Healthcare next big thing for China's VC
(AFP)
Updated: 2007-01-29 11:37
Partial article:
http://www.chinadaily.com.cn/china/2007-...
Four years ago, Joe Zhou and his partners at Softbank Asia Infrastructure Fund (SAIF) made an investment of $40 million into Shanghai-based online game operator Shanda Interactive Entertainment Co Ltd. The investment was believed to be highly risky, as the prospect of online games was uncertain in China and Shanda was in legal trouble with its South Korean partner.
However, the venture capital (VC) firm turned out to be a successful pioneer in leading an investment wave into online game companies with over 10 times in returns in less than two years. Since then, other venture capital firms have closely watched the moves of Zhou and his partners.
Now Zhou, a venture partner with SAIF since 2001, is trying to lead the venture capital trend again. This time, he's looking to the healthcare industry.
"We manage a fund of $1 billion, and the first investment in the healthcare industry happened last year; this move is typical among venture capital firms," says the 46-year-old Zhou, who holds a masters in electrical engineering from the New Jersey Institute of Technology.
According to the Beijing-based VC industry consultancy Zero2ipo Co Ltd, there was $4 billion in venture capital funds in China in 2006, and $1.78 billion have been invested. Of those investments, less than 60 percent went to the traditionally favorite information technology sector, down from 66 percent in 2005.
On one hand, say experts, there is plenty of money available. On the other, too much concentration on the Internet drives up the valuation of a single deal.
Now, when VC companies search for new targets, firms involved with healthcare often attract their attention.
Milestone for the sector
On September 26, Shenzhen-based Mindray Medical International Ltd, a minor competitor of GE in medical monitoring equipment and ultrasound scanning equipment, listed its stocks on the New York Stock Exchange (NYSE) and raised $311 million from the public offering.
"This is a milestone of China's healthcare industry, but it is equally important to the global healthcare industry, as it is the largest IPO in the business in the past two years," says Ge Yang, a representative of NYSE in China.
According to Zero2ipo, four Chinese healthcare companies made overseas public offerings last year and nine mergers and acquisitions took place, showing increasing interest from investors.
The prospect of China's healthcare industry is also encouraging to investors.
The US pharmaceutical consulting firm IMS Health says in its global industrial forecast that China's pharmaceutical industry will grow at 15-16 percent to $1.5-1.6 billion in 2007, compared against a global average growth of 5-6 percent.
Jiang Feng, president of the China Medical Equipment Industry Association, says that the proportion of the whole healthcare industry, including hospitals, medicine and equipment, only accounts for about 3 percent of gross domestic production in China, while the proportion in developed countries like the United States and Japan is around 10 percent.
The issue of intellectual property rights (IPR) remains a big concern for investors. But the IPR protection situation is improving, experts say, as the Chinese government recognizes its importance in building a country not dependent on low-end manufacturing.