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China’s New Pilot Program
Using social media to aid Health in Western China
Gansu province is piloting a new program (original Chinese press release) that would put some 2500 medical professionals on China’s various micro-blogging services. Details of the plan are included in the China Daily Article reproduced below.
I am skeptical that this will provide much value to Guansu residents.
Micro-blogging and text-messages have proven useful in the delivery of basic public health information and in clinical practice marketing. Mobile technology can also support stressed healthcare systems by making it easier for isolated regions to access public health information or by helping a small number of medical professionals follow up with a greater number of patients. There is no reason to believe, however, that mobile technologies can replace or cover up failings in the infrastructure of overstressed systems. Mobile tech is a support technology not a replacement for infrastructure.
Therefore, it is a bad sign that Liu Weizhong, director of the Guansu provincial health department, has said that the goal of the Gansu project is to address the problem of “too many patients” in China. By formulating Guansu’s problem as one of “too many patients” and not of too few medical personnel, Mr. Weizhong takes focus off the fact that Guansu’s main issue, like the issue in most of China, is a lack of human resources. In China the number of patients per doctor is approximately 1000 in most areas outside of the major cities (see picture above), but this figure is much higher if one does not count the doctors who only finished 2-4 year medical schools.
With the focus shifted to the patient it sure sounds like this micro-blogging initiative is being sold as a sort of cure-all solution for a system that suffers from understaffed and underpaid health personnel. What they also do is put up large scale ad campaign on online movies sites such as 0123 movies to influence people healthcare awareness even further. Unfortunately its apt to do the opposite as already over-worked medical professionals are apt to get even more busy, assuming they take this initiative at all seriously (their lack of interest in the program is another likely way that it will get derailed). I continue to think that any health reform in China has to start with the medical workers who are all woefully under-appreciated and underpaid and therefore in danger of being less ethical than they should be. Only when doctors are better paid will other types of reform become possible, until then programs like this one in Guansu will be little more than media headlines.
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Do China’s SOEs Offer Any Insights to Healthcare Operators?
Earlier this week, while on a flight from Seattle to Tokyo, I was catching up on some reading for future columns at Asia Times. As part of this, I went over a recent Congressional report on China’s State Owned Enterprises (SOEs). One of the Congressional committees I have closely followed for the last five years has been the US-China Economic and Security Review Commission (USSC). Depending on whom you talk to, Congressional committees like this one tend to get lumped into one of two categories: wastes of money with little political influence, versus wastes of money with a lot to say about the ecosystem in Washington DC. That is not to say they are necessarily influential in every case, but that when you look at the questions these committees are asking, the sorts of witnesses they are calling for testimony, and the tone of their reports back to Congress, you can get a pretty good sense of where Congress is leaning on the particular set of issues the committee in question is being tasked to analyze.
The larger question the USCC was asking was what sort of influence China’s ostensibly “Communist” government has on China’s SOEs. Should SOEs be thought of as essentially government actors, or should they be given some latitude as remnants of China’s transition from socialism to capitalism (or, as has been suggested, a combination of the two that has uniquely “Chinese characteristics”). Given the central role China’s SOE sector plays in furthering the government’s domestic and international strategies (both economic and political), the USCC wants to understand the relative scope and power of the Party in guiding decisions made by these business, decisions many outsiders mistakenly believe are driven primarily by business objectives.
Once a key sector of the Chinese economy has been identified by Beijing (which healthcare already has been), typically in the form of one of their 5-Year Plans, Western investors have come to understand several things are likely to follow. Some should be understood as opportunities, but some are risks. The opportunities undoubtedly are that once China makes the decision that it wants a particular area of the national economy to become a priority (take clean-tech as one example), the government will align resources with a single-minded pursuit of this strategy, which will create all sorts of opportunities for new ventures to be formed and new technologies to be developed within the country. If you are in the clean-tech space as an entrepreneur or private equity player in North America, you are in China today. Why? Because you can raise more capital faster, with fewer strings attached, and get to scale more quickly in China than anywhere else in the world. Period.
However, this same state-sponsorship and alignment of resources also means that certain risks need to be understood by outside investors. Most important of these risks is that China’s elevation of a particular nascent industry, no matter how legitimate the need may be, has within it certain political risks that cannot be overlooked. As we are seeing in the clean-tech space, China’s prioritization on developing this industry has meant its strategy has subtly shifted from one of relative openness to one very explicitly structuring the domestic Chinese market in such a way as to force the transfer of technology from western companies who want to work in China to domestic Chinese partners. China’s strategy did not necessarily start out with this transition as part of the calculus western companies understood they were going to be forced to grapple with; rather, as the industry evolved more onerous expectations in the realm of technology transfer came forward.
The USCC report noted “… the current economic direction of China is ‘commanding heights’ state capitalism, with the Chinese government picking the winning industries of tomorrow and developing state‐owned national champions that are prominent at home and abroad. The private sector and foreign companies will remain important actors China’s economy, especially if they facilitate the government goals”. The report also stated that “Although market mechanisms have played an important role in this restructuring, there is no indication that the CCP was, or is, aiming to turn China into a bastion of free market capitalism dominated by privately‐owned entrepreneurial firms responding to market incentives. The CCP continues to prefer a strong state sector.”
What does all this mean to healthcare investors contemplating China as a source of new markets? Understand the potential rewards, but also the inherent risks that come with being a national priority for the country. Yes, China desperately needs outside technology and know-how in order to address the country’s deeply troubling healthcare problems. But much, much, much more than clean-tech, China’s healthcare space has deep political risks inherent within it. Few things could potentially destabilize China’s path forward more than if the disparities of social services, most notably healthcare, continue to go unaddressed in China.
This is why Beijing is so adamant that it needs investments in these areas; however, if China were to face future instabilities which it believed were related to unequal access to healthcare, outsiders need to be aware that the country’s impulses will be in the direction of nationalization and exclusion, or at the least, such preferential treatment of domestic providers that outsiders no longer find the China space an attractive market to play within. It is worth noting that Dan Baty of Emeritus Capital passed on making an investment in private hospitals in China, instead choosing to invest in the elder-care space precisely because of the influence of the Chinese government in the hospital market segment.
Healthcare investments in China face one of the more challenging environments because their success is deemed so critical to the country’s stability and future prosperity. But if the USCC report is any indication, the trajectory of the country’s economic reform process suggests that Beijing will subtly move over time to change the rules of the game and structure the domestic market in a way that fundamentally adjusts the return on investment outsiders were anticipating. None of this is to suggest China is the wrong market to be playing in as healthcare providers, simply that the role of the government in Beijing is one with manifestly more political risk than in most other governments in the world. For American entrepreneurs and investors who think “ObamaCare” up-ended the rules of the game in the United States, I would be willing to submit that you haven’t seen anything yet based on what China is likely to do in the mid-term.
The question begs to be asked: how can investors best manage the risk of governmental interference in their China investments? More on that topic soon, but for now, what do you think best practices are for investors looking to participate in the Chinese healthcare market with respect to anticipating and managing this sort of risk?
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Q&A with Michael Zakkour of Technomic Asia
Part of what we hope to do here at the AsiaHealthcareBlog is go a bit deeper beyond a pure presentation of the opportunities in China for the biotech / pharma / medical device space. While talking about the general opportunities available for companies in China, we want to explore in more detail the structural, cultural and operational challenges that business needs to understand and address in order to be effective. That is why I was particularly interested to hear (and see) Michael Zakkour of Technomic Asia at the China Business Network discuss his thoughts about what the 12th Five Year Plan tells us about the challenges of operating in the Chinese healthcare market.
Earlier this week, Michael was kind enough to spend an hour discussing his experiences and insights into what North American healthcare companies need to understand for the readers at AsiaHealthcareBlog. As way of background, Michael is a principal of Technomic Asia, based in Shanghai. I have known the folks at Technomic for some time and cannot speak highly enough about their research capabilities in terms of on-the-ground due diligence in the Chinese market. As a China-focused consulting firm, they have been operating in the market since 1985. Michael has more than fifteen years experience in international market strategy and consulting, primarily in China. Michael’s contact information is provided at the end of the post, as is a great presentation Technomic recently did on the market opportunity for healthcare companies in China.
Our conversation follows:
Ben Shobert: You make reference to what you call China’s policy of “health through wealth?” Can you explain where that comes from and what it means to companies looking at China as an opportunity for their healthcare business?
Michael Zakkour: That phrase came from my extensive and repeated readings of the Chinese government’s 12th five-year plan. I tried to formulate in my mind what the commonalities across sectors were as the country pursues growth. What I saw was an admission by China that to sustain growth and continue to move in the right direction they had to admit that the country has some unhealthy things happening. To address this, they see that they need to approach the health of the people, the country and the environment. I saw a really striking focus in that plan on improving the healthcare system – all aspects of it.
