INSIGHTThe Journal of the American Chamber of Commerce in Shanghai - Insight November 2016

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FEATURES P.16Q&A with

medical devices company

Measuring the pulse of China’s healthcare

industry, including opportunities for private

hospitals, senior care and the biotech sector.

FIRING UP THE HEALTHCARE INDUSTRY

POLICY P.22Overview of drug

and devices regulation

ESOTERICA P.34On post-partum

monthly confinement

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Movers and shakers

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amcham shanghai

PresidentKenneth Jarrett

VP of Administration & Finance helen ren

Directors

Business Development, Marketing & Events

Patsy liCommittees

Jessica WuCommunications & Publications

ian DriscollGovernment Relations & CSR

Veomayoury "titi" BaccamMembership & CVP

linDa X. WangTrade & Investment Center

leon tung

insight

Senior Associate Editor ruoPing chen

Associate Editor Doug struB

Content Manager DeBorah tang

Design gaBriele corDioli

Printing

snaP Printing, inc.

insight sPonsorshiP

(86-21) 6279-7119story ideas, questions or

comments on insight: Please contact ruoping chen

(86-21) 6279-7119 ext. 4583ruoping.chen@amcham-shanghai.org

insight is a free monthly publication for the members of the american chamber of

commerce in shanghai. editorial content and sponsors' announcements are independent and do not necessarily reflect the views of the governors, officers, members or staff

of the chamber. no part of this publication may be reproduced without written consent

of the copyright holder.

shanghai centre, suite 568 1376 nanjing West road shanghai, 200040 china tel: (86-21) 6279-7119 fax: (86-21) 6279-7643

www.amcham-shanghai.org

special thanks to the 2015-2016 amcham shanghai President’s circle sponsors

INSIGHTThe Journal of the American Chamber of Commerce in Shanghai - November 2016

FEATURES

Slowly Severing the State’s HandHow private hospitals are reshaping the healthcare landscape

Old People, New Problems How China’s elderly could create the country’s biggest industry

China’s Coming Biotech RevolutionA look at the opportunities and challenges in China’s biotech industry

The Surgeon’s Toolbox Q&A with Stryker’s William Jin on China’s medical device market

High Impact BoardsBest practices for boards to follow

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POLICY PERSPECTIVES

China’s Integration of Healthcare and Medical Device Regulatory ReformLegal experts share insights on evolving policies

New Guidelines on Regulating Inbound Investment Streamlining regulation on inbound investment for non-restricted sectors

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MEMBER NEWS

Board of Governors BriefingNotes from September’s meeting

Event Report Recap of selected events from last month

Month in Pictures Selected photos from last month’s AmCham events

Exit Interview With Carl Wegner, former managing director at Deutsche Bank

Committee Chair’s CornerWith David Basmajian, chair of the Healthcare Committee

Esoterica Post-partum: sitting the month

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CAREER

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Auto joint venture FAW-Volkswagen Automotive is building a new whole-vehicle manufacturing base in Tianjin. The new base, with an investment of 19.5 billion Yuan ($3 billion), is expected to be �nished in 2018 and to make 300,000 cars per year.

Covering 108 hectare of land, the new base is located at Tianjin Economic & Technological Development Area (TEDA). When put into operation, the base will require 6,000 employees, and will certainly attract its components suppliers to follow suit. Based on normal practice, a whole-vehicle base will

attract at least 20 primary component makers to settle in TEDA.

TEDA’s cooperation with the auto giant Volkswagen already started since 2012, when Volkswagen decided to build a new transmission production base here, namely DQ380 and DQ500. The two kinds represented cutting- edge technologies that were �rst introduced

to China. With a convenient atmosphere, Volkswagen further added DL382 products to its TEDA base and more possibilities are still ahead. Now its total investment on transmission alone has reached 13.85 billion Yuan ($2.1 billion).

German auto parts supplier Continental AG also invested 80 million U.S. dollars in a new factory in TEDA scheduled to start operating in 2017. Continental launched a business here in 2007 producing automotive electronic products for global clients and now expects to produce a greater range of products in China.

