The Development of Private Healthcare Services in China Set to Intensify

China’s healthcare service industry appears to be more resilient to economic headwinds than other industries; hospitals and other medical service providers have witnessed a considerable influx of private capital over the past couple of years. The government has recently announced the plans to gradually remove red tape surrounding investments in healthcare. Also, the performance of traditionally strong B2B sectors is becoming more uncertain and volatile, while demand for medical services is set to remain strong thanks to the increasing prevalence of chronic diseases and relaxation of the one child policy in 2015. As a result, private healthcare service development is set to intensify, as the sector is becoming an increasingly reliable and tenable option for private investors.

You can read more about the development of service industries in Asia Pacific in our global briefing Asia Century: Business and Recreational Services Shift East.

The Number of Establishments in China’s Health and Social Care Industry

Government cuts red tape surrounding healthcare investment

Despite China’s economic slowdown and ongoing concerns about the possibility of country’s hard landing, the domestic hospitals, medical and dental services industry continues to flourish. China’s healthcare service sector surged by 8% in 2016, with a strong performance expected for 2017 as well, mainly thanks to the rapid development of private healthcare facilities. Since 2013, public authorities have been launching a series of reforms and packages aimed at enabling private capital inflows into the healthcare industry.

Private hospitals have already witnessed a rapid expansion, with the number of private institutions almost doubling over 2011-2016. Also, many hospitals were privatised in 2016, while the number of hospitals within the public sector declined slightly, while the number of private hospitals surged by 8% in 2016 alone. Consequently, household spending on medical services grew at a faster pace than government expenditure.

Spending on Hospital and Medical Services in China

However, the new wave of excitement surrounding China’s private medical service development comes from the set of policies announced by the government in the early 2017 aimed at further opening the healthcare sector to private investors. The government is expected to further reduce the regulatory burden surrounding private healthcare, as medical service demand still exceeds supply, but government revenue growth has slowed.

Investors can expect steady growth in demand for healthcare services

Private equity players can expect steady growth in demand for healthcare services, in contrast to many commodity and manufacturing industries which are suffering in the light of economic slowdown. According to Euromonitor’s Attractiveness Index, which evaluates industry performance in both stable and turbulent economic environments, China’s healthcare service industry is historically more resilient to economic headwinds than other sectors. Demand for healthcare services even in a more volatile environment will be sustained by the growing and ageing population, and ongoing rise in chronic diseases. For instance, there were 136 million diabetics in China in 2016 – 50% more than in the US and Western Europe combined. In addition, hospitals are already witnessing an influx of patients thanks to the relaxation of the one child policy in 2015.

Hospitals to be the most attractive industry for private capital inflows

China’s hospitals sector is expected to be a particularly attractive focus for private investment in the coming years. Private equity firms and hedge funds are already betting on the positive healthcare industry’s performance. For instance, according to the A.T. Kearney’s Foreign Direct Investment Confidence Index, China is the third most attractive country for foreign investors, with the main reason being Beijing’s plans to significantly reduce red tape surrounding the healthcare sector in the near future. Similarly, Ally Bridge LB Healthcare Fund (a hedge fund mainly investing in Asia Pacific’s healthcare companies) has also expressed the belief that China’s private hospitals are set to become one of the best investment options.