china in charts ii - hsbc

June 2019

Taking the pulse: China’s healthcare sector

China in charts – II

The information contained in this publication is not intended as investment advice or recommendation. Non contractual document. This

commentary provides a high level overview of the recent economic environment, and is for information purposes only. It is a marketing

communication and does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor

should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the

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projection or target where provided is indicative only and is not guaranteed in any way. HSBC Global Asset Management accepts no liability

for any failure to meet such forecast, projection or target.

1

The significance of China’s healthcare market

Source: HSBC Global Asset Management, Bloomberg, MSCI as of May 2019

In our last “China in charts”, we illustrated how consumption and innovation are transforming China. In this

edition, we continue to focus on China’s new economy, by narrowing into the nation’s healthcare industry.

Through easy-to-understand charts, we illustrate why the remarkable growth of China’s healthcare is

expected to continue and how innovation is increasingly being built into the sector’s DNA. Below we highlight

key takeaways from the charts that follow:

Rapidly evolving socio-economic factors and ongoing institutional support have catalysed the

role of healthcare in China, placing the sector in a favourable position for continued growth.

Policy support and the government’s positioning of biotech and high tech medical devices as national

priorities are hugely supportive for the sector. Importantly, a combination of demographic trends,

including an aging population, rapid urbanisation and rising prevalence of chronic diseases, make an

inarguably strong case for the nation’s immense and growing healthcare demand

While investors have been focused on China’s increasing weight in global equity indices, an equally

important shift in the sector composition of Chinese equity indices has received less attention. With

China undergoing the transition from an investment led economy to a consumption-driven one,

new economy sectors – including technology, healthcare and consumer discretionary – have

seen their equity index weight increase over the years. For healthcare, sector representation in the

CSI 300 Index has grown from 4% of the index in 2010 to nearly 7% today. In contrast, healthcare in U.S.

indices tends to make up about 13-14% of the index, which is reflective of the larger role that healthcare

plays in the U.S. relative to China

Bottom up equity investors can potentially capitalise on the structural changes occurring within

China’s healthcare sector as leading healthcare companies are increasingly placing more focus

on innovation and moving up the value chain through research and development. The domestic

equity markets are home to a more comprehensive and vast healthcare opportunity set versus the

offshore markets, as roughly 80% of the Chinese healthcare market capitalisation lies onshore. With the

increased accessibility of China onshore markets, global investors can now more easily invest in these

structural opportunities

HSBC Global Asset Management’s China equity and Asia ex Japan regional equity strategies

invest in both offshore and onshore healthcare opportunities, identified through rigorous

fundamental research within a proven valuation framework, by our well-resourced – 24-strong offshore

equity team in Hong Kong and 33-member onshore equity team in Shanghai - investment network

Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such

forecasts, projections or targets. For illustrative purposes only.

2

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2018E201520122009200620032000

Healthcare industry has grown to

more than 10 subsectors

China healthcare’s extraordinary growth

Source:

1. National Bureau of Statistics PRC, HSBC Global Asset Management, as of May 2019

2. JP Morgan, HSBC Global Asset Management, as of May 2019

3. IQVIA Institute for Human Data Science as of January 2019



China’s pharmaceutical market is the second largest in the world

2018 spending on medicine (USD billion)

China’s healthcare expenditure has

grown at an extraordinary rate

China healthcare expenditure (RMB billion)

2000 to 2018E:

CAGR of 15%

0 50 100 150 200 250 300 350 400 450 500

Canada

Spain

UK

Brazil

Italy

France

Germany

Japan

China

USA

Biotech innovator

First to market biosimilar drugs / generic

Contract research organizations (CRO)

Online services / Telemedicine

Diversified pharma

Specialty hospitals

Medical devices

Traditional Chinese medicine

Marketing / in-license

Distribution

General hospitals

3

6.4% 6.9%

17.9%

China(in 2017)

United States(in 1970)

United States(in 2017)

0

2,000

4,000

6,000

8,000

10,000

China’s healthcare spending is

comparable to that of the U.S. in

the 1970s

High potential to grow from relatively low levels

Source:

1. World Health Organization, latest available data as of May 2019, based on 2016 data. WHO’s comprehensive and comparable database on health spending

for 190 countries is updated annually and released in December of each year with a 2-year lag

2. National Bureau of Statistics PRC, U.S. Bureau of the Census, latest available data as of May 2019

3. Bloomberg as of May 2019



Healthcare expenditure (% of GDP)

China’s healthcare expenditure per capita lags behind other major

markets

Healthcare expenditure per capita (USD)

4.0%

6.6%

8.0%

13.0%

2010 2019

China (CSI 300) USA (Dow Jones)

Healthcare representation in

China’s equity market is low but

rising

Healthcare sector weight in index

4

0

200

400

600

800

1,000

1,200

1,400

1,600

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

“Healthy China 2030” targets to

grow health services market to

RMB 16 trillion

Healthcare sector has strong government support

Source:

1. National Bureau of Statistics PRC, latest available data as of May 2019

2. Ministry of Commerce, as of May 2019

3. NHFCP as of January 2019

4. “Made in China 2025” action plan as announced by The State Council, PRC in May 2015



Loosening restrictions on foreign

ownership has boosted investment

Foreign direct investment actually utilized in China’s health,

social security and social welfare (USD million)

Biotech and high tech medical

devices are a national priority

Substantial government spending

on healthcare

China government healthcare expenditure

(RMB billion)

