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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