2007-01-03 Ver 11 1

Government Relations, Government Relations, Supports, Policies & Supports, Policies &

Plans (1/5)Plans (1/5)• Good relations with top Chinese leaders - Hu Jingtao, Good relations with top Chinese leaders - Hu Jingtao,

Wen Jiabao and other key political figures Wen Jiabao and other key political figures • Good relation with China Ministry of Health, the apprGood relation with China Ministry of Health, the appr

oval authorities for hospital licenseoval authorities for hospital license• Local government of Wenzhou awarded the project dLocal government of Wenzhou awarded the project d

evelopment rights in November 2005 in witness of a fevelopment rights in November 2005 in witness of a foundation ceremony attended by Major Liu Qioundation ceremony attended by Major Liu Qi

• Special treatment was given by Wenzhou governmenSpecial treatment was given by Wenzhou government during the project registrationt during the project registration

• Government sees it as one of the ten largest foreign iGovernment sees it as one of the ten largest foreign invested projects in Wenzhou in 2005nvested projects in Wenzhou in 2005

Refer to HBP_05Gov.doc

2007-01-03 Ver 11 2

Government Relations, Government Relations, Supports, Policies & Supports, Policies &

Plans (2/5)Plans (2/5)The project caters the government health industry development and economic and social The project caters the government health industry development and economic and social development plans,which declares to build several modern hospitals in downtown Wenzhou duridevelopment plans,which declares to build several modern hospitals in downtown Wenzhou duri

ng ng 2005-2015 – refer to the Wenzhou Health Development Plan 2005-2015. 2005-2015 – refer to the Wenzhou Health Development Plan 2005-2015.

Wenzhou also intends to lead the Zhejiang province in the health industry and encourages foreign Wenzhou also intends to lead the Zhejiang province in the health industry and encourages foreign andand

private investment, and targets to establish a new medical and health system centered around the private investment, and targets to establish a new medical and health system centered around the state-owned hospitals, with the supplement of private and foreign hospitals, in order to adapt to tstate-owned hospitals, with the supplement of private and foreign hospitals, in order to adapt to t

he he market economy. market economy.

To accomplish the above objectives, Wenzhou Health Bureau issued two important regulatiTo accomplish the above objectives, Wenzhou Health Bureau issued two important regulationsons

in 2004 and 2005 resp.: Approval Regulation of Private Medical Organizations in Wenzhou in 2004 and 2005 resp.: Approval Regulation of Private Medical Organizations in Wenzhou andand

Administration Regulation of Private Medical Organizations in WenzhouAdministration Regulation of Private Medical Organizations in Wenzhou

According to these two regulations, government will promote the multiplication of investmAccording to these two regulations, government will promote the multiplication of investmentent

sources and a practical attitude towards the interest re-distribution, in order to allow the fusources and a practical attitude towards the interest re-distribution, in order to allow the full ll

participation and competition in the healthcare market as follows:participation and competition in the healthcare market as follows:

2007-01-03 Ver 11 3

Government Relations, Government Relations, Supports, Policies & Supports, Policies &

Plans (3/5)Plans (3/5)• No restrictions to investor sources, types, number and location of hospitals;No restrictions to investor sources, types, number and location of hospitals;• Investors are allowed to joint venture, cooperate, share holdings and acquire Investors are allowed to joint venture, cooperate, share holdings and acquire

the existing state-owned hospitals, or take over the hospital management throthe existing state-owned hospitals, or take over the hospital management through hospital management companiesugh hospital management companies

• The government encourages the investment both in the regions with insufficiThe government encourages the investment both in the regions with insufficient medical resources and in downtown Wenzhou, where high level, large scent medical resources and in downtown Wenzhou, where high level, large scale general acute and special hospitals might be built. Special land will be resale general acute and special hospitals might be built. Special land will be reserved for hospital projects for domestic and foreign investors.erved for hospital projects for domestic and foreign investors.

• Private hospitals are free to choose between for-profit or not-for-profit hospitPrivate hospitals are free to choose between for-profit or not-for-profit hospitals (FPH or NFPH). FPHs will be allowed to determine their own dividend distals (FPH or NFPH). FPHs will be allowed to determine their own dividend distribution while investors in NFPHs can also retrieve their rational profit.ribution while investors in NFPHs can also retrieve their rational profit.

• Those meeting government criteria are allowed to apply for medical insurancThose meeting government criteria are allowed to apply for medical insurance covered hospitals.e covered hospitals.

• Hospital land will be freely granted by the government, i.e. no land cost is neHospital land will be freely granted by the government, i.e. no land cost is necessary for building a hospital, however, land use shall comply with the overacessary for building a hospital, however, land use shall comply with the overall urban development plan and construction shall be integrated to the urban dll urban development plan and construction shall be integrated to the urban development. Land acquasition fees and fee waive for the construction supportevelopment. Land acquasition fees and fee waive for the construction supporting facilities will also be treated favorably as with the state-owned hospitalsing facilities will also be treated favorably as with the state-owned hospitals

• Private hospitals enjoy the same treatment as the public hospitals in the folloPrivate hospitals enjoy the same treatment as the public hospitals in the following: acknowledgement of policy changes, human resource introduction, tecwing: acknowledgement of policy changes, human resource introduction, technical appraisal and participation in academic exchanges etc.hnical appraisal and participation in academic exchanges etc.

