX), has similar opinions,
"Chindex believes that the potential market for foreign
manufactured medical devices and international-standard
healthcare services in China has never been greater. The
appetite of Chinese hospitals for imported medical equipment has
not waned over the past two and a half decades, even with the
improving quality of Chinese-made medical equipment."
Opportunities
Aging Population
Due to all the problems caused by a large and fast growing
population, starting at the end of the 1970's, China began
implementing "Single Child Policy". This policy effectively
helped with China's population problems. However, it also leads
to another potential crisis- aging population. According to UN's
prediction, "China will only have 2 working-age people for every
person over 60 in 2040, compared with 6.4 in 2000." Along with
this phenomenon, are healthcare issues. An increased elderly
population creates a higher demand for healthcare facilities
pointing towards growing opportunities within the health care
industry.
Similar points are provided by Kleisterlee in the speech, "China
is having to face the important problems associated with the
increasing proportion of elderly people, which is mainly due to
decreasing fertility, through also decreasing mortality. This
means that China's healthcare system will become increasingly
important if it is to continue its ascendancy as a world power
so that it won't be crippled by an overwhelming number of sick
elderly patients."
Bridgetech is positioned to be one of the beneficiaries. As
Chermak said in the interview, "The population is aging, which
the greatest driver of healthcare utilization. This bodes well
for savvy market participants and for Bridgetech Holdings
International, Inc., which is focused on introducing the latest
western oncology related diagnostics and therapeutics into
China. Bridgetech's world class partners - Johns Hopkins
International, MD Anderson, Mary Crowley Medical Research
Center, Vanderbilt and others provide unparalleled access to
world class science and the latest innovations in medicine.
China has welcomed us with open arms."
Middle Class in China
Because western medicine is relatively more expensive than local
Chinese ones, the major consumers for western products are
middle high income classes. According to the Chinese Academy of
Social Sciences (CASS), the percentage of middle income class
population in China is growing at approximately 1% each year,
from 15% in 1999, to almost 20% recently. It is believed by many
professionals that this phenomenon will drive growth in the
health care market even further.
As Chermak stated, "Consumers are growing in sophistication and
wealth and are increasingly demanding western healthcare."
Pemble also agreed, "In the area of healthcare services, there
is a vast and growing need and demand for international-standard
healthcare, as the Chinese middle and upper classes grow, and as
more and more of these middle and upper class Chinese are
exposed to healthcare systems and service in the West through
travel abroad. In addition, with increased disposable income,
demand has risen for preventative, aesthetic and life-style
oriented medical care treatments that are not available to the
average Chinese consumer. Seeing this demand, in 1997 Chindex
opened its first United Family Hospital (UFH) in Beijing, which
was followed by the opening of satellite outpatient clinics and
a second hospital with outpatient clinics in Shanghai. "
Problematic Public Health System
China started with a complete public health system in 1949.
However, since 1987 economic reform, increasing hospital
privatization and decreasing government tax income (therefore a
declining government subsidy for the healthcare system), have
pushed China to rely on a market-based health system. According
to WHO statistic, China ranks 144 out of all 191 public health
system countries. Only a small percentage of the urban and an
even smaller portion of the rural population are covered by the
Public Health System, most of who work for state owned firms or
government. On the other hand, relative to the income, hospital
expenses are extremely high. A prescription for flu might cost
as high as 1 quarter of a Chinese's average monthly income.
Rising medical costs mean less sick people are going to see
doctors, which leads to significant health problems in China.
Detailed information is provided by Kleisterlee, "According to
the 2005 working report of Mr. Gao Qiang, nearly 48.9% of
Chinese people can't afford to see doctors when they fall ill,
and 29.6% are not admitted to hospital when emergencies require
it. Furthermore, only 20% of the country's medical resources are
available in rural areas while 80% are in urban areas.
Consequently many farmers have to go to hospitals far away,
hence increasing the financial burden on them."
However, from an investor's point of view, this means market
potential for private western medicine. As Yvan Deurbroeck,
Senior Director International PR and Communication at Medtronic
(NYSE: MDT) explains, "Medtronic therapies can benefit millions
of patients in China. The potential is tremendous. An estimated
53 million patients in China with various heart conditions:
there are 900,000 heart failure patients in China, compared to
570,000 eligible in U.S. and approximately 2 million die from
sudden cardiac arrests (in U.S., approximately 335,000 dies each
year from SCA). Also, 2 million Chinese have Parkinsons (1
million in U.S.) and there are 40 - 50 million diabetes patients
(20 million in U.S.). Nearly all Medtronic businesses are
represented in China, which started making profit since 1998.
Currently, Medtronic already has 500 employees in China and many
training centers and a pacemaker manufacturing plant in
Shanghai."
Areas of Concerns At the same time, investors should see that
there are still barriers in the market. According to a report by
AdvaMed, three problems should be addressed: redundancy in the
registration process: more than three state agencies'
requirements should be complied; lack of transparency in
decision making; and inappropriate price control by state
government. However, as the Chinese government realizes and
continues working on regulation within this specific market, we
can expect the situation to improve in the near future.
Competition from Local Rivals
There are three kinds of competition facing foreign health care
device manufactures: local Chinese western medicine/medical
devices manufactures; other foreign healthcare companies that
export products to China; and traditional Chinese medicine
manufactures. The major competition for foreign healthcare
investors and companies comes from similar foreign rivals.
As explained by Pemble," The greatest competition for imported
medical equipment suppliers continues to be other imported
medical equipment suppliers. Foreign manufactured medical
devices continue to distinguish themselves in the market both in
terms of quality and technical innovation. Chinese medical
professionals and institutions recognize the benefits of
purchasing such devices where quality and accuracy is assured
and for this reason the American Chamber of Commerce in China
cites 79% of medical devices sold in 2004 were imported. There
is no real competitive threat from Chinese medicine. And many of
Chindex's customers for imported medical equipment are actually
traditional Chinese medicine hospitals, which also do have use
for certain diagnostic medical equipment. "
Future of the Market
China's healthcare market is ripe with potential, driven by an
increasing aging population, a growing middle class, and the
government's awareness and efforts to improve conditions in the
healthcare market. Companies participating in the medical and
healthcare business exhibit confidence in the markets moving
forward.
In 2004 June, Philips initiated a joint venture with Neusoft to
further access China's medical market. Chiron has established
sales offices in Beijing and Hong Kong to support their three
businesses, Chiron Vaccines, Chiron Blood Testing and Chiron
BioPharmaceuticals. As Pemble stated, "We predict that demand
for foreign manufactured medical products will remain strong and
sustained for the foreseeable future......"
Fei Wang Fei Wang holds an Honors Bachelor of Commerce from
University of British Columbia Sauder Business School, with
double major in Finance and Marketing. She has experience in
investment banking and advertising in Canada, China and Korea,
with a firm academic background. Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp