China's healthcare sector enters 'golden' period

Chinese biotech- and healthcare-related investment opportunities are attracting growing private equity interest.

If you asked most people to guess which sector received the highest number of investments last year in China, they would probably pick something consumer- or energy-related. 

However, though it gets much less air-time, China’s biotech/healthcare sector in fact topped the list in 2010, according to China-focused private equity research body Zero2IPO, attracting a total of 55 investments compared to only 31 in runner-up sector clean-tech.

This compares to only 10 and 14 deals made in the healthcare sector in 2008 and 2009 respectively, according to Zero2IPO, although that comparison needs to be put into the context of the overall rebound in investment activity seen in 2010: a total of 363 private equity deals were made last year, while only 155 and 117 transactions were recorded in 2008 and 2009. 

After years of build-up, healthcare in China has entered its best stage yet in terms of development. We believe the next 10 years will be the industry’s golden 10 years.

Zhanghong Hu

Among the domestic firms putting their money behind the healthcare play is CCB International, the investment arm of Chinese commercial bank China Construction Bank, which has made at least five deals in biotech/healthcare in the past year, according to Zero2IPO. The transactions included a $35.4 million investment in Bosheng medical, which operates medical centers across China; a RMB130 million investment in Luyan Pharma, which owns and operates drug stores and pharmacies across the Fujian Province; and a RMB100 million investment in Shanghai Kindly Enterprise Development Group, which specialises in manufacturing and distributing disposable medical devices as well as developing hi-tech medical products.

The firm’s confidence in the healthcare sector was underscored by its launching of China’s first dedicated healthcare fund in 2009.

“At the time, we foresaw the great potential of the healthcare sector and predicted that a significant portion of the wealth created in China would come from this industry,” Zhanghong Hu, chief executive officer of CCB International, told sister publication PE Asia. “After years of build-up, healthcare in China has entered its best stage yet in terms of development. We believe the next 10 years will be the industry’s golden 10 years.”

The fund, which closed on RMB2.7 billion in the same year, primarily focuses on investments in pharmaceuticals manufacturing, medical devices, medical institutions, medical services and the healthcare management sectors.

However, the interest is not just coming from domestic players. China’s healthcare sector last year pulled in global investors such as JPMorgan’s private equity unit One Equity Partners, The Blackstone Group and Morgan Stanley. One Equity invested $69.6 million in Guangzhou-based China Medicine for a 54 percent stake in January last year, while The Blackstone Group invested $45 million in China Animal Healthcare later in July. Morgan Stanley, meanwhile, invested $80 million in Shangdong-based drug manufacturer Buchang Group.