South China Morning Post

China’s Healthcare Sector a Big Draw for Private Equity Investors — South China Morning Post

Leave a Comment / January 19, 2017

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China’s healthcare sector a big draw for private equity investors

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PUBLISHED : Wednesday, 18 January, 2017
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Private equity firms and hedge funds are investing heavily into China’s healthcare industry in a bet on the sector’s upbeat growth potential, fund managers told a Hong Kong forum.

Private hospitals and drug makers are among the bright spots for investors focusing on China, where rising income and an ageing population are boosting the demand for quality medical services.

Private hospitals are set to attract large amounts of capital in the coming decade amid an underdeveloped private medical industry and a shortage of doctors, said investment professionals.

“Healthcare has been the single area that probably everyone can foresee globally an enormous amount of capital and investment,” Peter Fuhrman, chairman of China First Capital told the Asia Private Equity Forum in Hong Kong on Wednesday.

China’s population of individuals aged 60 or older is set to rise 90 per cent to 240 million by 2020, according to the World Health Organisation.

Meanwhile, one consequence of the nation’s one-child policy, introduced in 1979 and officially phased out in 2015, is that the burden of caring for ageing parents will put tremendous pressures on the young generations.

The healthcare sector in China will become a US$1 trillion a year business by 2020, according to a report by consulting firm McKinsey & Company.

Among healthcare institutions, private hospitals are set to become the best investment for this sector, said Li Bin, chief executive of Ally Bridge LB Healthcare Fund, a hedge fund that focuses on investing in China and Asia healthcare companies.

However, he said there are problems that will likely hinder the industry’s growth.

Among barriers, Li cited a shortage of quality doctors, the lack of an ecosystem to support the development of private hospitals, as well as the long time frame needed to build up a trusted reputation.

Although about half of the hospitals in the country are private, more than 80 per cent of medical professionals work in the public sector, which offer higher salaries and better career prospects, according to a recent report by Citi.

“Five years ago I said it would take 10 years for private hospitals to mature in China, now I think it would take another 10 years,” he said.

Alice Au Miu Hing from SpencerStuart, an executive search consultancy, said it remains extremely difficult to find experienced private hospital executives with China experience who can speak Putonghua.

“The common approach now is to bring someone from the industry from outside and see if the person can survive in the mainland market,” said Au.

Meanwhile, pharmaceutical and biotech start-ups will flourish with China’s emerging middle class seeking better healthcare services.

Judith Li, partner at the life science-focused Lilly Asia Ventures, told the forum that China spends about 6 per cent of its GDP on healthcare, versus an Organization for Economic Cooperation and Development average of 10 per cent.

“China has so many white spaces where there is nothing exists, and it’s very compelling,” she said.

“If you can bring it [a drug] from the US, you can then avoid the fundamental scientific risk of developing something that’s completely unavailable.”

http://www.scmp.com/business/article/2063273/chinas-healthcare-sector-big-draw-private-equity-investors

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China’s depressed northeast is down but not out – if officials can fix its ailing state-owned firms — South China Morning Post

Leave a Comment / August 11, 2020

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I’m delighted to share the OpEd essay written by my China First Capital colleague Dr. Yansong Wang and published in today’s South China Morning Post. Her piece is titled “China’s depressed northeast is down but not out – if officials can fix its ailing state-owned firms”. It offers up her analysis on the disappointing economic conditions and vast untapped potential in her home region, China’s Northeast, formerly known as Manchuria, and in Chinese as 中国东北. I agree with her policy prescriptions as well as prudent optimism the region can be transformed just as America’s Rust Belt.

Her final paragraph notes a paradox familiar to me as well. In Shenzhen, we’re lucky enough to know two of China’s most consistently successful listed company chairmen, Mr. Gao Yunfeng , the founding entrepreneur of Han’s Laser Group  (大族激光集团), the world’s largest laser machine tool company, and Mr. Xing Jie, of a highly innovative and successful publicly-traded SOE, Tagen Group (天健集团).

Both, like Yansong, come from Jilin Province and all three have found success far from where they were raised, in Shenzhen. Yansong puts across her final point with conviction: “We need to create the conditions where the younger versions of these two successful entrepreneurs choose to stay in the northeast and build an economic future there that we can all take pride in.”

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–Dongbei Yansong Wang

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Over the course of my 35 years, China’s northeast has gone from being the country’s economic powerhouse to its most systematically troubled large region. Much of the region’s enormous state-owned industrial complex is in difficulty, while gross domestic product growth continues to lag. The deepest and most poignant signs of the economic malaise are a falling population and the fact that the northeast’s birth rate is now one-third below the national average.

The concern about how to revive the economy animates not only the highest levels of the central government, but also many people who recall the key role the region has played leading China’s modernisation. The concern is warranted. It now needs to be matched by some fresh thinking and new policy initiatives. I’d like to see the northeast become a laboratory for bold ideas about how to restructure state-owned enterprises in China.

