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Koreans bring JV hospital to China
(China Business Weekly)
Updated: 2004-04-18 13:43
Several years ago, Taiwan business tycoon Wang Yongqing's attempt to put as
much as US$436 million to build three large private hospitals on the mainland
met a premature end, partly because of local concerns that the heavy investment
could affect local medical institutions' survival and development.
But, that was then. Now, as China's medical care market opens more, South
Korea business conglomerate SK has similar designs, but is approaching it more
prudently.
The first comprehensive joint venture hospital with a controlling foreign
interest started in Beijing recently with the completion of SK Hospital Beijing.
The hospital was opened by the South Korean telecommunications and energy giant
SK and its Chinese counterparts. It will begin operating sometime in March.
The Beijing hospital could serve as a trailblazer in entering China's medical
services business, Choi Chang Ik, chief executive officer of SK hospital
Beijing, commented.
"We'll follow a steady path in fine tuning our investment strategy in
accordance with specific market circumstances.
"If the SK Hospital Beijing turns out to be a success, SK will open more
hospitals around the country. Actually we have plans to open hospitals in more
than 20 cities," Choi said.
SK provided 70 per cent of the total 29 million yuan (US$3.5 million) in
investment in the hospital. The remainder came from the Chinese Ministry of
Health's International Health Exchange and Co-operation Centre (IHECC) and a
Fuzhou company.
"China's medical business is opening further to foreign capital, and the SK
Hospital Beijing is a living example," Li Hongshan, director of IHECC, said.
According to Chinese medical regulations, foreign capital can now account for
a maximum of 70 per cent of the investment in a joint venture hospital. That is
compared with 30 per cent 10 years ago.
According to Li, as China's economy improves, people demand better medical
services.
And, under present conditions, existing medical facilities can never fully
satisfy that demand.
"That is where the joint venture hospital comes in and how it fills in the
spaces," Li added.
In a similar vein, Xie Cheng, president of SK China, says that the SK
Hospital Beijing represents a combination of actual market demand and looser
governmental controls.
"We see a more open medical services market and blanks locally in the
high-end services. We're therefore pinning our hopes in the medical services
market. That's why we set up the hospital with Chinese partners.
"It's also an important way to diversify our business here," Xie said.
The hospital will focus on ophthalmology, odontology, plastic surgery, and
stomatology.
"These areas are traditionally strong points in South Korean medical services
and we hope the Chinese can benefit from the same services as in South Korea,
only at a lower cost," Choi said.
Before investing, SK spent about two years doing a feasibility study and
research in Beijing's high-end and mid-level medical services market.
"Our research showed that these two sectors will be very competitive, but
have great potential. That's why we have to act swiftly to get facilities set up
before 2004 and not to let this chance slip away," Choi said.
He said that SK expects a 15 to 20 per cent annual return on its investment,
meaning a period of about four years before they begin to show a profit.
"Of course, we'll adjust our strategy to specific market conditions to fend
off risks and to be even more successful," Choi added.
SK is not here for instant profits, but for a long-term presence in the
medical services business, he said.
In fact, SK China opened a research centre in Shanghai in December 2002 to
work on modernizing traditional Chinese medicine.
In 2000, the Ministry of Health and the then Ministry of Foreign Trade and
Economic Co-operation issued their Provisional Regulations on Sino-Foreign Joint
Ventures and Co-operative Businesses in Medicine. That provoked the foreign
interest in investing in China's medical services business.
That regulation calls for minimum registered capital of 20 million yuan
(US$2.41 million) and no less than 30 per cent of shares to be held by the
Chinese partner.
When that tycoon, Wang Yongqing, who is chairman of the Taiwan Plastics
Group, planned to invest as much as US$436 million in Changgeng hospitals in
Beijing, Fuzhou and Xiamen, back in 2001, local authorities would not approve
the deal.
Still, Foreign capital will enter the medical services market to provide
better services, but time and patience will be needed before it really happens.
That's because the sector has long been State-controlled and change will be
gradual," commented Hou Dakun, president of Beijing-based Kevin King
Consultancy, in talking with China Business Weekly last week.
"So, there won't be too many cases like the SK Hospital Beijing in the short
run."
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