Lucrative market: health care sector in China

With China’s population growing both wealthier and older, the country’s health care sector is looking forward to a bright future.

In 2016, the health care industry already accounted for 6% of China’s GDP (gross domestic product) and the figure is expected to rise to 10% in the near future. China is forecast to overtake the US as the largest pharmaceutical market by 2020.

The health care market in China is expected to reach a figure of 2.3 billion US dollars in 2030.
Source: www.businesswire.com

Easier access for foreign pharmaceutical companies

A national health care plan called “Healthy China 2030” was published last year and included a call for further international cooperation. Big pharmaceutical companies are also expanding into China. GlaxoSmithKline (GSK), Novartis, and Bayer have all opened production and research facilities there.

One of the reasons for investment in China is the requirement that foreign drugs have to undergo local trials after approval abroad before they can be sold on the Chinese market. As a result, it often takes up to 5 years before a foreign company can launch a new medicine in China, which is more than three times longer than in the U.S.

However, the China Food and Drug Administration (CFDA) has already published a new draft regulation to speed up the registration process. According to the new rules, foreign pharmaceutical companies would no longer have to wait for approval in their home country before they can start local trials in China, which is what the health care experts at Ecovis in China also recommend. Chinese scientists and physicians will also be involved in international studies and testing procedures. The new rules would speed up the registration process and move China even further into the focus of foreign health care providers.

Foreign-invested health care facilities

Since 2015, foreign operators have been allowed to open wholly foreign owned hospitals (WFOH). For this, the foreign investors need to be able to bear civil liability, have extensive experience in health care management and related fields, and meet China’s national hospital standards.

Furthermore, foreign investors need to offer advanced hospital management ideas and service models, employ state-of-the-art technology and equipment, and contribute to the improvement of local medical services, technology, funds, or facilities. However, foreign hospital operators are not allowed to offer treatments based on traditional Chinese medicine, unless they are from Hong Kong, Taiwan, or Macau.

The process of registering a WFOH, which can require a lot of patience and time from potential applicants, can be roughly summarised in three steps:

1. The WFOH applies for pre-approval at the relevant municipal health and family planning administration, as well as the local departments of traditional medicine.
2. The approval will then be transferred for secondary approval to the province’s health and family planning administration.
3. The provincial business department decides if the WFOH meets all the necessary criteria for opening a hospital.

Hic sunt dracones

Entering the Chinese health care sector is not without risk. The 490 million USD fine for GSK in 2014 for alleged bribery of doctors for product promotion should remind foreign investors of the legal risks that are hidden in this immense market. Low trust in medical personal, frequent scandals and trademark and patent violations require not only solid risk management but also an in-depth understanding of a rapidly changing legal environment.

Cooperation will be the key

31.2% of Chinese students abroad study in the fields of engineering, physical and life science or health professions. 80% of them return to China. As a result, a highly educated workforce, familiar and maybe already connected to western medical companies, enters the Chinese labour market every year. Once back, these so-called “sea turtles” are often the main driver of innovation in the Chinese health care industry. For example, foreign trained start-up-founders have already turned Shanghai into China’s centre for biotech and medical innovation.

A partnership between foreign companies and local start-ups could be the gateway to the Chinese market and ensure successful business operations in this fast growing market.