Another giant Toyota has been in TEDA for 16 years. Toyota’s three existing production lines can produce 530,000 vehicles annually. Early this year, the Tianjin FAW Toyota Motor Corporation started building its fourth plant in TEDA and will produce new models by the middle of 2018. The annual capacity of the new production line is expected to reach 200,000 vehicles.

The automobile manufacturing industry is one of the pillar industries of TEDA, which has gathered world-known vehicle makers including Volkswagen, Toyota, Great Wall Motor, Qingyuan Electric Vehicle, Xingma Automotive, and many component providers like Aisin, Audi, Denso, Continental, Yazaki, Hyundai Hysco, Mobis, TI Automotive, Minth Group, Freescale etc. TEDA has formed a complete auto industry chain of whole cars, motors, transmissions, auto electronics, auto moulds, tires and coatings. According to TEDA’s plan of auto industry, the annual output will reach 2 million vehicles and a total value of 30 million Yuan by the end of the 13th Five-Year Plan.

TEDAADD: 19 HONGDA ST., TEDA, TIANJINTEL: +86-22-25201831 +86-22-25201907WEB: www.teda.gov.cn

SHANGHAI OFFICETEL: +86-21-68827776 EMAIL: shanghai@teda.net

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Meiguo da xuan, as America’s pres-

idential election is referred to here,

should finally be over by the time you

read this. Our nation’s ritual of dividing

into camps and viciously criticizing ev-

eryone and everything is now behind

us, at least for another four years. Im-

migrants and foreigners have always

been easy targets during America’s po-

litical campaigns, and this year was no

exception. Mexico took the brunt of the

attacks, but China was also blamed by

both parties for all manner of crimes.

The Republican nominee was partic-

ularly sharp in his criticism of China and

America’s policies in Asia. He accused

China of everything from currency ma-

nipulation and intellectual property theft

to using “weapons of job destruction.”

The Democrats, for their part, shamefully

backed away from pro-trade positions and

focused on China’s alleged hacking and

stealing of trade secrets.

Now that it’s over we heal the wounds.

China, normally thin skinned and suscepti-

ble to “hurt feelings,” has been remarkably

unfazed. This shows maturity, but also a

high level of awareness and understand-

ing about our unique political system. Still,

this hasn’t stopped Beijing from pointing

out flaws in American style democracy or

comparing it to “House of Cards.”

The second place candidate in this

election should now fade away, but the

issues championed remain. Many in

America have not benefited from global

trade, and through our election process

they have made their views known. The

debates have brought to the surface real

problems that exist in America because of

trade. Factories have closed and people

have lost jobs.

Those of us who work in China see the

benefits from globalization but millions of

Americans do not. More to the point, the

benefits from trade tend to be disbursed

widely in the form of lower cost products.

Economists estimate that Americans re-

ceive on average about 10% more dis-

posable income due to low cost products

from China. The costs, however, tend to

be concentrated. A closed steel mill or

shuttered shoe factory can put thousands

of people out of work in a single town.

There are no simple answers here. Ad-

justment is difficult. Laid off steelworkers

do not get jobs at Facebook. Trade Adjust-

ment Assistance programs are intended

to help with this, but we need to do more.

We need real answers to these problems

and a serious approach to education and

retraining that will give American workers

the skills they need to compete.

Taxing imports to protect uncompet-

itive industries doesn’t seem like the an-

swer either. Do we really want to close our

borders and risk a trade war just to main-

tain low wage, dead end jobs?

If we want to continue to enjoy the ben-

efits of open trade, then we need to do a

better job of explaining and sharing the

benefits of globalization.

This year’s election process has left

America’s two-party system badly dam-

aged. In some sense, this system is the

political corollary to the checks and bal-

ances that prevent excessive concentra-

tion of power in government. Two strong

parties accommodate our nation’s var-

ied interests and opinions. For decades,

competition between Republicans and

Democrats has given us choices. Which-

ever party is in power faces constant

criticism from the other and must justify

and defend policy choices at every step

of the way.

The GOP is in disarray, to say the least.

This is not good for us, no matter who we

wanted in the White House. We need both

parties to govern.