2007-01-03 Ver 11 4

Government Relations, Government Relations, Supports, Policies & Supports, Policies &

Plans (4/5)Plans (4/5)Signing ceremony on Nov.28,2005 with the presence of Major Liu Signing ceremony on Nov.28,2005 with the presence of Major Liu Qi, other local officials and hospital board members Qi, other local officials and hospital board members

2007-01-03 Ver 11 5

Government Relations, Government Relations, Supports, Policies & Supports, Policies &

Plans (5/5)Plans (5/5)

During the foundation ceremony the hospital on Nov.28, 2005, Mrs, Xia Aihua, director the Wenzhou Health Bureau expressed her support of the project

Vice major Meng Jianxin also made his speech in support of the project

2007-01-03 Ver 11 6

Competition (1/12)Competition (1/12)• 2000: China started its medical reform program and intr2000: China started its medical reform program and intr

oduced a new hospital categorization system. Hospitals oduced a new hospital categorization system. Hospitals will be grouped into profitable and non-profitable, and will be grouped into profitable and non-profitable, and among the 60,000 state-owned hospitals, half of them aramong the 60,000 state-owned hospitals, half of them are planned to be privatized. e planned to be privatized.

• After the policy barrier was removed, new comers have After the policy barrier was removed, new comers have been entering the market. Mainly three types of businesbeen entering the market. Mainly three types of businesses: foreign investors, private enterprises in non-medicases: foreign investors, private enterprises in non-medical industries and the upper stream sectors of the medical l industries and the upper stream sectors of the medical industry such as the pharmaceuticals with their integratindustry such as the pharmaceuticals with their integrated operation strategy ed operation strategy

• The future medicare and healthcare market will be sharThe future medicare and healthcare market will be shared by the state-owned, foreign-invested, private hospitaled by the state-owned, foreign-invested, private hospitals as well as a great number of private clinics, and comms as well as a great number of private clinics, and community healthcare services and centers. A new competitiounity healthcare services and centers. A new competition landscape is soon be to established. n landscape is soon be to established.

Refer to HBP_09Competition.doc

2007-01-03 Ver 11 7

Competition (2/12)Competition (2/12)StrengthsStrengths: : • Investors have a clear vision, mission, plan and operational taInvestors have a clear vision, mission, plan and operational ta

rget. Investors realize the long-term development strategy and rget. Investors realize the long-term development strategy and longer Support from local government and relevant agencies slonger Support from local government and relevant agencies such as commerce and health department, with special treatmuch as commerce and health department, with special treatment in project approval and land useent in project approval and land use

• Strong finances and management support, with sufficient own Strong finances and management support, with sufficient own capital and investment partners; Management team with rich capital and investment partners; Management team with rich hospital management experiences hospital management experiences

• Familiar with local environment, good relations with local peoFamiliar with local environment, good relations with local people, esp. government officials ple, esp. government officials

• Ideal location with beneficial expansion space Ideal location with beneficial expansion space • The Hongkong Adventist Hospital and Loma Linda University The Hongkong Adventist Hospital and Loma Linda University

help establish the reputation help establish the reputation • Completely new software and hardware facilities help the hosCompletely new software and hardware facilities help the hos

pital to become the market pioneerpital to become the market pioneer

2007-01-03 Ver 11 8

Competition (3/12)Competition (3/12)WeaknessesWeaknesses: as this is the first investment in the hospital, there are : as this is the first investment in the hospital, there are

inevitablyinevitablysome difficulties to overcome: some difficulties to overcome: • Venturing into the unknown industry, lack of industry Venturing into the unknown industry, lack of industry

experiences;experiences;• Lack of management personnel and relevant resources. As the Lack of management personnel and relevant resources. As the

company has no management personnel, it has to employ outside company has no management personnel, it has to employ outside people and resources, thus there will be a transition period for people and resources, thus there will be a transition period for the cooperation the cooperation

• Lack of market information and the analysis and decision making Lack of market information and the analysis and decision making toolstools

• Cultural gaps require understanding: “cultural” gaps between Cultural gaps require understanding: “cultural” gaps between local vs. foreign managementlocal vs. foreign management

• Without the support of medical school, fierce competition in Without the support of medical school, fierce competition in human resources with the competitorshuman resources with the competitors

• Without government subsidies, unfair competition with public Without government subsidies, unfair competition with public hospitals hospitals

• All staff are new, long time needed to establish a hospital culture All staff are new, long time needed to establish a hospital culture and experiences and operation and experiences and operation

• A single hospital is inferior in the cost competitionA single hospital is inferior in the cost competition

2007-01-03 Ver 11 9

Competition (4/12)Competition (4/12)External Threats – General InformationExternal Threats – General Information• There are 60,000+ hospitals of various types and levels across the country, iThere are 60,000+ hospitals of various types and levels across the country, i

n Wenzhou alone, 39 integrated hospitals, and 19 private hospitals. Among n Wenzhou alone, 39 integrated hospitals, and 19 private hospitals. Among them, the most competitive and dangerous threats come from No.1, 2 and 3 them, the most competitive and dangerous threats come from No.1, 2 and 3 hospitals of the Wenzhou Medical College (hospitals of the Wenzhou Medical College (温州医学院温州医学院 ) and also the No.2 a) and also the No.2 and 3 Municipal Hospitals – see details later. However, this competition mand 3 Municipal Hospitals – see details later. However, this competition map does not stagnate itself. There are possible unifications between them, thp does not stagnate itself. There are possible unifications between them, thus changing the entire landscape of the medical competition market.us changing the entire landscape of the medical competition market.

• The public hospitals themselves are all providing VIP services, a direct threThe public hospitals themselves are all providing VIP services, a direct threat to the success of this projectat to the success of this project

• The project involves long and huge investment, it takes long to recover the The project involves long and huge investment, it takes long to recover the investment.investment.