I care deeply about what happens in the northeast. Though I now live and work in Shenzhen, I was born and raised in Jilin (吉林) province. My parents and 95-year-old grandmother still live there. I owe a lot of my life’s achievements up to now – undergraduate study at the University of Science and Technology of China in Hefei (合肥), followed by a PhD in physics from Princeton, to my current role in an international investment bank – to the mind-expanding public education I received growing up in the northeast.

The climate and its mainly landlocked geography are a challenge. But there is no reason the northeast should be a victim of its geography. The part of the US with the most similar conditions, the states of Minnesota, Michigan and Wisconsin, has successfully moved away from a focus on heavy industry to being a world leader in all kinds of advanced manufacturing and food processing. Great companies, including 3M, Cargill and Amway, all hail from this part of the US.

Could my home region produce its own world-conquering companies? I believe so.

Step one is to reorient investment capital away from the tired and often loss-making state-owned enterprises towards newer, nimbler private-sector firms. At present, too much investment goes to one of the most unproductive uses of all: new loans to companies that can’t repay their existing ones. This kind of rollover lending generally does not produce one new job or one new increment of GDP.

The central government is stepping up, announcing in August plans for 127 major projects, at a cost of 1.6 trillion yuan (HK$1.8 trillion). The problem isn’t so much that the northeast has too much heavy industry; it’s more that it has too much of the wrong kind. Basic steel is in vast oversupply. But the northeast could shine in developing speciality steel for advanced applications in China. One example that strikes me every time I ride on China’s high-speed rail network: too much of the special steel used on tracks is imported from Japan and Europe. We can make that.

How do we go from being a tired rust belt to a rejuvenated region pulsing with opportunity? The central and provincial governments should encourage more experimentation to push forward the scope and pace of state-owned enterprise reform. A starting point: banks could shoulder more of the cost of restructuring state firms. That will allow for new forms of mixed ownership, asset sales, and bigger and more effective debt-for-equity swaps.

I would also like to see the northeast become the first place where service industries, now mainly restricted to state firms – including banking and insurance – are opened up to private competitors.

There is no shortage in the northeast of the most important facilitator of economic development: a well-educated population. For now, sadly, too many of the entrepreneurially inclined leave the region. Indeed, two of the most visionary listed company chairmen I know are, like me, Jilin natives now living in Shenzhen, Gao Yunfeng of Han’s Laser and Xin Jie of Tagen Group. We need to create the conditions where the younger versions of these two successful entrepreneurs choose to stay in the northeast and build an economic future there that we can all take pride in.

Dr Yansong Wang is chief operating officer at China First Capital

http://www.scmp.com/comment/insight-opinion/article/2050099/chinas-depressed-northeast-down-not-out-if-officials-can-fix

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How China can reclaim its lost cultural heritage — South China Morning Post commentary

Leave a Comment / August 12, 2020

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I had the kind of childhood I wish more Chinese children could have. I grew up surrounded by exquisite artworks from China’s long and dazzling history. I can still remember as a child holding a Qing dynasty jade vase in my small hands. Cool to the touch even on a hot summer day, the vase was deeply incised with lotus blossoms.

My early encounters with Chinese antiques took place not in China but in my grandfather’s house in New York City. He was a successful businessman and developed a passion for Qing and Ming dynasty jade. I inherited his fondness for Chinese culture and art. In my office today in Shenzhen, eight jade pieces from my grandfather’s collection are displayed.

Chinese antiques – jade carvings, imperial porcelains, paintings, Buddhist sculptures – are all deeply familiar to me. I have lived around them my whole life. This, sadly, is an experience too few Chinese in the People’s Republic will share. It’s not only that private collections are rare. While China has been on a museum-building spree this past decade, only a few of the country’s 3,500 museums have strong and extensive collections. Beijing’s Forbidden City Palace Museum does have some outstanding works of art. Most, though, are newly-built Xanadus with a limited display of works that would never make it into the collection of a minor provincial museum in Europe.

Chinese children grow up with too few opportunities to see up close the beautiful objects made by their ancestors. This should change

This is not only a problem but an unnecessary blemish, especially now that China has the money and global clout to do something about this. Chinese children grow up with too few opportunities to see up close, especially in smaller and less-crowded settings than the Forbidden City, the beautiful objects made by their ancestors. This should change.

In the recent past, the Chinese government has made promises to bring more artistic masterworks back to the country where they were made. But this has mainly involved an occasional effort to halt auction houses from selling objects looted in 1860 from the Summer Palace in Beijing. The result is any object that can be traced back to the Summer Palace is now bought and sold privately, not at auction.