Post election, what will the Republican

party look like, and what will be its position

toward China? Will the GOP fix itself, and

identify a set of core values and a strong

position from which to lead?

Historically, Republicans have advo-

cated open trade, active investment, and

political engagement in Asia. They have

championed a balance between eco-

nomic and military strength in the region.

These policies, which have enjoyed bipar-

tisan support, have served us well. Asia

and America have prospered. Let’s not

forget that it was a Republican, Richard

Nixon, who took the first steps toward nor-

mal relations with China.

With the election behind us we have an

opportunity to reset. Both parties need to

work together to develop an effective pol-

icy for continued prosperity in Asia. Open

trade and investment has always been

the foundation of our relationships. Can

America’s leaders address the problems

at home in a way that accommodates free

trade? We have a narrow window to pass

the TPP. Let’s not waste it. I

ChairmaN’s Letter

KER GIBBSChair of the Board of Governors

China andthe american election

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GOVERNMENT

Xin Changxing was

named vice party

secretary of Anhui

province. Previously,

Xin was the head of

the State

Administration of

Civil Service. In September 2010, he

became the vice minister of Human

Resource and Social Security. He also

served as vice mayor of Xi’an, the

capital of Shaanxi province.

Zhou Chunyu was

named vice governor

of Anhui province.

Zhou is from Anhui.

Most recently he was

the party secretary

of Bengbu, a large

city in Anhui province. From 2007 to

2010, he was the mayor and vice party

secretary of Ma’anshan, another major

city in Anhui province.

Liu Qi was promoted

to be governor of

Jiangxi province. Liu

became vice party

secretary of Jiangxi

province at the

beginning of this

year. He was the party secretary of

Ningbo, a major city in Zhejiang

province, and before that served as

deputy director of the Zhejiang

Provincial People’s Congress Standing

Committee from 2008 to 2011.

PRIVATE SECTOR

APCOAPCO Worldwide

appointed James

Robinson as

managing director of

its Shanghai office.

Robinson will take

the lead in linking APCO’s China business

with its global operations and in

connecting its clients’ local and global

communications.

Robinson has spent his whole career

at APCO. He joined the firm in 2001 and

worked in Beijing for three years. Then

he went to New York, serving in different

positions, most recently senior director

and SVP of APCO Worldwide. Since

2008, he has led the firm’s work for the

Clinton Global Initiative.

Robinson graduated with both a

Bachelor of Arts and Master of Arts in

Oriental (China) studies from the

University of Cambridge and speaks

Mandarin proficiently.

KKRKKR appointed Paul

Yang as head of

Greater China. In his

new role, Yang will

lead a team of over

20 professionals from

the Beijing office as the firm continues

building its China business. Most

recently, Yang was president and CEO of

China Development Financial

Corporation ("CDFC"). He joined CDFC in

2005 as its chief investment officer and

head of its private equity business. Prior

to CDFC, Yang served as MD and head of

private equity at DBS Bank for four years.

He has an MBA degree from Harvard

Business School and a Master of Science

degree from MIT.

EXtREmE NEtwORKssimon Naylor was

named vice president

of Extreme Networks’

Asia-Pacific sales

team. In this role,

Naylor is tasked with overseeing the

company's regional growth through its

software-driven, solutions-based go-to-

market initiatives while also accelerating

new product launches.

Naylor has more than 25 years'

experience establishing and leading IT

companies in Asia. Most recently he led

sales in Southeast Asia and Japan for

Riverbed Technology. Before that, he

held VP roles at RSA, Sonus Networks,

Infinera and Transmode. He holds a BA in

Economics from the University of

Manchester.

POLYCOm.INC Alex K.s. Lee was

appointed by Polycom

as vice president,

sales, Greater China. In

this role, Lee will

oversee all operational

aspects and bring renewed focus on

partner alignment to address new

opportunities in this market.

Lee has been in the industry for more

than 30 years. He joins Polycom from

unified communications software company

Pexip where he was the president of

Greater China. From 2009 to 2013, he was

the managing director of the collaboration

business unit of Cisco Greater China and

prior to that, president and chief

representative for Tandberg, Greater China.