• Policy makers are regulating high profit earnings and health supervisions aPolicy makers are regulating high profit earnings and health supervisions are being enhanced, leading to less price flexibility and profitabilityre being enhanced, leading to less price flexibility and profitability

• Tax deduction duration lasts only three years, after that, all kinds of taxes Tax deduction duration lasts only three years, after that, all kinds of taxes will impose tremendous operational burden on the hospital will impose tremendous operational burden on the hospital

• Some of the favorable policies only apply to not-for-profit hospitalsSome of the favorable policies only apply to not-for-profit hospitals

2007-01-03 Ver 11 10

Competition (5/12)Competition (5/12)

External Threats – General InformationExternal Threats – General Information• Major competitors with regards to services provided, prices, Major competitors with regards to services provided, prices,

targeted markets/market shares, geographical locations, targeted markets/market shares, geographical locations, marketing, management, personalization, financing capability marketing, management, personalization, financing capability etc etc

• Description of their competition strategy such as product Description of their competition strategy such as product differentiation and regional developmentdifferentiation and regional development

• Measures taken to gain the market shares Measures taken to gain the market shares • Estimations of their current and future profitsEstimations of their current and future profits• Marketing instruments, technology and development trends of Marketing instruments, technology and development trends of

the competitors the competitors • Position of your hospital relative to your competitors with Position of your hospital relative to your competitors with

regards to future development, market and location regards to future development, market and location • Competitive advantage degree to which you may bear the Competitive advantage degree to which you may bear the

competitions from your rivals competitions from your rivals • Ways to fight against and weaken your competitors: forming joint Ways to fight against and weaken your competitors: forming joint

venture, establishing strategic partnership, acquisition and buy-venture, establishing strategic partnership, acquisition and buy-out etc out etc

• Estimation of the revenues, income, market shares, targeted Estimation of the revenues, income, market shares, targeted clients, marketing and other key features of one to three of your clients, marketing and other key features of one to three of your key competitors.key competitors.

ThreatsThreats

2007-01-03 Ver 11 11

Competition (6/12)Competition (6/12)State-Owned Hospitals WenzhouState-Owned Hospitals Wenzhou::The most dangerous competition comes from the state-owned or public hospitals. The most dangerous competition comes from the state-owned or public hospitals. Currently, more than 95% of the patients are treated there. The No.1 Hospital of the Currently, more than 95% of the patients are treated there. The No.1 Hospital of the Wenzhou Medical College alone attracted 2.4 times of all the patients treated by private Wenzhou Medical College alone attracted 2.4 times of all the patients treated by private hospitals in 2005 in Wenzhou. What’s more threatening is the fact that most of the public hospitals in 2005 in Wenzhou. What’s more threatening is the fact that most of the public hospitals are forming their medical unions, planning their new hospitals or expanding thehospitals are forming their medical unions, planning their new hospitals or expanding the

ir ir existing facilities. The top level state-owned hospitals are almost all supplied with VIP existing facilities. The top level state-owned hospitals are almost all supplied with VIP services, a direct competition to us. Obvious advantages of the state-owned hospitals are services, a direct competition to us. Obvious advantages of the state-owned hospitals are their complete system, their gigantic clientele and medical resources, high end human their complete system, their gigantic clientele and medical resources, high end human resources, technology and equipments, government supports in investment, subsidies, resources, technology and equipments, government supports in investment, subsidies, taxation exemption, their reputation, position, brand and trust in the Chinese medical taxation exemption, their reputation, position, brand and trust in the Chinese medical industry. The Wenzhou Medical College has established three hospitals in the city: industry. The Wenzhou Medical College has established three hospitals in the city: No.1, Hospital No.1, Hospital No.2 Hospital and No.2 Hospital and No 3 Hospital No 3 Hospital The municipal government has two hospitals in the city:The municipal government has two hospitals in the city:No.2 Municipal Hospital No.2 Municipal Hospital No 3 Municipal HospitalNo 3 Municipal HospitalIntroduction – refer to document HBP_09Competition.doc, Chapt. V.1 Public HospitalsIntroduction – refer to document HBP_09Competition.doc, Chapt. V.1 Public Hospitals

ThreatsThreats

2007-01-03 Ver 11 12

Competition (7/12)Competition (7/12)Private Hospital Investment NationwidePrivate Hospital Investment Nationwide About 20 billion RMB is waiting for investment in the hospital industry. Leading Chinese About 20 billion RMB is waiting for investment in the hospital industry. Leading Chinese corporations are planning or are already in the hospital business, incl.: corporations are planning or are already in the hospital business, incl.:

Outsiders:Outsiders:ChinaWorldBest (ChinaWorldBest (中国华源中国华源 ), ), Tsinghua Unisplendour Tsinghua Unisplendour ((清华紫光清华紫光 ), ChinaEagle (), ChinaEagle (大鹏大鹏 ), ), Lenovo (Lenovo (联想联想 ), New Hope (), New Hope (新希望新希望 ), Yili Group (), Yili Group (伊利伊利 ), Shide (), Shide (实德实德 ), CITIC (), CITIC (中信中信 ) )

Zhejiang:Zhejiang:Sanxing Group (Sanxing Group (三星集团三星集团 ), AUX Group (), AUX Group (奥克斯集团奥克斯集团 ), Hengdian Group (), Hengdian Group (横店集团横店集团 ), Shuaikang ), Shuaikang Group (Group (帅康集团帅康集团 ), GreenTown (), GreenTown (绿城集团绿城集团 ), PeaceBird Group (), PeaceBird Group (太平鸟集团太平鸟集团 ), Aiyimei Group), Aiyimei Group ((爱伊美集团爱伊美集团 ), Guangsha Group (), Guangsha Group (广厦集团广厦集团 ))Current InvestorsCurrent InvestorsZhongmei Group (Zhongmei Group (中美集团中美集团 ), Phoenix Hospital Management (), Phoenix Hospital Management (凤凰医院管理凤凰医院管理 ), Wangchunhua ), Wangchunhua

