As China’s elderly population is steadily increasing alongside the public demand for high quality health services, internet healthcare may provide solutions in the near term, raising opportunities for foreign investments.
China's health industry has marched into the digital era, facilitating changes for many hospitals and private entities in the sector. Internet healthcare, featuring online medical consultation, is becoming a new reality for more and more Chinese citizens. The sector’s development has been greatly boosted by the COVID-19 pandemic, receiving close attention from both government authorities and technology firms to expand market access.
What is internet healthcare?Internet healthcare is a subcategory of the broader digital healthcare sector, which involves artificial intelligence and machine learning for diagnostics and treatment. Different from traditional settings, where patients and providers interact in clinics or hospitals, internet healthcare takes place through virtual platforms that are accessible via mobile devices and computers. These platforms enable a wide range of health services and products, including medical consultations, scheduling of hospital appointments, drug prescription, health information management, health insurance, and telemedicine.
Lifting the burden of visiting overcrowded hospitals, internet healthcare services bring more convenience to consumers who are seeking medical treatment. With more instant feedback, consumers who are worried about their symptoms can obtain reliable information for self-check and self-medication, reducing the need to meet a doctor in person. Such a service is also transforming the healthcare industry from its traditional focus on treatment to prevention.
Prices of internet healthcare vary by the service type. The most common channel is through text and image consultations, which gives patients access to certain interactions with their doctors over a specific period of time. Other services are voice and video consultations.
According to research data, the average price for a 48-hour text/image service package is RMB 65 (US$9.64), while RMB 8.32 (US$1.23) per minute for voice consultation, and RMB 17.56 (US$2.6) per minute for video consultation. Prices also vary considerably across platforms, reflecting differences in provider quality, marketing power, and consumers’ willingness to pay.
|Price and Consumer Preferences for Different Service Types of Internet Healthcare|
|Service types||Price||Consumer preference|
|Image/text (per package)||RMB 65.1 (US$9.64)||71.6%|
|Voice (per minute)||RMB 8.32 (US$1.23)||16.4%|
|Video (per minute)||RMB 17.56 (US$2.6)||12%|
What are China’s policies for internet healthcare?Internet healthcare is an integral component of the country’s “Healthy China 2030” blueprint to fulfill the country’s long-term economic and social development goals. Since its introduction in 2016, the Chinese government has stepped up efforts to back the health tech industry’s development through a series of policies and regulations.
In April 2018, the General Office of the State Council released a document titled “Internet Plus Medicine and Health,” detailing an overarching framework to integrate internet and information technologies into healthcare. The regulations brought forward the supply-side structural reform to alleviate the unbalanced and inadequate development in the sector. China’s health-tech boom came following the implementation of the comprehensive framework.
In August 2019, the National Healthcare Security Administration (NHSA) launched the electronic medical insurance system – regulating prices and insurance policies to allow internet-based medical services to be covered by the country’s medical insurance system. Patients can access hospital services via WeChat and Alipay platforms. This incorporation has been further strengthened with NHSA’s guidance in October 2020 to actively promote the "Internet+" medical service medical insurance payment and management.
In May 2020, the National Health Commission (NHC) issued a statement to encourage provincial governments to establish their own regulatory statutes to manage online medical providers and to accelerate the market access of internet-based hospitals. Later in September that year, the State Council noted again the need to expand internet-based health clinics. Since then, many provincial governments have promulgated regulations to improve conditions for the online healthcare market.
Internet health is also a critical focus of the 14th Five-Year-Plan (FYP), which urges more connectivity among regions, balanced development between cities and countries, and utilization of big data. The government’s next goal is to accelerate the incubation of the internet healthcare market and promote the industrialization and large-scale application of big data in precision medicine, health management, drug research and development, and medical insurance.
Market status and outlook of the internet healthcare sector: An ecosystem in the makingInternet healthcare has witnessed explosive growth during the COVID-19 outbreak, with drastically increasing number of users. As access to hospitals became restricted with lockdowns, many turned to online sources for medical services. Alibaba Health indicates that it has more than 15,000 contracted medical institutions, including nearly 400 Class III hospitals in 17 provinces, that are connected to medical insurance payment services. The company reported in the 2020 Q1 that the net total of frequent active users of Alipay’s health-care channel exceeded 390 million.
Many tech giants, sensing the opportunity, are rushing into this emerging industry. Currently, there are 1,748 internet healthcare startups in China. Among all those sharing the cake, Ping An Good Doctor, a Hong Kong-listed subsidiary of the insurance giant Ping An, reported 26.7 percent year-on-year growth in average daily online consultations to 831,000 in the first half of 2020, with revenue from online medical services doubling to RMB 694.9 million (US$101.56 million).
Lessons learned from managing the pandemic can profoundly shape the direction of China’s healthcare market, which is expected to almost triple from RMB 6.5 trillion (US$960 billion) in 2019 to RMB 17.6 trillion (US$2.61 trillion) by 2030. Despite this growth, the market currently remains relatively undeveloped, with China’s health expenditure – including pharmaceuticals, medical devices, distribution, hospital, pharmacies, and insurance – accounting for only 7.12% of the total GDP in 2021, while the US reached 18%in the same year. The gap leaves enough growth potential for healthcare companies.
The internet healthcare industry is still in its initial stage of development. Repeated construction with similar functions on various platforms may trap consumers and investors. More efforts are needed to clarify the value of each platform and to establish different operation strategies and service models according to distinct characteristics. With the government’s conducive policies, more stable and sustainable planning will be crucial to promote and strengthen the industry’s capabilities.
Nevertheless, the market still represents promising prospect. China’s healthcare industry has demonstrated inviting performance with a cumulative return of 160% over the past ten years. The success of the digital health companies relies on the vast amounts of medical data from Chinese patients. China’s demographics are a critical factor contributing to the boom, with the elderly population (65 years or above) projected to double from 10 percent of the population in 2017 to 20 percent by 2037.
Internet healthcare in China is expected to receive more prioritized attention from the government. Foreign investors engaging in providing healthcare services are well suggested to pay attention to this rapidly developing sector.Additionally, the pace of urbanization and growing middle-class population are also underpinning the growth in domestic demand for higher quality healthcare products and services. Facing a rapidly aging population and citizens demanding higher quality services, China’s healthcare sector is already positioned to become an area of priority government attention in the coming decade. As a major branch in the industry, internet healthcare, with its handy access to the public, sees great growth potential.
How foreign investors can get involved in the business?Healthcare remains a positive area for foreign investment. In the most recent Catalogue of Industries for Encouraging Foreign Investment (2020 Version), China encourages foreign investment in multiple sectors related to internet healthcare, including:
- Online healthcare
- Digital medical system, community care, personal health maintenance related product development and application
- Medical information services such as health consultation, health management, and medical knowledge