From the point of view of companies seeing bio and pharma in China as a key growth area the 5 year plan communicates pretty clearly the idea that anything healthcare related is going to be an important pillar of growth. Healthcare actually becomes important for China to become a consumer economy. Because people in China don’t have a social safety net they are going to continue saving 40-50% of their incomes and not become a consumer economy, which was key in the 5-year plan.
The government is saying “we need to take care of our citizenry for the country to continue prospering … we need to increase the social safety net so they can spend on what they want and not on what they need.” In addition, they see it as an important pillar of foreign direct investment to gain the technology and the best practices that goes along with it.
The second main pillar of the 5-year plan was the focus on cleaning up the environment and protecting from further degradation. As the government sees it, “If we have healthy people that is great, but if people are drinking dirty water and breathing dirty air, it doesn’t matter.” They are saying “yes, we need to improve the health of the people”, but also the health of the environment which consequently explains the country’s focus on green-tech.
The third is the health of society – it is the harmonious society 2.0 – the truth is what we are really talking about is more equal distribution of wealth and cultural / social development. Wealth through health means let’s make sure our society is healthy.
Ben Shobert: I know that one of the major investors in a recent eldercare facility in China made the comment publicly that they elected not to invest in China’s hospital market because of their fear over the government’s role whereas this is not the case with China’s eldercare facilities. In a general sense, for healthcare investors, does government involvement help, or is it restrictive?
Michael Zakkour: Because of its prominence in the 12th five year plan I think there is an argument to be made that healthcare and hospital care is one of China’s national security concerns. If we look at the places you still can’t invest in China – oil, natural resources, media – these are all areas which the government feels are central to their continuity and control. What I see more of is less a fear of government involvement and more a fear of what they have to give away in terms of intellectual property and losing the rest of the world.
Ben Shobert: With that in mind, can you comment on how US companies deal with their concern of giving away IP?
Michael Zakkour: On the often mentioned issue of China’s Indigenous Innovation policies, I have talked to some of our senior folks at Technomic and after the big blow up in 2010, their take seemed to be all this stuff was on the books already – there was nothing really new here. Beijing decided to reiterate what was already out there. For US pharma companies, I don’t think it’s so much about the Indigenous Innovation policy, it’s more about the fear of losing what you own when you go into China. There are instances in solar and green-tech – where that has happened. China basically shut off all access by foreigners in these areas, I don’t see it as much in healthcare.
Coming back to the eldercare question – I still believe that is an area where there are great opportunities for Westerners. China just doesn’t have the background and the scale to take care of this problem. If we just isolated it into the question of how we take care of these people – for thousands of years it was the responsibility of the sons and daughters and the communities to take care of the parents. You have to start with the viewpoint of what 30 years of the one child policy has led to: we are going to have 450m people over 60 within 15-20 years and we don’t know how to take care of them. There is a huge need for build out in infrastructure and best practices.
Ben Shobert: Tom Barnett has written about China “no country will get as rich and old as fast as China will.” Do you think Beijing understands the potential problems their demographics could create?
Michael Zakkour: Most of the time Beijing gets it. They really don’t brush these issues under the rug – the problem is usually on implementation. The problem is what they do after they recognize the problem. This is partly again my interpretation of the health through wealth.
Ben Shobert: Can you expand on the sectors and opportunities in the healthcare space you believe are most interesting and exciting in China that western companies need to be paying attention to?
Michael Zakkour: Who is doing a really, really good job are companies like P&G, Unilever who are selling the basic consumer day-to-day consumer products. They market well, they do social media well. One of the growth areas you are seeing is “vitaceuticals” which are vitamins and supplements that have a medical application; that is going well. You are seeing that the average Chinese consumer has a lot of faith and trust in foreign made vitamins and supplements, toothpaste, whiteners – at a really basic level there is a real demand in the market for J&J products. As American consumers, we want J&J band-aids, not “Mr. Wu’s special” band-aids – it translates as much – if not more so – in the minds of Chinese. It surprises us when something we put into our body is not safe versus the Chinese who expect their own products to not be up to snuff.
So now you move up the chain and talk about a blood pressure medicine or stents or devices, medicines and pharmaceuticals – foreign healthcare companies have the opportunity to engage with the Chinese consumer at the most basic level with OTC products and then to engage the consumer up the chain with more sophisticated products and services.
Ben Shobert: Does that give a company like J&J who has the product breadth from band-aids to surgical devices an inherent advantage in China?