((望春花望春花 ), ), Shuanghuan S&T (Shuanghuan S&T (双环科技双环科技 ), Changan Info (), Changan Info (长安信息长安信息 ), Sanjiu Medical (), Sanjiu Medical (三九医药三九医药 ),), Tongrentang (Tongrentang (同仁堂同仁堂 ), Jinling Pharmaceuticals (), Jinling Pharmaceuticals (金陵药业金陵药业 ), Bohai Group (), Bohai Group (深圳博爱深圳博爱集团集团 ), Wanjie Group (), Wanjie Group (山东万杰集团山东万杰集团 ), Shanghai Medea Hospital Group (), Shanghai Medea Hospital Group (上海美迪亚医院集上海美迪亚医院集团团 ), Shanghai Tangshen Medical Investment (), Shanghai Tangshen Medical Investment (上海唐神集团上海唐神集团 ))

ThreatsThreats

2007-01-03 Ver 11 13

Competition (8/12)Competition (8/12)Private Hospitals in WenzhouPrivate Hospitals in Wenzhou Although Wenzhou’s private hospitals emerged relatively early, Although Wenzhou’s private hospitals emerged relatively early, however, they often feature small scale and specific medical services. however, they often feature small scale and specific medical services. By early 2006, There are about 44 of them with 2000 beds with By early 2006, There are about 44 of them with 2000 beds with outpatient and emergency cases of 624,000, accounting for 7.3% of theoutpatient and emergency cases of 624,000, accounting for 7.3% of the total, and inpatients of 25,680. Most of them are agglomerated in the total, and inpatients of 25,680. Most of them are agglomerated in the downtown area. There is only one large private hospital – Wenzhou downtown area. There is only one large private hospital – Wenzhou Jianguo Hospital (Jianguo Hospital (温州建国医院温州建国医院 ) developed by Shanghai Medea () developed by Shanghai Medea (上海上海美迪亚医院集团美迪亚医院集团 ) . Wenzhou Jianguo Hospital is located at Lucheng) . Wenzhou Jianguo Hospital is located at LuchengDistrict with a land area of 30,000+ m2. It is a general acute hospital.District with a land area of 30,000+ m2. It is a general acute hospital.Some of the special hospitals are also being developed to general Some of the special hospitals are also being developed to general hospitals. hospitals.

ThreatsThreats

2007-01-03 Ver 11 14

Competition (9/12)Competition (9/12)Foreign Investment NationwideForeign Investment NationwideAbout 200 foreign invested hospitals are built in China since 1989, in 19 provinces anAbout 200 foreign invested hospitals are built in China since 1989, in 19 provinces an

d municipalities. d municipalities. Here is an incomplete list:Here is an incomplete list:• International Organizations International Organizations

– International Finance Corporation for the 15 mio US$ loan to Shandong Zibo Wanjie Hospital International Finance Corporation for the 15 mio US$ loan to Shandong Zibo Wanjie Hospital ((山东省淄博万杰医院山东省淄博万杰医院 ))

• U.S.A. U.S.A. – American Pacific Medical Group: Beijing Tiantan Puhua Hospital (American Pacific Medical Group: Beijing Tiantan Puhua Hospital (北京天坛普华医院北京天坛普华医院 ), ), Beijing Beijing

Gamma Knife Treatment Center Gamma Knife Treatment Center ((北京伽玛刀诊疗中心北京伽玛刀诊疗中心 ), ), Beijing Tientan Asia-Pacific Beijing Tientan Asia-Pacific International Medical Center (International Medical Center (北京天坛亚太国际脑病诊疗中心北京天坛亚太国际脑病诊疗中心 ), Shanghai Gamma Hospital (), Shanghai Gamma Hospital (上上海伽玛医院海伽玛医院 ), Shanghai Liren Women Hospital (), Shanghai Liren Women Hospital (上海俪人女子医院上海俪人女子医院 ), Harbin Medical University ), Harbin Medical University Oncology Center (Oncology Center (哈尔滨医达肿瘤中心哈尔滨医达肿瘤中心 ), Shenyang Gamma Knife Treatment Center (), Shenyang Gamma Knife Treatment Center (沈阳伽玛刀沈阳伽玛刀诊疗中心诊疗中心 ))

– Concord Hospital Group: Shanghai Concord Hospital (Concord Hospital Group: Shanghai Concord Hospital (上海协和医院上海协和医院 ), Chengdu Liren Woman ), Chengdu Liren Woman Hospital (Hospital (成都丽人女子医院成都丽人女子医院 ))

– Harvard University, Harvard Int’l Medical Center: Xiada Fubang Int’l Hospital (Harvard University, Harvard Int’l Medical Center: Xiada Fubang Int’l Hospital (厦大富邦国厦大富邦国际医院际医院 ) with Xiamen University () with Xiamen University (厦门大学厦门大学 ), Huayuan Harvard Int’l Medical Center (), Huayuan Harvard Int’l Medical Center (华源哈佛华源哈佛国际治疗中心国际治疗中心 ))

– Galichia Medical Group (Galichia Medical Group (美国格雷西亚医疗集团美国格雷西亚医疗集团 ): Beijing Toronto Int’l Hospital (): Beijing Toronto Int’l Hospital (北京多伦多国北京多伦多国际医院际医院 ), Chongqing Aixin Hospital (), Chongqing Aixin Hospital (重庆爱心医院重庆爱心医院 ))

– Chindex (Chindex (美中互利工业公司美中互利工业公司 ): United Family Hospitals (): United Family Hospitals (和睦家医院和睦家医院 ))– HSI: Dalian Gilson Hospital (HSI: Dalian Gilson Hospital (大连吉尔森医院大连吉尔森医院 ))– Green Smart Investment: Green Smart Investment: Wuxi Aide Int’l Hospital (Wuxi Aide Int’l Hospital (无锡爱德国际医院无锡爱德国际医院 ), Hangzhou Ai), Hangzhou Ai

de Hospital (de Hospital (杭州爱德医院杭州爱德医院 ))– Medea Group: hospitals in Shanghai, Hangzhou ang WenzhouMedea Group: hospitals in Shanghai, Hangzhou ang Wenzhou– Sunnylife Global Inc: Hunan Xiangtan Aixin Friendship Hospital (Sunnylife Global Inc: Hunan Xiangtan Aixin Friendship Hospital (湖南湘潭力源医院湖南湘潭力源医院 ))