He was also part of the team that led its

integration into Cisco. Lee also served as

president of SGI Greater China from 2003 to

2007 and Greater China president for

Compaq from 1999 to 2002.

Movers and Shakers highlights major personnel changes within the Chinese government at various levels and senior management-level movements within multinational companies in China

If your company has

executive personnel changes,

please contact Junling Cui at

junling.cui@amcham-shanghai.org.

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Movers and shakers

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Two blocks from the skyscrap-

ers of Lujiazui, construction is

underway on Shanghai East

Hospital’s massive new building that

will house the expansion of both its

public hospital and its joint venture

international wing, Shanghai East In-

ternational Medical Center (SEIMC).

Opened in 2004, SEIMC is believed

to be the first foreign-invested joint

venture hospital in Shanghai, the re-

sult of a desire to draw international

healthcare partners into the rapidly-

developing Pudong district to help

service the growing international

population of Shanghai. SEIMC’s

new site, set to open in 2017, will ex-

pand its original floor space by more

than five times.

Meanwhile, across the river in

Shanghai’s Xuhui District, Jiahui In-

ternational Hospital, a private $500

million dollar facility that will work

in collaboration with Boston’s Part-

ners HealthCare International, is

also scheduled to open next year.

These projects are occurring

amid a broader wave of growth and

modernization of China’s health-

care sector that has increasingly

been driven by private and for-

eign-invested hospitals.

In recent years, numerous gov-

ernment policies have emerged to

encourage a larger role for private

hospitals. Public hospitals in China

have long faced overcrowding is-

sues, while a rapidly aging popula-

tion and increasing chronic and non

-communicable disease rates have

resulted in more people needing

care. While public health insurance

has expanded to near-universal

coverage, expenditure per head is

low compared to Western coun-

tries, and the quality of rural health-

care facilities remains poor. More-

over, the rapid expansion of public

insurance has created significant

budgetary challenges and the gov-

ernment recognizes it needs new

means to achieve its healthcare

goals. Private and foreign-invested

hospitals will play a key role in

achieving these goals.

the shifting healthcare landscape

China’s encouragement of pri-

vate hospitals has been a long and

gradual process. According to a

Boston Consulting Group (BCG) re-

port, 3,220 private hospitals were

operating in China in 2005, or just

over 17% of all hospitals. By 2010,

this number reached 7,068 – al-

most 34% of the total. But private

hospitals tend to be smaller, and

despite this 34% share, accounted

for only 11% of total beds. In 2011,

when the government released its

12th Five-Year Plan, it set specific

targets for increasing the number

of private beds, calling for a 20%

share in 2015. According to recent

government data, this goal was

nearly achieved – reaching 19.4%

at the end of 2015.

In early 2015, policies favoring

privatization continued as a new

round of reforms aimed at com-

bobulating the chaotic hospital

market emerged. “Within these re-

forms, there were three main areas

that were emphasized: infrastruc-

ture development, cost reduction,

and expansion of insurance,” says

Jin Li Frick, Senior Principal Con-

sultant and Head of Greater China

at Clearstate, the Economist In-

telligence Unit’s (EIU) healthcare

research consultancy. “And within

the reforms, privatization was ba-

sically earmarked as a key initia-

tive.” By that point, the number of

private hospitals had ballooned

to over 12,000, or nearly 50% of all

hospitals.

While growth of private hos-

pitals has been rapid, challenges

facing foreign investors have min-

imized their role in the hospital

market. One key restriction is that

foreign-invested hospitals are

limited to a 70% ownership joint

venture structure, with a domestic

partner(s) holding at least 30%. A

more significant challenge is that

foreign-invested hospitals of-

ten cannot use public insurance.

At the end of 2011, consultancy

BCG estimated there were 8,440

private hospitals in China and of

these, the Chinese edition of the

New York Times stated that fewer

than 100 were foreign-invested.

But foreign-invested hospitals are

on the rise, and according to an

early 2016 EIU report now account

for 5% of private hospitals.

