Healthcare Investment in Asia Presents Opportunities—If You Assess Corruption Risks

Healthcare Investment in Asia Presents Opportunities—If You Assess Corruption Risks

Large populations plus an infrastructure in need of an update equal a bright time for investment.

Stuart Witchell 

As many Asian economies rush to modernize, investors are watching closely, looking for the most promising—and safest—ways to share in the growth ahead. Few if any sectors offer more potential than healthcare. 

By 2022, India’s healthcare market is expected to grow to $370 billion. In China, that number is expected to be $1 trillion. And while those figures are impossible to ignore, investors should also be aware of the risks.

Related: China’s Plans and the Unknown Global Impact

China and India account for a third of the world’s population, meaning healthcare reforms in those countries will transform the entire global health industry. The private sector will play a big part in that, making it a great time to invest in these countries, whether it be in hospitals, pharmaceuticals, devices, diagnostics or insurance. And thankfully, both the Indian and Chinese governments encourage foreign direct investment (FDI) in healthcare.

Healthcare Investment in Asia Shows Growing Markets and Big Numbers

Of 19 countries surveyed in the 2017 Future Health Index from Philips, China had the lowest density of skilled health professionals (31.5 per 10,000 population). But the Chinese government wants to fix that with a campaign it calls Healthy China 2030.

According to the World Health Organization, “With over 20 departments drafting the 2030 plan, a vision has been set for a significantly expanded health industry, which would become a mainstay of the national economy. This would draw on the strength of China’s health science and technology innovation, which ranks amongst the world best, and would help to considerably improve the quality and level of health service delivered across the country.”

Other opportunities lie in second- and third-tier Chinese cities, where despite sizeable populations—like Harbin with a population of more than 10 million —healthcare has yet to modernize along with the metropolises of Shanghai and Beijing. 

Though investing in China might be more talked about, healthcare reforms in India have outpaced those in its northern neighbor over the past year or so due to Indian government pushing reform in this sector.

Related: Healthcare Investment Opportunities Abound

In early 2018, Indian leaders announced it was their goal to provide half a billion people access to free healthcare, which would include admittance to private hospitals. Public hospitals are currently free, but often have long waits and poor service. Profits at India’s five biggest hospital chains rose 80 percent between 2012 and 2017.

Governmental reforms tend to create opportunities for investment, as is already evident in Indian healthcare. Private equity investors invested over $3.4 billion from 2007 to 2017, with the bulk of that coming in the past five years. Medical tourism—people traveling to another country to receive cheaper or higher-quality care—in India is also expected to become a $9 billion industry by 2020, up from $3 billion in 2017.

Pharmaceuticals and medical devices also offer enticing possibilities, as India is one of the largest exporters of pharmaceutical products, accounting for a high percentage of the world’s generic drugs and vaccines. Additionally, the Indian medical device market was valued at $5.2 billion in 2017 and could expand to approximately $50 billion by 2025 as technological advancement and growing expertise combine with government support for the sector.

Don’t Forget the Risks: Corruption and FDI in Asia

But with these opportunities—as with any investment—come risks. And in India and China, FDI risks tend to be higher than in some other locations. Here are the key pitfalls to watch for:

China

Trade tensions. Great uncertainty exists regarding the US-China trade war. Given ongoing discussions between the two countries, it’s worth considering how tariffs and adjustments could impact opportunities for investment there.

Ownership restrictions. Foreign businesses generally must partner with Chinese companies to invest—foreign shareholders’ ownership interest cannot exceed 70 percent, though some officials have been trying to loosen this rule. Recently, a few exceptions have been made for some Wholly Foreign-Owned Enterprises. It is important therefore to undertake in-depth due diligence into domestic counterparts, since disputes with Chinese partners can be troublesome and costly.

Insurance. Chinese domestic medical insurance doesn’t cover high-end joint hospital ventures, which, at least for now, makes it difficult for outside investors to enter the hospital business. 

Corruption. Many hospitals in China are state owned. Sales teams facing competitive pressure might be tempted to offer incentives to doctors to buy their products—which could constitute bribery. It’s critical to ensure the appropriate policies, procedures and training are in place.

Intellectual property. Chinese intellectual property laws and frameworks are still evolving (and are a key issue in its trade dispute with the US). Compared with most developed countries, the IP regime is still developing, with counterfeiting and/or reverse engineering as a potential reality for those trying to create new products.

India

Pharmaceutical compliance. India’s pharma sector is fragmented, which means high uncertainty; foreign companies need to ensure that they have operational ability. That said, there is a bright spot. According to a McKinsey report, India Pharma 2020: Propelling access and acceptance, realising true potential, the Indian market will continue to grow. The report notes that this could lead to more compliance, regulation and transparency.

Insurance. Because most Indians lack insurance coverage, most Indian patients pay in cash. In our experience, where there is cash, there is a high probability of fraud and corruption.

Corruption. In addition to the same risks associated with state-owned hospitals as in China, India lacks a proper regulatory body to oversee hospitals, which has led to inefficient oversight and compliance issues.

Intellectual property. Just as in China, an underdeveloped legal framework puts foreign investors in India at risk of losing IP.

Of course, risks like these appear in any country and with any investment. Before making an investment, and even once an investment is made, investors need a proper team to guide them and a steady nerve to help them stay the course. 


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