China should continue to try to right this historic wrong. But, in the meantime, something else can be done. China’s government should be out in the international auction market buying Chinese art treasures on behalf of the nation and then distribute these works among museums across the country. The goal: in coming years, every child in China will have frequent opportunities, as I had, to admire, study and be inspired by Chinese art.

The range of Chinese artistic genius is probably more vast than any other civilisation, from Zhou dynasty bronzes cast 3,000 years ago, to Qin, Han and Tang terracotta objects, to fine Song ceramics along with Ming and Qing imperial porcelains, austere huanghuali furniture, florid cloisonné, Buddhist sculptures from the Sui dynasty, Song and Ming paintings, jade objects from Neolithic times all the way through to the 20th century.

Tragically, many of the valuable works of art that remained in China after 1949 were burned or smashed to pieces during the Cultural Revolution, an even more thoroughgoing artistic annihilation than we’ve witnessed recently from Islamic State and the Taliban. As a result, most of the world’s most valuable Chinese art is now outside the People’s Republic, in museums and private collections. It’s said that there are over 17 million Chinese antiques in the US and Europe alone. It’s time more of them made their way back to China and into public collections. Restitution, either voluntary or through international law, is not really an option. Few works other than those from the Summer Palace have a clear provenance showing they were illegally looted.

My humble proposal: the Chinese government could start and manage a national heritage fund to purchase for the nation items of cultural and artistic importance. It would accept cash donations from philanthropic Chinese at home and abroad. At the same time, I’d suggest that every state-owned enterprise voluntarily pay an annual dividend of 0.5 per cent of its profits every year into this national heritage fund. Last year, that tiny dividend would have brought in close to US$2 billion. Chinese private sector companies should be encouraged to match or exceed this pledge. I’m confident many would.

Every year, about US$7 billion worth of Chinese antiques are sold at auction houses in mainland China, Hong Kong, London and New York. Virtually every object sold at the six major Christie’s and Sotheby’s China antiques auctions each year is better than what’s on view now in most Chinese museums.

A Chinese national heritage fund would be a big departure for the government. At the moment, about the closest thing it has is a national lottery. The money is meant to go to support sports and the underprivileged, but where it goes is often hard to trace. A report last year by the National Audit Office suggested that billions of renminbi were misappropriated and bribery rampant.

An art fund, especially if it raised money from public donations, would need to be transparently and professionally managed. Corruption is only one problem. The fund would also need to buy without igniting a big run-up in prices. The Getty Collection in Los Angeles faced a similar problem. It set out to acquire valuable art, and has had more than enough money to do so. It goes to great lengths to buy in ways that don’t cause a huge spike that would price everyone else out of the market.

Wealthy Chinese are now active buyers of Chinese antiques at global auctions. Their impact is already felt worldwide. But Chinese plutocrats in general don’t donate to Chinese museums. They keep everything under their own lock and key. Trust of civic institutions doesn’t run deep. Indeed, when I mention to Chinese friends I intend to leave my grandfather’s collection to a museum in China, they often shake their heads disapprovingly. Art objects have been stolen from the Forbidden City. A Guangzhou museum curator was caught selling genuine objects for millions of dollars and replacing them with fakes.

Building museums has proved easier in China than populating them with museum-quality treasures. The sad result is it’s easier for school kids in Kansas City to see Song dynasty celadons than at the art museum in Hangzhou (杭州), the major city closest to where these luminous ceramics were made 800 years ago.

In the last five-year plan, it was stated that Chinese culture is the “spirit and soul of the nation” and a powerful force for the country’s development. It is a noble sentiment. Art is certainly among the most profound expressions of China’s soul and genius. It needs to become more of a living and familiar part in every Chinese child’s life.

Peter Fuhrman is chairman and CEO of China First Capital

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http://www.scmp.com/comment/insight-opinion/article/1999199/how-china-can-reclaim-its-lost-cultural-heritage

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China to fine-tune back-door listing policies for US-listed companies — South China Morning Post

Leave a Comment / May 19, 2016

 

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–China reverse mergers

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Mainland China’s securities regulator will fine-tune policies related to back-door listing (reverse merger)attempts by US-listed Chinese companies, industry insiders say, but it is unlikely to ban them or impose other rigid restrictions.

“It is clear that the regulator does not like the recent speculation on the A-share markets triggered by the relisting trend and will do something to curb such conduct, but it seems impossible they would shut good-quality companies out of the domestic market,” Wang Yansong, a senior investment banker based in Shenzhen, said.

The China Securities Regulatory Commission (CSRC) was considering capping valuation multiples for companies seeking relisting on the A-share market after delisting from the US market, Bloomberg reported on Tuesday. Another option being discussed was introducing a quota to limit the number of reverse mergers each year from companies formerly listed on a foreign bourse.

To curb speculation, it is most important to show the authorities have clear and strict standards for approving these deals
Wang Yansong.

