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August 19, 2017

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As demand for high-quality health care rises in China, venture capital and private equity companies are taking advantage of ample investment opportunities in the nation's private and specialized hospitals.

"Investment in private and specialized hospitals offers real opportunities," said Xu Xiaolin, general manager of CCB International Wealth Management (Tianjin) Ltd. Xu said the company had invested in a high-end children's hospital in southwestern China.

The company has two objectives — to provide basic medical treatment and offer high-end services, the main source of making profits for the hospital. Cai Daqing, a director at Legend of Capital Co. Ltd., said it had invested more than US$14 million in 14 medical and health care-related companies over the past five years.

At least two of these companies are preparing to go public, Cai added.

Legend Capital's portfolio companies in the sector include a maternity hospital and Evercare Med Institution, a cosmetic surgery hospital.

"Though we realized that there are many difficulties in investing, getting listed and exiting, the prospect of investing in hospitals is bright and some exit channels for VC and PE firms have appeared."

Cai added that, as it was unable to invest in state-run hospitals, Legend Capital chose to focus on private, specialized and high-end hospitals.

There were 158 investment deals in the medical and health care sector last year, worth US$4.14 billion, around the same amount as the total deals in the sector from 2006 to 2010, according to a report from the Zero2IPO research centre.

The report said 28 medical and health care companies were listed last year, raising US$5.33 billion, and 12 of them were backed with VC or PE investment.

Every Chinese citizen made an average of 4.63 visits to the nation's 959,000 medical institutions last year, according to the report.

The State Council passed a medical reform plan in 2009 that promised to spend 850 billion yuan (US$123 billion) by last year to provide universal medical services to the country's 1.3 billion people.

"We treat private medical institutions equally (with public ones), and they can be included in the scope of basic medical insurance under certain conditions," said Li Jinghu, deputy director of the Institute of Social Security at the Ministry of Human Resources and Social Security.

Li said China had almost 17,000 private medical institutions by the end of last year, with community medical institutions growing at the fastest rate — 8.2 percent last year. Yu Bo, a partner at Kunwu Jiuding Capital Co. Ltd., a domestic equity-investment company, said policy guidance for private capital in the medical and health care sector remains opaque.

Kunwu Jiuding's 40 investment programs in the sector were all in areas with clear policy guidance.

"We pay attention to investing in high-end medical institutions because demand from people in the high-income bracket is very strong," said Yu.

Li Jialin, deputy general manager of Mayinglong Pharmaceutical Group Co., said its primary concern regarding investors in hospitals is their industry background and operating philosophy.

"Investment in hospitals is a long-term prospect and investors should be patient. If they are in a hurry to recoup costs, the brand of that hospital will be ruined," said Li.

"We welcome VC and PE firms that bring us not only funds but also resources," said Jiang Lin, managing director of Chengdu-based Angel Group (China) Holding Co., which owns Angel Women's and Children's Hospital, a high-end private hospital.

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