ThreatsThreats

2007-01-03 Ver 11 15

Competition (10/12)Competition (10/12)Foreign Investment NationwideForeign Investment Nationwide• Germany Germany

– Siemens Group, Krefeld Hospital: Wenzhou Ruian Sino-German Hospital (Siemens Group, Krefeld Hospital: Wenzhou Ruian Sino-German Hospital ( 瑞安中德瑞安中德医院医院 ),),

– Shanghai Siemens Medical – Asia Science & Technology Park (Shanghai Siemens Medical – Asia Science & Technology Park ( 上海西门子医疗亚洲科上海西门子医疗亚洲科技园技园 ))

– Siemens: Shanghai Tongji University Sino-German Friendship Hospital (Siemens: Shanghai Tongji University Sino-German Friendship Hospital ( 同济大学中同济大学中德友好医院德友好医院 ))

– Bayer: Bayer China Hospital Development FundBayer: Bayer China Hospital Development Fund• SingaporeSingapore

– Singaporean Int’l Medical Investment: Shanghai Ruixin Medical Service Center (Singaporean Int’l Medical Investment: Shanghai Ruixin Medical Service Center ( 上上海瑞新医疗服务中心海瑞新医疗服务中心 ))

• TaiwanTaiwan – Formosa Plastic Group (Formosa Plastic Group ( 台塑集团台塑集团 ): ): Changgung Memorial hospital families in Changgung Memorial hospital families in

several cities – Shanghai, Beijing, Xiamen etc in planning several cities – Shanghai, Beijing, Xiamen etc in planning – Wantwant Group (Wantwant Group ( 旺旺集团旺旺集团 ) Hunan WantWant Hospital () Hunan WantWant Hospital ( 湖南旺旺医院湖南旺旺医院 ))– BENQ Group (BENQ Group (明基集团明基集团 ): Suzhou and Nanjing MenQ Hospitals ): Suzhou and Nanjing MenQ Hospitals – Lianxin Medical (Lianxin Medical ( 联新医疗机构联新医疗机构 ): Shanghai Chengxin Hospital (): Shanghai Chengxin Hospital ( 上海辰新医院上海辰新医院 ))

• KoreaKorea – SK: Beijing SK Hospital (SK: Beijing SK Hospital ( 北京爱康医院北京爱康医院 ))– CUBE Inc.CUBE Inc. Shanghai Beauty China Medical Center (Shanghai Beauty China Medical Center ( 上海瑞丽整形美容医院上海瑞丽整形美容医院 ))

• Hong KongHong Kong– Hongkong Jieli Medical Investment (Hongkong Jieli Medical Investment ( 香港吉里医疗投资管理有限公司香港吉里医疗投资管理有限公司 ):Shenzhen Longz):Shenzhen Longz

hu Hospital (hu Hospital ( 深圳龙珠医院深圳龙珠医院 ), Dongguan Tungwah Hospital(), Dongguan Tungwah Hospital( 东莞东华医院东莞东华医院 ))

ThreatsThreats

2007-01-03 Ver 11 16

Competition (11/12)Competition (11/12)Foreign Investment WenzhouForeign Investment WenzhouAlthough there is no foreign invested hospitals in Although there is no foreign invested hospitals in Wenzhou in operation, however, the silence will soon be broken:Wenzhou in operation, however, the silence will soon be broken:• Siemens: Krefeld Hospital has signed an agreement with RuiaSiemens: Krefeld Hospital has signed an agreement with Ruia

n People’s Hospital (n People’s Hospital ( 瑞安人民医院瑞安人民医院 ) to co-develop the Ruian M) to co-develop the Ruian Municipal Sino-German Friendship Hospital (unicipal Sino-German Friendship Hospital ( 瑞安市中德友好医瑞安市中德友好医院院 ) in Sept. 2005 at a cost of US$ 95 million. With an initial bed) in Sept. 2005 at a cost of US$ 95 million. With an initial beds of 800 and final beds of 2000, the hospital serves to provide ms of 800 and final beds of 2000, the hospital serves to provide medicare, healthcare, rehabilitation, and medical treatment for edicare, healthcare, rehabilitation, and medical treatment for the middle class. Ruian and Wenzhou is only a few kilometers the middle class. Ruian and Wenzhou is only a few kilometers away.away.

• On May 16, 2006: an Italian Chinese (possibly originated from On May 16, 2006: an Italian Chinese (possibly originated from Wenzhou) – Chen Ruilai (Wenzhou) – Chen Ruilai ( 陈瑞来陈瑞来 ) joined Wenzhou Hongwei H) joined Wenzhou Hongwei Hospital Management Co. (ospital Management Co. ( 温州宏伟医院管理有限公司温州宏伟医院管理有限公司 ) to co-deve) to co-develop the RMB 100 million and 30090 m2 hospital project, located lop the RMB 100 million and 30090 m2 hospital project, located at the Yongzhong Street (at the Yongzhong Street ( 永中街道永中街道 ) , Longwan District, Wenzh) , Longwan District, Wenzhou. Project approval was awarded already. ou. Project approval was awarded already.

• In addition, In addition, Green Smart Investment of the U.S. also intends to bGreen Smart Investment of the U.S. also intends to build a special hospital in Wenzhou. Discussion with the municipal uild a special hospital in Wenzhou. Discussion with the municipal government was initiated in 2004 already. government was initiated in 2004 already.

