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China’s healthcare tycoons lose $17 billion as crackdown spreads

Chinese Premier Li Qiang (centre), also a member of the Standing Committee of the Political Bureau of the Communist Party of China Central Committee, inspects Shenzhen Mindray Bio-Medical Electronics in south China’s Guangdong Province, on August 23, 2023

Chinese Premier Li Qiang (centre), also a member of the Standing Committee of the Political Bureau of the Communist Party of China Central Committee, inspects Shenzhen Mindray Bio-Medical Electronics in south China’s Guangdong Province, on August 23, 2023

China’s latest anti-corruption crackdown is hammering the personal wealth of the nation’s healthcare tycoons.

The combined fortune of the top 15 Chinese healthcare billionaires has fallen 17 per cent to US$84.1 billion from US$101.4 billion at the end of last year, according to the Bloomberg Billionaires Index.

The drop comes as the country’s top regulators started a sweeping anti-corruption campaign across the nation’s healthcare sector about two months ago. It has resulted in hundreds of hospital chiefs and pharmaceutical executives being probed, sparking a sectorwide share slump as investors chose to sell instead of guessing which companies will be hit by the clampdown.

The focus on healthcare comes after similar market-roiling campaigns to reform the real estate and education sectors, which banned most tutoring companies from making a profit.

“This is a much bigger sector than online tutoring and increasingly dependent on private sector investment,” Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, said about the consequences for China’s healthcare sector. “This time around the crackdown could exert additional pressures, dampening investment.”

In dollar terms, Chen Bang, the chairman of Aier Eye Hospital Group, has seen the biggest fall in his personal fortune. It has dropped by US$3.4 billion since the beginning of the year to US$9.5 billion after shares of the ophthalmic medical group fell about 25 per cent since January.

Xu Hang, co-founder of Shenzhen Mindray Bio-Medical Eletronics, and Zhong Huijuan, founder and chair of Hansoh Pharmaceutical Group, both lost about US$2.3 billion. Zhong, a former chemistry teacher, founded Hansoh in 1995, which has since become one of China’s largest makers of psychotropic medications.

Shanghai United Imaging Healthcare founder Xue Min saw his fortune shrink by 44 per cent this year. The company completed an initial public offering last year after revenue surged from scanners and X-ray systems during the pandemic.

The clampdown on the health sector was to be expected after the excess stemming from years of zero-Covid policies, Garcia Herrero said.

The sector had until recently been growing at a breakneck pace to accommodate the country’s ageing population and expanding middle class. Yet, healthcare workers, including the nation’s 4.4 million doctors and 5.2 million nurses, have not reaped the gains in terms of wages. That has spawned practices that boost the pay of medical workers, such as companies giving kickbacks to doctors for prescribing their drugs or using their medical devices.

The recent clampdown has spurred investor concerns that healthcare companies will see lower spending by public hospitals for medicine and equipment, which could hurt profitability.

Over the past three years, high-profile crackdowns in various sectors have slashed the valuations of many star companies including Ant Group and Didi Global. Although China has signalled a more welcoming environment for businesses in the past few months, and announced a plan to set up a new agency to promote private sector growth, investors remain sceptical.

Still, the anti-corruption campaign in healthcare may finish earlier than expected, Citigroup analysts including John Yung said in a note this month. In the medium to long term, industry leaders should be able to consolidate market share and deliver higher profitability due to permanently lowered selling expenses, they said.

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