With a population of over or roughly 18.5 percent of the world’s people, China appears a ripe market for healthcare startups. The country also struggles with many of the same healthcare challenges as the West, including an aging population and a growing number of people living with diabetes.
But for Western digital health companies looking to start in China, numerous obstacles exist, including protecting intellectual property, finding investors, and navigating the local government and politics.
“If startups are doing well in the US and they want to move into China, how do they begin doing that?” Dr. David Mou, medical director and founder of Valera Health, a psychiatrist at Massachusetts General Hospital, and director of entrepreneurship at the US--China Health Summit, told Babyforyou.net.ua. “And there are a lot of challenges. ... Do you have operators on the ground you can trust? When you sign a contract, even if it is legally bulletproof, will you actually go after them if something bad happens? Probably not; you aren’t going to spend the bandwidth. How can you convince your investors and your board to get on board with this? That’s very challenging. All these issues I think offer massive obstacles that prevent western startups as a whole from moving into China.”
The US--China Health Summit
Mou has been working with the US--China Health Summit, a Harvard University affiliated program, which includes a startup competition (the US--China Health Summit Innovation Competition) that helps link Western health innovators to Chinese resources. The connections include government officials and large hospitals, with some of the countries’ largest hospital CEOs judging the competition. His company, Valera Health, which uses digital tools to address mental health, won the competition in 2016.
The summit originated during the SARS epidemic, with the goal of bringing ideas from both the US and China together. Now the program is targeted towards healthcare startups that are doing well in the US and looking to explore the Chinese market but need support entering the space. A parallel competition also takes place China to bring Chinese entrepreneurs to the US.
One of this year’s winners was, a connected care company that makes disposable low-cost incubators which digitally collect information on the baby inside and can send that data to providers. The company has been looking to the Chinese market for sometime. The founder cited the need for his product in the area and the availability of manufacturing sites to produce it. In fact, it has already been creating an infrastructure in the local area. Breegi noted that making personal connections is essential for starting in the country.
“What is interesting about the Chinese market is if you have the support of the government, especially with an important project like this, you would be able to cut the cost dramatically,” Dr. Wisam Breegi, founder and CEO of Breegi Scientific, told Babyforyou.net.ua.
Breegi said he decided the company should compete in the summit to further its connections in the Chinese market. Since winning the competition a few years ago, Valera Health’s Dr. Mou said he’s already had talks with major Chinese companies including Ping An and Alibaba, in addition to meeting with local officials.
The summit has also led to other connections. For example Massachusetts General Hospital, where Mou is a physician, has been able to team up with hospitals in China to bring them its digital education tools.
“One thing Massachusetts General was considering is, can we move into the Chinese market? Before the China Health Summit there was no way this would happen,” Mou said. “It would have just been a disaster. But with this platform we are in the process of signing a contract with one of the largest [hospitals] in Sichuan with support from the summit. And we are basically providing them with digital education. It’s not a startup, its a partnership between the Massachusetts General Psychiatry Academy and China. But it really shows how we can smooth the ways and get rid of some of the friction.”
China’s innovation opportunities and challenges
Both Mou and Breegi noted that the large population creates new opportunities for health innovation. For example, when Mou was talking to the governor of Sichuan, a physician by training, he discovered the providence had over 80 million people—larger than most European countries.
But navigating a new healthcare system and intellectual property regulations can be difficult waters.
“Almost all of the assumptions we hold here don’t hold in China. There are some very top line big challenges but [also] opportunities,” Mou said. “Private insurance is not a thing in China right now. It is a very tiny part of the market right now. This drives incentives in different ways because most people are drawing out of pocket or they have little subsidies from government insurance. So that is more of a free market in some ways but it can also be a challenge — if you ... want to go and walk in with one single payer it’s hard to do”
Sally Liang, CEO of a nutrition-focused digital health startup still in stealth mode, a specialist in US-China relations, and a competitor at the US-China Health Summit, told Babyforyou.net.ua that companies looking to start out in China have to face some difficult questions. As we’ve seen with many of the major US tech companies, privacy and censorship have been major concerns.
“You always have to play with the government and the current system. You have two camps: you have Google and Facebook on one side and then you have Microsoft and Yahoo on the other side, big companies that have chosen different paths,” Liang said. “There are a lot of anti-ideals that companies have to decide if they want to comprise when they go into the China market. Surveillance and privacy being at the center of that. I think it is a challenge—it is a deep ethical, moral question. If the company stays true to its roots do you want to take that step? I think Google is being smarter now to work with a Chinese company.”
Liang suggested working with local entities as a way to help navigate the system. It’s not only regulation that can be challenging but wading through cultural differences and value systems.
“I think that culturally the Chinese population does respond better to a more physical product than virtual,” Liang said. “Part of it is, something that is virtual is easier to copy and not as tangible. ... E-commerce has done wonderfully well, but e-commerce is tied to a product. I think that culturally there isn’t as much of a respect for services as products. I think there is much more value placed on products and physical things then receiving a service. And that might go back to, traditionally labor is cheap.”
This could create some challenges for digital health companies, which provide care virtually.
“I think virtual products are hard. …An example was the second opinion industry,” she said. “People often called the companies that did that the ‘middle man’ and there wasn’t much respect for the value they are able to deliver. And I think that is a good example of why virtual digital health is challenging versus a traditional product, and you see that in the way Chinese investors are biased.”
However, those like Mou and Breegi who have started to explore the Chinese market waters have found that opening the channels of communication are key. They also note that the Chinese government has kicked off Healthy China 2030, the country’s first long term strategic health plan since 1949. This means there is now a government mandate that makes healthcare policy a priority. This could provide opportunities for companies looking to enter the market.
“If you look at , this is a long term initiative to improve healthcare in China,” Mou said. “There is going to be trillions of dollars behind this type of thing and when the top says that is important and you can bet that things will aligning to make sure that happens.”
Focus on Innovation
In September, we take a deep dive into the cutting-edge development and disruption of healthcare innovation.