ThreatsThreats

2007-01-03 Ver 11 17

Competition (12/12)Competition (12/12)Build up the Core Competitiveness Build up the Core Competitiveness • Differential Operation Strategy Differential Operation Strategy

– Client differencing: the lower and higher ends of the patientClient differencing: the lower and higher ends of the patients will be treated differently; to low-income patients with lighs will be treated differently; to low-income patients with light illnesses, supermarket or shopping mall types of operation t illnesses, supermarket or shopping mall types of operation modes will be introduced to reduce the cost and to save the cmodes will be introduced to reduce the cost and to save the clinic timelinic time

– Service differencing: severe and light illnesses will be treateService differencing: severe and light illnesses will be treated in different processes and ways d in different processes and ways

• Building up of hospital brand: this will be a long-teBuilding up of hospital brand: this will be a long-term target of the hospital operation. Gangan is experm target of the hospital operation. Gangan is expected to become the brand name of the industry thrcted to become the brand name of the industry throughout China. oughout China.

• Building up of a competitor and competition folloBuilding up of a competitor and competition follow-up systemw-up system

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Risks (1/3)Risks (1/3)• Upto now, investing in the hospital industry has been rarely successful, duUpto now, investing in the hospital industry has been rarely successful, du

e to mainly the uncertainly of government policy, industry environment ane to mainly the uncertainly of government policy, industry environment and commercial regulations and practices. d commercial regulations and practices.

• However, Wenzhou Gangan plans to work out and implement a risk recognHowever, Wenzhou Gangan plans to work out and implement a risk recognition and avoidance system, in order to recognize, control, minimize, avoid ition and avoidance system, in order to recognize, control, minimize, avoid and eventually manage the various risks during the construction and operaand eventually manage the various risks during the construction and operation phases. tion phases.

• Many risks exist. The biggest threats, however, come from the policy risks.Many risks exist. The biggest threats, however, come from the policy risks.• The policy risks include The policy risks include

– the uncertainty of the reform direction: how far privatization will go; wheththe uncertainty of the reform direction: how far privatization will go; whether or not foreign investment will be encouraged or restricted; in which areas er or not foreign investment will be encouraged or restricted; in which areas foreign and private money are allowed and to what degrees; whether or not foreign and private money are allowed and to what degrees; whether or not the reform shall lead to a market-oriented industry or will retain its current the reform shall lead to a market-oriented industry or will retain its current status of government monopoly; price development trends and government status of government monopoly; price development trends and government intervention etcintervention etc

– Lack or retard of legislation.Lack or retard of legislation.– Changes of laws and regulationsChanges of laws and regulations– Operational problems: no clear definitions who are responsible for the apprOperational problems: no clear definitions who are responsible for the appr

oval of foreign investment in hospital, particularly when building a joint veoval of foreign investment in hospital, particularly when building a joint venture with state-owned hospitalsnture with state-owned hospitals

Refer to HBP_14Risks.doc

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Risks (2/3)Risks (2/3)Other RisksOther Risks• Political risks:Political risks: nationalization, government intervention nationalization, government intervention • Proprietary risks: occur when making JV with other hospitalsProprietary risks: occur when making JV with other hospitals• Social risks: riots, striking, reliability, credit etcSocial risks: riots, striking, reliability, credit etc• Natural disaster: resource, force majeure etcNatural disaster: resource, force majeure etc• Economic risks: industry development, investment environmeEconomic risks: industry development, investment environme

nt, market, competition, financing etcnt, market, competition, financing etc• Financial risks: fundraising, investment, investment return, opFinancial risks: fundraising, investment, investment return, op

eration, repayment and allocation, cash, investment retreat etceration, repayment and allocation, cash, investment retreat etc• Technology risks: wrong choice of technology, outdated and agiTechnology risks: wrong choice of technology, outdated and agi

ng technology, equipments etcng technology, equipments etc• Management/operation and project risks: strategy, managemenManagement/operation and project risks: strategy, managemen

t cooperation, cultural gap, project size, project organization, at cooperation, cultural gap, project size, project organization, approval, construction preparation, construction, construction approval, construction preparation, construction, construction and operation quality, outsourcing, operation, medical treatmennd operation quality, outsourcing, operation, medical treatment, contractual, t, contractual, personnelpersonnel, information and informatization risk, information and informatization riskss

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Risks (3/3)Risks (3/3)To manage the above risksTo manage the above risks• an organization system will set up within the hospital with a an organization system will set up within the hospital with a

Risk Management Council (RMC) belonging to the top Risk Management Council (RMC) belonging to the top management and reporting directly to the boardmanagement and reporting directly to the board

• a chief risk manager (CRM) under the GM will also be a chief risk manager (CRM) under the GM will also be appointed, who will heading the Risk Management Department appointed, who will heading the Risk Management Department (RMD) of the hospital, and who will also be a member of RMC(RMD) of the hospital, and who will also be a member of RMC

• The RMD will be guaranteed of its independence and its staff The RMD will be guaranteed of its independence and its staff will be regularly or temporarily allocated or dispatched to will be regularly or temporarily allocated or dispatched to relevant locations of the hospital to supervise, check and relevant locations of the hospital to supervise, check and evaluation the risk activities and then they will file reports to evaluation the risk activities and then they will file reports to the upper levels for taking actionsthe upper levels for taking actions

• To manage the policy risks, a special team shall be organized To manage the policy risks, a special team shall be organized within RMD to collect legislation, policy and other related within RMD to collect legislation, policy and other related information from all sources and keep constant contacts with information from all sources and keep constant contacts with relevant government bodies and industry interest groups and relevant government bodies and industry interest groups and feedback those information to its superiors. Actions shall be feedback those information to its superiors. Actions shall be taken after the consultation with CRM and RMC. taken after the consultation with CRM and RMC.