However, Wang said the CSRC was more likely to strengthen verification of back-door listing deals on a case-by-case basis.

“To curb speculation, it is most important to show the authorities have clear and strict standards for approving these deals, and won’t allow poor-quality companies to seek premiums through this process,” she said.

US-listed mainland companies have been flocking to relist on the A-share market since early last year, when the domestic market started a bull run, in order to shed depressed valuations in American markets.

The valuations of relisted companies have boomed, and that has triggered a surge in speculation on possible shell companies – poorly performing firms listed on the Shanghai or Shenzhen bourses. In a process called a reverse takeover or back-door listing, a shell can buy a bigger, privately held company through a share exchange that gives the private company’s shareholders control of the merged entity.

The biggest such deal was done by digital advertising company Focus Media. Its valuation jumped more than eightfold to US$7.2 billion after it delisted from America’s Nasdaq in 2013 and relisted in Shenzhen in December last year, with private equity funds involved in the deal reaping lucrative returns.

Peter Fuhrman, chairman of China First Capital, an investment bank and advisory firm, said the trend of delisting and relisting was “one of the biggest wealth transfers ever from China to the US”.

“The money spent by Chinese investors to privatise Chinese companies in New York ended up lining the pockets of rich institutional investors and arbitrageurs in the US,” he said.

However, a tightening or freeze on approval of such deals would threaten not only US-listed Chinese companies in the process of buyouts and shell companies, but also the buyout capital sunk into delistings and relistings.

“The more than US$80 billion of capital spent in the ‘delist-relist’ deals is perhaps the biggest unhedged bet made in recent private equity history … if, as seems true, the route to exit via back-door listing may be bolted shut, this investment strategy could turn into one of the bigger losers of recent times,” he said.

On Friday, CSRC spokesman Zhang Xiaojun sidestepped a question about a rumoured ban on reverse takeover deals by US-listed Chinese companies in the A-share market, saying it had noticed the great price difference in the domestic and the US markets, and the speculation on shell companies, and was studying their influences.

http://www.scmp.com/business/markets/article/1943386/china-fine-tune-back-door-listing-policies-us-listed-companies

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For article on a related topic published in “The Deal”, please click here

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Fosun boss ‘assisting investigation’ — South China Morning Post

Leave a Comment / December 15, 2015

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Fosun arrest

 

Fosun Group chairman Guo Guangchang, who went missing on Thursday, has been “assisting an investigation” since Thursday afternoon but is now in contact with his staff, Shanghai Fosun Pharmaceutical said in a stock exchange filing last night.

The tycoon, whose disappearance triggered speculation that he may have become the latest victim of President Xi Jinping’s crackdown on corruption, can participate in his company’s decision making “in proper ways”, Shanghai Fosun said.

Shares of Shanghai Fosun Pharmaceutical will resume trading on Monday. It was suspended yesterday along with six other Fosun companies, including two listed in Hong Kong.

Two Fosun officials told the South China Morning Post that Guo was allowed to make phone calls but his movements have been restricted.

The Guo incident comes amid a nationwide probe into alleged market wrongdoings in the wake of the summer’s stock market rout that has already netted senior government officials and top executives at state-owned banks and brokerages.

“Chinese entrepreneurs are struggling with the most complicated legal environment in the world, given the government’s heavy meddling in the economy and business. It is just too easy to take away their wealth by abusing the judiciary,” said Hangzhou-based lawyer Chen Youxi.

The pillars of China’s powerful private sector are shaking, said Peter Fuhrman, chairman and chief executive of investment advisory firm China First Capital, “possibly for the first time ever”.

Fosun, more than any other of the 60-million-plus private companies in the mainland, embodies and exemplifies the rise of the private sector from illegality and irrelevance 20 years ago to its current position as the main source of growth, employment and taxes in China, Fuhrman said.

“The incident brings home, as no previous event has, the fact that China’s anti-corruption campaign means to usher in a new way of doing business for all of China Inc, not only the state-owned rump.”

Industry sources said the investigation into Guo started as early as the summer. A source with knowledge of the matter said Guo was detained in July by graft busters to assist in probes into high-level party officials, including some from Shanghai.

In August, Wang Zongnan, a former head of state-owned Bright Food Group, was sentenced to 18 years in jail for embezzlement and bribery. A court verdict said Fosun had sold property below market rates to Wang.

A businessman, who cannot be identified, told the Post that Guo could have been questioned over his relationships with either Yao Gang, a vice-chairman of the China Securities Regulatory Commission, or Ai Baojun, a vice-mayor of Shanghai.

Meanwhile, several mainland media sources reported orders from their headquarters to delete articles related to Guo. Fosun holds substantial stakes in many mainland media, including the influential 21st Century Media.

Dollar bonds of Fosun International fell by a record yesterday while stocks related to Guo’s companies trading in the US and Europe took a beating as well.

 

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