Government makes up 1/3

of total healthcare

spending

Healthy China 2030

target

0

50

100

150

200

250

300

350

2013 2014 2015 2016 2017 2018

“Made in China 2025” - 10 strategic sectors

1. New advanced IT

2. Automated machine tools & robotics

3. Aerospace and aeronautical equipment

4. Maritime equipment & high tech ships

5. Modern rail transport equipment

6. New-energy vehicles & equipment

7. Power equipment

8. Agricultural equipment

9. New materials

10. Biotech and high tech medical devices

2020E

> RMB 8 trillion

RMB 16 trillion

Size of health services market

5

80%

53%

7%

21%

-5%

50%

44%

22%

Hypertensive heart disease

Alzheimer's disease

Stomach cancer

Liver cancer

COPD

Lung cancer

Ischemic heart disease

Stroke

% change 2007-2017

Aging population adds to

healthcare demand

Demographic trends create immense demand for healthcare

Source:

1. United Nations World Population Prospects 2017

2. International Diabetes Federation 2017

3. Institute for Health Metrics and Evaluation, as of 2019



Population aged 65 and

above (million) in China

Rapid rise in chronic diseases

Of the top 10 causes of premature deaths in 2017, eight are caused by non-communicable diseases

Listed by order; bar shows % change from 2007 to 2017

China has the largest diabetic

population in the world

Diabetic (adult)

population as % of world

5%

10%

15%

20%

25%

30%

50

100

150

200

250

300

350

400

2000

2005

2010

2015

2020F

2025F

2030F

2035F

2040F

2045F

2050F

Population aged 65 and above

% of population aged 65 and above

% of population aged

65 and above in China

Adults with diabetes114 million

Prevalence of diabetes10.9%

China’s diabetic patients

as % of world27%

China26.9%

Rest of the

world73.1%

6

Although China’s pharma market is

at an early stage and still

dominated by generics…

Improvements in China’s healthcare are pushing the industry forward

Source:

1. JP Morgan as of May 2019

2. Nomura, Frost & Sullivan, as of May 2019

3. China Medical Device Evaluation Center (CMDE), JP Morgan as of May 2019

4. National Health Commission of the PRC, as of May 2019



Breakdown of China’s pharmaceutical market

(excluding Traditional Chinese Medicine)

…Development of innovative drugs

are on the rise

China biologics CRO market size (RMB billion)

-

5,000

10,000

15,000

20,000

25,000

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Policy has also been encouraging

the private sector to expand its

role in the system

Number of hospitals nationwide

Private hospitals

Public hospitals

Generics

MNC patented

Local patented

Off patentoriginator

Innovation in medical devices is

increasingly backed by policy

support

0

15

30

45

60

75

4

8

12

16

20

2014 2015 2016 2017 2018

No. of approval (LHS) No. of projects (RHS)

Innovative medical device projects under China Food and

Drug Administration (CFDA) green path

Contract research organizations (CRO) provide research services

to drug makers and are critical to the drug development process,

including in drug discovery and drug research

0

1

2

3

4

5

6

7

8

9

2011

2012

2013

2014

2015

2016

2017

2018F

2019F

2020F

2021F

2022F

The CFDA green path was implemented in 2014 as a fast track of

review and approval for innovative medical devices

No. of approval No. of projects

7

Accessing China opportunities through our investment capabilities

Source: HSBC Global Asset Management as at 30 April 2019.

Any portfolio characteristics shown herein, including strategy and allocations among others, are for illustrative purposes only. The characteristics may differ

by product, client mandate or market conditions. Information may be changed from time to time without notice.

Key strategies Chinese equity China fixed income China multi-asset Passive China-A

Key propositions

Investment

universe

High-conviction

and diversified

portfolio

focusing on

stocks with

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valuation for a

given level of

profitability

H-shares

Red chips

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shares

Focusing

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structure,

duration, sector

allocation,

product

selection and

credit rating

Onshore RMB

and offshore

RMB/non-RMB

denominated

fixed

income/debt

securities

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with income tilt.

Flexible

allocation

across

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equities and

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risk budget

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red chips and

ADRs

Onshore/

offshore fixed

income in RMB

and other

currencies

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tracking the

progressive

inclusion of

China A-shares

into the MSCI

EM index

Stocks included

in the MSCI

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Inclusion Index

We offer clients fulfillment options via our fund range or, if preferred, a segregated mandate,

encompassing Chinese equities, fixed income, multi-asset and passive investing.

8

Why HSBC Global Asset Management?

A network of opportunities

Strong track record

managing Chinese

assets since 1992

Significant local

resources and

presence in Hong

Kong China

A robust investment

process built on

solid proprietary

research

A well resourced,

stable and award

winning team

HSBC Global Asset Management is a pioneer in Chinese investments, with deep experience

in investing in both offshore and onshore Chinese securities.

HSBC Global Asset Management offices - Countries where our investment teams sit are in bold

Canada

USA

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UK

Sweden

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JerseyFrance

Spain

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Austria

Germany

Turkey

Saudi

ArabiaUAE

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Japan

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China2

Presence in

26 countries

and territories

Around 600investment

professionals

81Americas

358EMEA

169Asia-

pacific1

1. Asia-Pacific includes employees and assets of Hang Seng Bank, in which HSBC has a majority holding.

2. HSBC Jintrust Fund Management company is a joint venture between HSBC Global Asset Management and Shanxi Trust Corporation Limited.

Source: HSBC Global Asset Management as at 31 March 2019

9

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