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Developing the HospitalDeveloping the Hospital• Project Team of Company Project Team of Company

– Its relation and coordination with Zhejiang Calilee Its relation and coordination with Zhejiang Calilee – External and internal relations and responsibilities External and internal relations and responsibilities – Its organizational structure Its organizational structure

• Preparation and status of the hospital constructionPreparation and status of the hospital construction– Approval, land use, building removal, hospital design, hiring of persoApproval, land use, building removal, hospital design, hiring of perso

nnel, civil construction, interior design and decoration, equipment prnnel, civil construction, interior design and decoration, equipment procurement/transportation, installation and commissioning ocurement/transportation, installation and commissioning

– Fundraising Fundraising • Construction plan and scheduleConstruction plan and schedule

– Overall planOverall plan– DetailsDetails

• Key technical points and solutions Key technical points and solutions • Risk managementRisk management

Refer to document HBP_11ConstMgmnt.doc for details

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Managing the HospitalManaging the Hospital• The Management Team The Management Team

– Health-Pro will manage the day-to-day hospital opeHealth-Pro will manage the day-to-day hospital operation. Introduction of the management staff: ration. Introduction of the management staff: Mr. PMr. Philip Wong (hilip Wong ( 黄超杰黄超杰 ), president and Mr. Lee Ping Che), president and Mr. Lee Ping Cheong (ong (李炳昌先生李炳昌先生 ) , vice president.) , vice president.

– Technical supports will be provided by Hongkong Technical supports will be provided by Hongkong Adventist Hospital and Loma Linda University’s Adventist Hospital and Loma Linda University’s Medical College. Introduction … Medical College. Introduction …

• The organizational chart of the hospitalThe organizational chart of the hospital• Risk managementRisk management

Refer to document HBP_12OpMgmnt.doc for details

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Marketing (1/2)Marketing (1/2)• Assumptions:Assumptions: • Price policy: Different approaches and pricing policPrice policy: Different approaches and pricing polic

ies will be worked out for the three groups of peoplies will be worked out for the three groups of people.to high income group better services with higher e.to high income group better services with higher prices, to low income people, lower prices, comparprices, to low income people, lower prices, compared with state-owned level 3 general acute hospitals ied with state-owned level 3 general acute hospitals in Wenzhou. Prices of pharmaceuticals are regulaten Wenzhou. Prices of pharmaceuticals are regulated by the government in larged by the government in large

• How to win the clients:How to win the clients:• Factors affecting the buying decisions of the clients: Factors affecting the buying decisions of the clients:

services, care, consultationservices, care, consultation• Reliance on group clients:Reliance on group clients:

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Marketing (2/2)Marketing (2/2)• Hospital image: the marketing will be focusing on the Hospital image: the marketing will be focusing on the

improvement of the hospital image through high improvement of the hospital image through high quality medical services, advanced medical equipment quality medical services, advanced medical equipment and facilities, hospital architecture and building, and facilities, hospital architecture and building, hospital operational management, medical mentality hospital operational management, medical mentality and morality management, and the qualified medical and morality management, and the qualified medical staff. staff.

• Appropriate propaganda in the public mediaAppropriate propaganda in the public media• Participating in symposiums and meetingsParticipating in symposiums and meetings• Organizing and/or participating in charity activities Organizing and/or participating in charity activities

and fundraising and fundraising • Holding free medical campaigns and servicesHolding free medical campaigns and services• Providing free medical educationProviding free medical education

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Financial Plans (1/5)Financial Plans (1/5)• Total investment: RMB 450 million, or US$ 56 million, where: Total investment: RMB 450 million, or US$ 56 million, where:

construction cost: 199.92 million, conventional medical construction cost: 199.92 million, conventional medical equipments: 60 million, large medical equipments: 100 equipments: 60 million, large medical equipments: 100 million, IT and network equipments: 22.36 million, and land million, IT and network equipments: 22.36 million, and land cost: 67.72 million. Refer to cost: 67.72 million. Refer to the budget detailsthe budget details. .

• Fundraising: 1/3 of the total investment, i.e. about US$ 19 - Fundraising: 1/3 of the total investment, i.e. about US$ 19 - 20 million20 million

• Fundraising of the other remaining 2/3 of investment:Fundraising of the other remaining 2/3 of investment:– Own capital (xxx%) Own capital (xxx%) – Company stock expansion (xxx%)Company stock expansion (xxx%)– Government subsidies (xxx%)Government subsidies (xxx%)– Bank loan (xxx%)Bank loan (xxx%)– Shares of the domestic enterprises or/and persons (xxx%)Shares of the domestic enterprises or/and persons (xxx%)

• Shares and capital structure after financing – see Shares and capital structure after financing – see table of table of capital structure after fundraising capital structure after fundraising

Philip leads the presentation, also refer to document efer to document HBP_10Finance.doc for detailsHBP_10Finance.doc for details

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Financial Plans (2/5)Financial Plans (2/5)• Requirements on the investors: investors shall be the Requirements on the investors: investors shall be the

investment funds, investors or hospital investment investment funds, investors or hospital investment groups well known in the industry and shall have groups well known in the industry and shall have realistic picture of the Chinese hospital industry. realistic picture of the Chinese hospital industry. They shall also have a long-term market entry and They shall also have a long-term market entry and expansion strategy rather than a short-term expansion strategy rather than a short-term speculation speculation

• Investor’s interests and benefits: investors will be Investor’s interests and benefits: investors will be enjoying all kinds of interests, rights and benefits enjoying all kinds of interests, rights and benefits as one of the board members, incl. but not as one of the board members, incl. but not limited to the voting power, the rights to making limited to the voting power, the rights to making important operational decisions, appointing the important operational decisions, appointing the executive management team, dividends, asset executive management team, dividends, asset disposition etc. disposition etc.