Michael Zakkour: It can, but even for a big company like J&J the biggest problem is distribution – actually getting the products to market and working the products through the system at the institutional level. These companies are still struggling with how to sell directly into hospitals. What you are seeing over the last couple of years – whether in medical devices or pharma – are US companies who are buying small to mid sized Chinese pharma companies not because they are interested in what they make or their intellectual property, but instead purely for distribution. The Chinese companies have the relationships already, and the US companies need them.
I had a meeting over the summer with the largest pharma distributor in China She wants to attract US companies to distribute their products into Chinese hospitals, but she was not working with any of them (keep in mind she is the largest but does not have a single foreign account). Because foreign pharma looks at them like as competition – the foreign companies have to put development, marketing, distribution and manufacturing under one roof – their position with her is “no way.” You go down the list of US pharmas making investments in China and can easily see the deal volume was primarily due to distribution. There are quite a few 2011 deals that demonstrate the point.
Overall, healthcare in China is still a market and a category that western companies should be working very hard to penetrate. The opportunities are there, but as with so many things in China you need to align yourself with the direction the country is going. That is what we do. Technomic helps companies in the healthcare / bio / pharma and even FMCG (body/OTC) markets to identify opportunities in China and the right market entry strategies in China. Essentially, if you are operating in China we can help you expand in the country but we have very, very deep experience in healthcare in China. Clients include J&J, Medtronics, Cardinal Health. If they want to know where opportunities are (and are not) we can help them.
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Filial Piety and China’s Eldercare Market Opportunity
Few issues are more critical to determining the success or failure of eldercare businesses in China than the role of filial piety in Chinese culture. In a historical sense, the pressing cultural reality that many Chinese will not be able to provide the same sort of in-home care for their parents as the generation before did for their own means the norm in this area is going to change. This question is one of the most critical potential fatal flaws I have written about on the blog as well as in a recent Asia Times column. While researching the question I ran into the October 2011 International Journal of Social Welfare and their journal articles on what they call the “Intergenerational Family Support for Chinese Older Adults.” Edited by Iris Chi and Merril Silverstein at the University of South Carolina, the journal was made available to me by Ling Xu at USC (thank you!).
In the opening editorial, Iris Chi notes that in this journal they want to look at what Chi calls the “… striking societal features that make China, Taiwan, and Hong Kong unique in terms of the challenges imposed and responses necessitated by rapid social change and its impact on older people. These features – which include accelerated population aging and fertility reduction, possibly declines in the strength of filial piety, exaggerated urban-rural differences, and limited availability of formal services – have direct implications for the adequacy of family support systems, and ultimate, for the well-being of older adults.”
Certain elements of the journal articles highlight findings that may seem obvious but on further examination draw out an important point: the article by Zhen Cong and Merril Silvertstein makes note that elderly parents who would be characterized as depressed also tend to be those who had “reduced financial, instrument, and emotional support from sons, but not from daughters.” This seems to reinforce what the authors call the “patrilineal family system” that stresses the role of the son in providing care for elderly parents. They make note that the “reduced availability of sons and increased accessibility of daughters have challenged traditional beliefs in sons’ exclusive obligations.” These are the sort of adjustments to cultural expectations that Western eldercare operators need to see occur in order for a service model to take root in China.
Later in the journal, Weiyu Mao and Iris Chi turn their attention more explicitly to the question of how elderly parents perceive the obligation their children have to take care of them in their old age. As the authors acknowledge, “filial piety, or xiao … has contributed to different generations connected and has led to an inherent sense of obligation for children to support their parents in the changing Chinese context.”
Again, here the initial finding is no surprise: “With respect to coresidence status, not living with children was related to less satisfaction with the support provided by children among older adults.” Ultimately, what Mao and Chi found in their analysis was that co-residence – while important – was not the most important factor in determining happiness of elderly parents. Was it important? Yes. But what was perceived as acceptable was “financial assistance from adult children to institutionalized older adults”.
What does all this mean to western eldercare operators? It is empirical evidence that China’s cultural expectations in the area of filial piety are changing. Coupled to this is the realization that the country as a whole is prepared to address a problem it acknowledges it has – how to provide care for elderly parents given the often mentioned 4:2:1 problem – in what would be called non-traditional ways. This is very good news for western eldercare operators and is, as you might suspect, a green light for further investment.
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[id: the view from my living room window which is completely obscured by hot pink rose blooms and climbing vines]
We know what type of rose Demon Rose is! She’s a cross between a climbing Viking Queen and an early incarnation of the Summer Waltz rose, making her a Viking Summer Queen!! Which certainly explains a fucking lot!!!
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