From Sex Clinics to IPOs: Chinese City Cashes In on Health Care

For years, Lin Yuming watched expectant mothers suffer through endless queues and delays at China’s public hospitals. Spotting a business opportunity, the Chinese entrepreneur from the southern city of Putian went on to build a chain of women’s hospitals -- spruced up with pink decor and pianos in the foyer. 

In July, Lin’s Harmonicare Medical Holdings Ltd., which is focused on obstetrics and gynecology, listed its shares in Hong Kong and is ramping up its expansion. About 15 other companies running private hospitals from the city, which is across the strait from Taiwan, are in early stages of considering initial public offerings, says the Putian Health Industry Association, a group representing local businesses.

The Harmonicare maternity hospital

Source: Harmonicare Medical Holdings

Once known primarily for making knock-off Adidas and Nike sneakers, Putian has emerged as home to one of China’s most influential groups of health-care investors. Seeking to curb surging health-care costs and shore up an overburdened public system, Beijing is encouraging private investment. Frost & Sullivan estimates that total revenue from China’s private hospital industry will triple to $90 billion by 2019.

As these newly minted entrepreneurs jockey for a bigger slice of that business, they are poised to face international rivals like Harvard-affiliated Brigham and Women’s Hospital, which are also eyeing opportunities in China.

The ambitions of the Putian businesses are a far cry from the city’s humble beginnings in health care. In the 1980s, doctors from the region earned their livelihood treating conditions like sexually-transmitted diseases and skin infections that were neglected by public hospitals, said Eric Chong, a former deputy secretary general of the Chinese Hospital Association. Some had limited training, he said, but patients kept trickling in. Over time the local businesses became national and grew into accredited hospitals offering everything from plastic surgery to cancer care.

“The first generation perhaps came out to make a living,” said Lin, the hospital executive, who is also vice chairman of the Putian health association. "The second generation like us build hospitals as our career to solve the shortcomings of public hospital services."

Government Backing

Last year, Health News, a government publication, reported that Putian private hospitals representatives estimated that over 60,000 people from Putian are in the health sector and they run over 8,000 hospitals nationwide. By that measure, they would have control of more than 70 percent of the country’s private hospitals.  

Demand for health care is climbing due to China’s surging incidence of diabetes, cancer and heart disease. In parts of the country, families line up at the crack of dawn to ensure appointments at public hospitals. The Chinese government in June said they would provide support for share listings and bond sales for private hospitals to lure investors.

A crowded hospital in Xiangyang

Photographer: Imaginechina via AP Images

Putian, like other pockets of southern China, had a strong tradition of folk medicine, often practiced by traveling doctors. One influential early figure was Chen Deliang. Now honorary president of the Putian health association, he told China Entrepreneur Magazine in a June article that in the 1980s he invented a treatment for the skin infection scabies that borrowed from traditional medicine. He and his associates often operated out of hotel rooms and consulted books when faced with skin conditions they didn’t recognize, Chen told the magazine. A spokesman for the Putian health association said Chen was not available for comment.

Like many other Chinese industries, what started out with individual success drew more and more people from the same town. Nephews and nieces followed, as did uncles, cousins and friends. Soon entire villages near Putian were involved in the health business, said Chong, the former hospital association representative.

They branched out and began operating individual departments at public and military hospitals in a step toward formal medical practice. After the government cracked down on such leasing arrangements, more Putian doctors set up independent hospitals and hired better trained physicians, according to Chong.


To compete with international chains, Putian hospitals will need to build trust with patients, said Alexander Ng, an associate principal at McKinsey & Co. “They do have an uphill battle, because changing the brand perception is not an easy job,” Ng said.

The younger generation of Putian businessmen are better educated and want to reform the health-care sector, said Steven Wang, founder of HighLight Capital, a private equity fund focused on healthcare.

“I believe in the next two to three decades, quite a number of China’s excellent hospital management groups and managers will emerge from the Putian system,” said Wang. He had invested in a Putian hospital chain in a previous job at another firm.

Lin began as a businessman selling medical equipment, before setting up his first hospital in 2003. Beijing-based Harmonicare listed in a HK$1.6 billion ($206 million) public offering in Hong Kong in July, and had revenue of 936 million yuan ($146 million) last year. Its shares are trading 23 percent below its IPO price, joining the broad market slump. CCB International Securities in August gave the stock an “outperform” rating and forecast annual sales growth of more than 10 percent over the next two years. Harmonicare shares closed at HK$5.75 in Hong Kong trading today.

Another IPO candidate may be Baijia International, a women and children’s hospital business that Morgan Stanley’s Asia private equity business has invested in. Baijia "is currently planning IPO matters but it’s inconvenient to reveal specific timetable and details," it said in an e-mailed response to questions.

Important Force

In a sign of the region’s clout, shares of U.S. listed Baidu Inc. fell in April after the association of Putian hospitals announced a boycott on advertising on the Chinese search engine. Baidu at the time said the boycott was triggered by a crackdown on what it described as false medical advertising on its site by some Putian hospitals.

A newborn intensive care unit

Source: Harmonicare Medical Holdings

Most of the customers from the region have since renewed their contracts with the site, Baidu said via e-mail. The Putian association said in a statement on its website that a small number of hospitals from the region had violated regulations in the past, and the group has been working to promote "the transformation" of the industry.

Before the 2003 SARS outbreak, private health care wasn’t very organized as regulations were lax, but there are now standardized operations and branded franchises, Wu Xidong, a spokesman of the Putian association, said in a text message. 

"In 2013, the government issued very good encouraging and supportive policy and gave private health care a clear political status and market position," Wu said. "So we have begun to push for full-force investment, long-term operation and pursue listings."

— With assistance by Hui Li

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