abrdn: Investing in health in China, a long-term opportunity

China’s healthcare sector is the second largest in the world. What opportunities can you offer to investors?

China’s population now exceeds 1.4 billion. There are many people who need to stay healthy and fit. Unsurprisingly, the Chinese healthcare market is huge and expanding rapidly. An aging population (life expectancy has fallen from 69 years in 1990 to 77 today), economic growth and the improvement of basic medical insurance are driving demand. The government has significantly increased investment and implemented “shared prosperity” policies aimed at strengthening the health system. Spending currently accounts for 5% of GDP and is expected to increase in the next decade. The government’s stated goal is to make health care cheaper and more accessible to everyone.

At the same time, China’s per capita gross national income has increased more than tenfold since 2000, reaching $11,880 in 2021. This new wealthy middle class places greater importance on health and well-being. Younger generations, in particular, want healthier lifestyles. Many are willing and able to pay for preventive measures to protect themselves. This has led to the growth of specialized care, high-tech devices, and cutting-edge treatments.

With all of these factors in mind, it is not surprising that investors are increasingly looking at the Chinese healthcare system. On our side, we find investment opportunities across all sectors and across the entire market capitalization scale.

How does this translate into practice?

For a doctor, good manners make all the difference. However, many Chinese hospitals in the past suffered from a lack of investment and a shortage of trained personnel. The service was lacking. Fortunately, the situation is improving thanks to companies like Aier Eye Hospitals.

As the largest private eye care operator in China, he knows that outstanding doctors are the key to success. This is why they offer incentives to attract and retain outstanding employees. It also offers university courses to train future healthcare professionals. Aier’s services are affordable and thus receive tacit approval from the government, which it considers valuable and necessary. The company is also well positioned to benefit from China’s growing wealth. And the doctor will see you now.

Foreign companies dominate the Chinese market for health products. However, there are signs that this is changing. The trade war between the US and China that began in 2018 meant that many Chinese healthcare companies had to look inward to develop their own products. Meanwhile, the Covid-19 pandemic and the lockdowns it has triggered have emphasized the need to improve self-sufficiency in many sectors, including healthcare.

For example, consider Mindray. Design and manufacture of medical devices and supplies for human and veterinary use. It has three main businesses: patient monitoring and life support, in vitro diagnostics, and medical imaging systems. It is one of many Chinese companies betting on localization while trying to gain market share abroad. New products and its existing platform business model (design, distribution, research and development, cross-selling) should help boost the company’s long-term growth prospects.

Clinical research is the backbone of medicine. Through it, companies obtain vital information about the efficacy of medicines, treatments, and devices. It also guarantees the safety of the products. Research is also big business. One of the most prominent companies is Tigermed, one of the country’s leading contract research organizations. It mainly conducts Phase IV clinical trials for the medical device and biopharmaceutical industry. The company has a long history of providing quality services, with a broad and experienced employee base. In addition, customers need to be consistent and stay when the service is good.

This gives consistency to the benefits of Tigermed. On the other hand, recent reforms should boost research and development spending on innovative medicines. This could be beneficial for companies like Tigermed.

What are the long-term prospects?

The Chinese healthcare system is huge and continues to grow. China’s National Health and Family Planning Commission aims to expand the size of the country’s health service sector to about $2.4 trillion by 2030. The number of people over the age of 60 will double to 324 million by 2027. This is equivalent to the population of the United States . At the same time, disposable income is growing. Firms that are able to meet this increased demand must be in a position to turn a profit.