Innovation and R&D central to investment in industry

Investment opportunities for China's healthcare sector lie in research and innovation, as well as mergers and acquisitions, said investors at a forum for Chinese business ventures.

Last year, each of the three largest Chinese pharmaceutical companies by investment in research and development spent more than 1.5 billion yuan ($219 million) on R&D.

"Healthcare investment is turning from market speculation to real investment, and from arbitrage to value investment. Previously, investors attached great importance to marketing and ignored technologies, but they are now highlighting innovation as a way out," said Xu Xiaolin, chairman of the Beijing-based private equity investment firm Huagai Capital Co Ltd, at a three-day forum for entrepreneurial enterprises and investors which ended on Thursday in Beijing.

Xu said the richest person in China will emerge from the industries that are bound tightly with innovation, including the healthcare industry. He also said companies are put to the test in terms of their ability in mergers and acquisitions due to overcapacity in the healthcare sector.

Mergers and acquisitions contributed business growth for a large number of China's listed companies in this sector.

"Chinese healthcare companies have shown a significant trend of going to Europe and the Unites States in recent years. The value of overseas M&A by domestic healthcare companies increased from less than $1 billion in 2015 to nearly $4 billion in 2017," he said.

Also in recent years, venture capitalists have become more conservative about choosing projects. Sources of capital are drying up, leading some industry insiders to describe it as a "capital winter".

Xing Cheng, managing partner of Sherpa Venture Capital, said at the forum: "Although a capital winter has come, market distortion will be removed during the process so that high-quality, innovative healthcare companies will keep going, whereas underperforming companies will be eliminated."

Zhang Jiang, managing director of Ping An Ventures, agreed with Xing and said: "Great companies are often born in a capital winter, which is a good opportunity for structural transformation."

In fact, during the capital winter, entrepreneurial enterprises in the healthcare industry do not feel as cold as startups of some other industries, said Yu Jurong, partner of Zero2IPO Group, a Chinese entrepreneurial and investment service platform.

In the first half of 2018, China's healthcare investment reached $5.46 billion, up 135 percent year-on-year, according to Yu.

The market size of health services in China is expected to reach 16 trillion yuan by 2030, according to the Healthy China 2030 blueprint issued by the Communist Party of China Central Committee and the State Council in October 2016.