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Chinese investment in Australia’s healthcare sector soars to AUD5.5 billion in the last three years

Chinese investment in Australia’s healthcare sector ...

Having not featured before 2015, Chinese investment in Australia’s healthcare sector has surged over the past three years, reaching a total of AUD 5.5 billion across 16 completed deals, according to a new report from KPMG and The University of Sydney Business School.

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Demystifying Chinese Investment in Australian Healthcare, which covers investments into Australia made by entities from the People’s Republic of China through M&A and joint ventures in calendar years 2015 to 2017, found that investment has been concentrated on the health supplement and medical treatment sectors in Australia. To date there has been no significant investment in pharmaceuticals, biotechnology or aged care.

According to the report, AUD 2.55 billion was invested in 2015, AUD 1.35 billion in 2016 and AUD 1.58 billion in 2017 through several very large deals including the AUD 930 million acquisition of hospital operator Healthe Care in 2015 and the acquisition of Swisse Wellness for over AUD 1.5 billion across 2015 and 2016.Major deals in 2017 included the AUD 800 million investment in Ansell’s Sex Wellness Division by Hunnanwell Heathcare and CITIC capital, and the AUD 337million investment in PPR Diagnostic Imaging by Hengkang Medical Group.

Following recent trends, the investors in Australia’s health sector are predominantly privately owned. Eighty percent of deals (by value) involved private (rather than state owned) Chinese companies. Many have health sector experience back home and they have shown a willingness to make repeat investments.

Advantageous international trade agreements combined with progressive domestic Australian government initiatives such as the Commonwealth Government’s Medical Research and Innovation Strategy and the National Innovation and Science Agenda are improving Australia’s comparative advantage in advanced health sector industries and helping drive further investment attraction.

Australia is doing well relative to many others. By comparison, Chinese investment into US health, pharma and biotech for the three year period reached USD 4.7 billion (AUD 5.7 billion).

According to report co-author, Doug Ferguson, Head of Asia & International Markets at KPMG Australia: Australia’s success in attracting investment is due to Chinese companies’ seeking the "complete Australia package".

"Chinese investors have really shifted their investment interests to Australia’s hi-tech, high quality health products and services sector in the last 3 years. Australia presents a range of country-specific advantages that include advanced technology application, quality care facilities, strong management systems and the 'clean, green and healthy' image for Aussie branded exports back to China. As China’s aged care industry develops and its medical treatment sector matures there will be a greater need for these qualities and more demand for the businesses providing them. There’s still a long way to go," he said.

Jenny Yao, KPMG China’s health sector leader explains in the report that the central government’s “Healthy China 2030” plan provides a very clear framework for China’s health sector development priorities. China’s healthcare spending is expected to grow by 8.1 percent annually over the next five years, representing a big opportunity for Australia’s health sector. “The patterns that are emerging in China’s domestic healthcare sector are likely to strengthen investment demand in the coming years as healthcare assets become a key component of many Chinese investor’s portfolios.”

Key findings of the report

  • From 2015 to 2017, Chinese investment in Australia’s healthcare sector totalled AUD 5.5 billion across 16 major deals
  • 53 percent of the investment was concentrated on Australia’s health supplement sector, 47 percent in healthcare services sector, with no major investment as yet in pharmaceuticals, biotechnology or aged care sectors.
  • New South Wales has attracted 49 percent of Chinese healthcare investment between 2015 and 2017 to date, followed by Victoria with 45 percent and Queensland with 6 percent.
  • 80 percent of completed deals (by value) were by Chinese private companies from diverse backgrounds, including hospitals, specialised healthcare providers, pharmaceutical companies, construction companies and private equity.
  • Chinese investors are attracted to target companies that are exporting or capable of exporting to the Chinese market.
  • China’s healthcare spending is expected to grow by 8.1 percent annually over the next five years.

Professor Hans Hendrischke, Professor of Chinese Business & Management at the University of Sydney Business School said: "Changing conditions in China, such as rising income, wide-ranging reforms to public healthcare and new consumer preferences for the ageing all suit Australian exporters. Foreign investment is important to build global partnerships with knowledge of foreign markets and access to international distribution networks." 

"Rather than general health services, many Chinese companies seek to invest in specialist services, such as oncology, radiology, ophthalmology, IVF, and aged care. These services are replicable in the Chinese market and customised to fit the specific needs of China’s middle-to-high end consumer markets. Australian healthcare brands have an initial advantage in China due to their reputation for high quality products with consumers," he said.

The report predicts that investment will broaden across all sectors in the short-to-medium term. The patterns that have emerged in Chinese healthcare investment so far will likely to strengthen in the coming years as healthcare assets become a key component of many Chinese investors’ portfolios.

The introduction of Chinese policies to establish a public/private healthcare system built on "big health" presents an opportunity for Australian companies to share their expertise and participate profitably in the industry’s transition and growth.

The list of reasons given by Chinese companies for choosing to invest in healthcare in Australia included:

  • Mature business services and technology
  • Australia is ranked first among English-speaking countries as a destination, ahead of Canada, the UK and the United States
  • The small time difference with China (2-3 hours)
  • Stable political environment and low sovereign risks
  • Transparent regulatory environment
  • Long term stable economic return
  • Cultural diversity.

Doug Ferguson added: “For Australian companies, Chinese investment presents an opportunity to access capital and new markets with new supply chains with established local partners. The outcome of increased investment will be a highly competitive Australian healthcare sector that can accelerate exports as well as continue private sector investment in research and improve technological capabilities.”

The full report can be downloaded at www.kpmg.com.au

 

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About KPMG China

KPMG China operates in 16 cities across China, with around 12,000 partners and staff in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structureacross all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 154 countries and territories and have 200,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.

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