China’s Internet health sector and overseas investment opportunities

As China’s elderly population is steadily increasing along with public demand for high-quality health care services, Internet health care could provide short-term solutions, increasing foreign investment opportunities.

The Chinese healthcare industry has entered the digital age, facilitating change for many hospitals and private entities in the sector. Internet health care, with online medical advice, is becoming a new reality for more and more Chinese citizens. The development of the industry has been greatly stimulated by the COVID-19 pandemic, receiving special attention from government authorities and technology companies to expand market access.

What is Internet Healthcare?

Internet health care is a sub-category of the broader digital health care industry, involving artificial intelligence and machine learning for diagnostics and treatment. Unlike traditional settings, where patients and providers interact in clinics or hospitals, health care on the Internet takes place through virtual platforms accessible via mobile devices and computers. These platforms enable a wide range of health care products and services, including medical advice, hospital appointment scheduling, prescription medication, health information management, health insurance, and telemedicine.

By lifting the burden of visiting overcrowded hospitals, Internet health services offer greater convenience to consumers seeking medical treatment. With more instant feedback, consumers concerned about their symptoms can obtain reliable information for self-control and self-medication, reducing the need to meet a doctor in person. This service is also transforming the healthcare sector from its traditional focus on treatment to prevention.

Internet health care prices vary by type of service. The most common channel is through the consultation of texts and images, which gives patients access to certain interactions with their doctors over a certain period of time. Other services are voice and video consultations.

According to research data, the average price for a 48-hour text / image service package is RMB 65 (USD 9.64), while RMB 8.32 (USD 1.23) per minute for voice consultation and 17.56 RMB (2.6 USD) per minute for reference videos. Pricing also varies considerably between platforms, reflecting differences in supplier quality, marketing power, and consumers’ willingness to pay.

Price and consumer preferences for different types of Internet Healthcare services
Types of service Price Consumer preference
Image / text (per package) 65.1 RMB (9.64 USD) 71.6%
Item (per minute) 8.32 RMB (1.23 USD) 16.4%
Video (per minute) 17.56 RMB (2.6 USD) 12%

A key innovation in the Internet healthcare markets is the development of a reputation system to systematically collect and publish user feedback, helping consumers to evaluate the quality of providers more transparently. Internet health care can also provide a solution to alleviate geographic disparities in access to high-quality medical services by reducing system pressure due to regional disparities in the state of health infrastructure.

What are China’s Internet health care policies?

Internet health care is an integral component of the country’s “Healthy China 2030” project to achieve the country’s long-term economic and social development goals. Since its introduction in 2016, the Chinese government has stepped up efforts to support the development of the health technology sector through a variety of policies and regulations.

In April 2018, the General Office of the State Council released a paper titled “Internet Plus Medicine and Health,” which details a general framework for integrating the Internet and information technologies into healthcare. The regulations anticipated supply-side structural reform to alleviate the sector’s unbalanced and inadequate development. The boom in health technology in China came following the implementation of the global framework.

In August 2019, the National Healthcare Security Administration (NHSA) launched the electronic medical insurance system, adjusting insurance prices and policies to allow internet-based medical services to be covered by the country’s medical insurance system. Patients can access hospital services via the WeChat and Alipay platforms. This incorporation was further strengthened with the guidance of NHSA in October 2020 to actively promote the payment and management of medical insurance of the “Internet +” medical service.

In May 2020, the National Health Commission (NHC) released a statement to encourage provincial governments to establish their own regulatory statutes to manage online medical service providers and to accelerate access to the internet-based hospital market. Later, in September of the same year, the State Council again noted the need to expand Internet-based health clinics. Since then, many provincial governments have enacted regulations to improve conditions in the online healthcare market.

Internet health is also a focus of 14th Five-year plan (FYP), which calls for greater connectivity between regions, balanced development between cities and towns and the use of big data. The government’s next goal is to accelerate the incubation of the health care market on the Internet and promote the industrialization and large-scale application of big data in precision medicine, health management, drug research and development, and insurance. medical.

State of the market and outlook for the health sector on the Internet: an ecosystem in the making

Internet health care has seen explosive growth during the COVID-19 outbreak, with user numbers soaring. As access to hospitals has been restricted due to the lockdown, many have turned to online sources for medical services. Alibaba Health indicates that it has more than 15,000 affiliated medical institutions, including nearly 400 Class III hospitals in 17 provinces, which are linked to medical insurance payment services. The company reported in the first quarter of 2020 that Alipay’s net total of frequent active users of the health channel exceeded 390 million.

Many tech giants, sensing the opportunity, are rushing into this emerging industry. Currently, there are 1,748 Internet healthcare startups in China. Of all who share the cake, Ping An Good Doctor, a Hong Kong-listed subsidiary of insurance giant Ping An, recorded 26.7% year-over-year growth in average daily online consultations to 831,000 in the first half of 2020. with revenue from online medical services doubling to RMB 694.9 million ($ 101.56 million).

Lessons learned from managing the pandemic can profoundly shape the direction of China’s healthcare market, which is expected to nearly triple from RMB 6.5 trillion (US $ 960 billion) in 2019 to RMB 17.6 trillion (2.61 trillion US dollars) by 2030. Despite this growth, the market currently remains relatively underdeveloped, with Chinese healthcare spending – including pharmaceuticals, medical devices, distribution, hospital, pharmacies and insurance – accounting for only 7.12% of total GDP in 2021, while the United States reached 18% in the same year. The gap leaves enough growth potential for healthcare companies.

The Internet healthcare industry is still in its early stage of development. Repeated construction with similar functions across various platforms can trap consumers and investors. Further efforts are needed to clarify the value of each platform and to establish different operational strategies and service models based on distinct characteristics. With the government’s favorable policies, more stable and sustainable planning will be key to promoting and strengthening the capacities of the sector.

However, the market still represents a promising prospect. The Chinese healthcare sector has shown attractive performance with a cumulative return of 160% over the past decade. The success of digital healthcare companies is based on the large amount of medical data from Chinese patients. China’s demographics are a critical contributing factor to the boom, with the elderly population (65 or older) expected to double from 10% of the population in 2017 to 20% by 2037.

Internet health care in China is expected to receive higher priority attention from the government. Foreign investors engaged in the provision of health services are advised to pay attention to this rapidly developing sector.

Furthermore, the pace of urbanization and the growth of the population of the middle class are also behind the growth in domestic demand for higher quality health products and services. Faced with a rapidly aging population and citizens demanding higher quality services, China’s healthcare sector is already positioned to become a government priority focus area over the next decade. As a major branch of the industry, Internet health care, with its convenient public access, sees great potential for growth.

How can foreign investors get involved in the business?

Healthcare remains a positive area for foreign investment. In the most recent Catalog of Industries to Encourage Foreign Investment (2020 version), China encourages foreign investment in multiple sectors related to Internet health care, including:

  • Online health care
  • Digital medical system, community assistance, development and application of products related to personal health maintenance
  • Medical information services such as health counseling, health management and medical knowledge

Overall, Internet healthcare, having experienced significant growth during the pandemic, presents bright opportunities for investors.

Who we are China Briefing is written and produced by Dezan Shira & Associates. The practice has been assisting foreign investors in China and has been doing so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen and Hong Kong. Please contact the company for assistance in China at [email protected] Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, the United States, Germany, Italy, India and Russia, as well as our commercial research facilities along the Belt & Road Initiative. We also have partner companies that assist foreign investors in the Philippines, Malaysia, Thailand, Bangladesh.