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Financial Plans (3/5)Financial Plans (3/5)• Investment return: the investment will be recovered with Investment return: the investment will be recovered with

the operation revenues and profits; at the end of the joint the operation revenues and profits; at the end of the joint venture, the investor will be able to sell or transfer his/her venture, the investor will be able to sell or transfer his/her shares to the open markets, the other members of the shares to the open markets, the other members of the board at the price to be determined then, depending on board at the price to be determined then, depending on whether the hospital is traded on the stock market or not. whether the hospital is traded on the stock market or not. Other ways of retreat from the investment includes the Other ways of retreat from the investment includes the restructuring or sales of the hospital. restructuring or sales of the hospital.

• The investment is expected to be returned within 10 to 15 The investment is expected to be returned within 10 to 15 years. years.

• Plan for next round of investment: no details are planned Plan for next round of investment: no details are planned at this moment, however, funds will be raised for future at this moment, however, funds will be raised for future expansion into the vast areas of community healthcare and expansion into the vast areas of community healthcare and stock market tradingstock market trading

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Financial Plans (4/5)Financial Plans (4/5)Earning ModeEarning Mode

The hospital revenues will come mainly from the The hospital revenues will come mainly from the following ways:following ways:

• Medical fees:Medical fees:– Inpatient and outpatient treatment fees, medicine, Inpatient and outpatient treatment fees, medicine,

inspections etcinspections etc• Healthcare fees:Healthcare fees:

– Healthcare consultation, services, medicine, treatment, Healthcare consultation, services, medicine, treatment, inspectionsinspections

• Membership fees:Membership fees:– VIP members, normal membershipVIP members, normal membership

• Other service fees:Other service fees:– Community contractual service fees, large corporation Community contractual service fees, large corporation

medical contractual service fees, out-of-hospital nursing medical contractual service fees, out-of-hospital nursing fees etcfees etc

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Financial Plans (5/5)Financial Plans (5/5)• BudgetingBudgeting

– AssumptionsAssumptions– Key influential factors on profitsKey influential factors on profits– (2006-2008)Year Financial Plan during the (2006-2008)Year Financial Plan during the

construction phaseconstruction phase– (2009-) Financial plans for the operation (2009-) Financial plans for the operation

• BudgetsBudgets– Balance SheetBalance Sheet– Profit & Loss StatementProfit & Loss Statement– Cash FlowCash Flow– Summary of Revenues and IncomeSummary of Revenues and Income

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Feasibility & Conclusion Feasibility & Conclusion (1/2)(1/2)• Demand for high quality of private high-end healthcare services will commensurDemand for high quality of private high-end healthcare services will commensur

ate with the growing economy and the enlarging of the middle class;ate with the growing economy and the enlarging of the middle class;• Healthcare as an industry grows faster than the general economy and that there aHealthcare as an industry grows faster than the general economy and that there a

re still lots of undesirable elements within the system needing to be improved. Fre still lots of undesirable elements within the system needing to be improved. From a study for the period from 1978 to 2000, when an economy grows at a rate of rom a study for the period from 1978 to 2000, when an economy grows at a rate of 1%, healthcare expenditures grows by 1.2%.1%, healthcare expenditures grows by 1.2%.

• China health industry develops at over 10% a year since 1985 and will continue thChina health industry develops at over 10% a year since 1985 and will continue that pace at pace

• China’s Current per capita healthcare fee only RMB 500, about 1/80 of the U.S., China’s Current per capita healthcare fee only RMB 500, about 1/80 of the U.S., with huge growth potentialwith huge growth potential

• Over 80% of the rural and 40% of the urban citizens are not insurance-covered, wOver 80% of the rural and 40% of the urban citizens are not insurance-covered, with additional market marginsith additional market margins

• Reform and privatization lead to more development opportunities to foreign and Reform and privatization lead to more development opportunities to foreign and private investorsprivate investors

• Wenzhou – home to China’s private-dominated economy, with a huge client basWenzhou – home to China’s private-dominated economy, with a huge client base unsatisfied, about 2 mio of wealthier people improperly servede unsatisfied, about 2 mio of wealthier people improperly served

• Wenzhou has a robost private market economy as illustrated by its 96% of private Wenzhou has a robost private market economy as illustrated by its 96% of private economy which is unique in the whole of Chinaeconomy which is unique in the whole of China

Conclusion: project viable and profitableConclusion: project viable and profitable

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Feasibility & Conclusion Feasibility & Conclusion (2/2)(2/2)

• Wenzhou: Lack of medical facilities and services, 2.0 beds/1000 persoWenzhou: Lack of medical facilities and services, 2.0 beds/1000 person, below national average, far from the government target of 4-7 bedsn, below national average, far from the government target of 4-7 beds/1000 person/1000 person

• Wenzhou: private healthcare is relatively small in size and scale. In Wenzhou: private healthcare is relatively small in size and scale. In Wenzhou, the private healthcare section only accounts for 12% of totWenzhou, the private healthcare section only accounts for 12% of total available beds.al available beds.

• The entrepreneur, the board members and the management team are The entrepreneur, the board members and the management team are highly motivated and qualified with sound financial capacityhighly motivated and qualified with sound financial capacity

• Hospital strategically located close to the new administration and CBHospital strategically located close to the new administration and CBD areaD area

• New service and operation modes create more market and improve tNew service and operation modes create more market and improve the medical services to local peoplehe medical services to local people

• Excellent government relations. There are strong government initiatiExcellent government relations. There are strong government initiatives to encourage “privatization” of healthcare organizations.ves to encourage “privatization” of healthcare organizations.

• Competition from Siemens forthcoming but not vitalCompetition from Siemens forthcoming but not vital• Risks policy related but being alleviated along with the reform prograRisks policy related but being alleviated along with the reform progra

mm

Conclusion: project viable and profitableConclusion: project viable and profitable

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Growing TogetherGrowing Together

Let’s enjoy the Let’s enjoy the

opportunities of the opportunities of the

Chinese healthcare Chinese healthcare

industry togetherindustry together

Some more info

Wait for 1 or 2 Wait for 1 or 2 years more like years more like

others? others?