How private hospitals are reshaping the healthcare landscape

By Doug strub

FEATURES

Slowly Severingthe State’s Hand

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Patient base growthIn addition to a supportive pol-

icy environment, growing income

levels and an expanding middle

class are driving demand for more

and better services. “The emer-

gence of private hospitals is con-

tinuously growing, because there’s

an increasing appetite on the part

of the Chinese population to have

an improved and best-evidenced

quality medicine,” says Heather

Smith, General Manager of Shang-

hai United Family Hospital (UFH).

“It’s very much being demanded

of the general population that

there be increased competition

and thereby improving service and

quality of service to be best prac-

tice.” UFH was the first foreign-in-

vested international standard gen-

eral hospital established in China,

with its first location opening in

Beijing in 1997. Since then, UFH

has expanded to six cities and

continues to grow today. “We’re

opening two new hospitals and an

additional clinic [all in Shanghai] in

2017,” Smith says. “We’re constantly

looking to expand our footprint.”

While foreign-invested hos-

pitals such as UFH have been

long-established in China, early

growth of private hospitals was

dominated by domestic players.

But more recently, foreign-in-

vested ventures are on the rise

and expanding into new localities.

Founded in 2008, Nashville-based

Chinaco Healthcare Corporation

(CHC) has been growing its pres-

ence in China through middle-tier

cities. CHC’s first hospital, a 70%-

30% joint venture arrangement

with the local government of Cixi in

Zhejiang province, opened in mid-

2014. This project converted a 150-

bed public hospital into a 500-bed

Class III (the highest classification

in China’s three-tier hospital regis-

tration system) general hospital.

While many private hospitals

have emerged to fill smaller, niche

markets or are aimed mainly at

expatriate communities, CHC is

focusing almost entirely on local

patients. “That’s one thing that dis-

tinguishes us from other foreign-

capital invested private hospitals

here,” says Ling Guan, Executive

Vice President & General Counsel

for CHC. “We really play in the main-

stream population field.” CHC’s sec-

ond hospital is under development

in Zhenjiang, Jiangsu province, and

set to open next year.

As for choosing locations, Guan

offers several reasons for their de-

cisions. One is that most tier-one

cities already have plenty of Class

III hospitals, and CHC’s size and lo-

cal patient focus makes lower tier

cities more attractive. Additionally,

local governments are often eager

to draw in foreign capital to im-

prove their healthcare infrastruc-

ture and can offer incentives, such

as more flexibility when using pub-

lic insurance at private facilities.

“Foreign-owned hospital clinics in

Shanghai are not included in yi-

bao [government insurance],” Guan

says, “For our scale, we’re not go-

ing to survive without government

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MoveRS AND SHAkeRS

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pay, because we’re serving so

much more, and our volume is so

much higher. Just having expats is

not going to fill our hospitals, and

that’s not our goal.”

This surge of foreign-invested

hospitals has attracted European

interest as well. Germany’s Artemed

Group is currently developing a

200-bed, Class II general hospital in

Shanghai’s Free Trade Zone, where

they plan to bring their orthopedic

expertise to China as a key com-

ponent of the hospital. “The middle

income groups in China are starting

to demand better and better ser-

vices,” says Ellon Xu, Chief Exec-

utive Officer of Shanghai Artemed

Hospital Limited. “So therefore, for

a player like us that really focuses

on efficiency and quality, we do be-

lieve that the market in China pro-

vides a very big opportunity for us

to make our contribution.”

While favorable government pol-

icies and attractive economic condi-

tions can drive investment decisions

in the private hospital market, obsta-

cles remain. Two of the most signifi-

cant involve the problems of hiring

doctors and the lack of a developed

private insurance system.

trapped in the iron rice bowl

Typically doctors at public hos-

pitals have not been allowed to

seek work outside the hospital that

employs them. This poses a sig-

nificant barrier to private hospitals’

ability to acquire talent. In August,

2014, Beijing became the first mu-

nicipality to eliminate this restric-

tion, and relaxation of this policy

has since spread. But several chal-

lenges remain for private hospitals

when hiring doctors.

Doctors in the public sector still

benefit from “the iron rice bowl” –

the safety net provided by the gov-

ernment for many occupations that

guarantees benefits such as life-

long employment, a steady income

and a state pension. Additionally,

public hospitals offer intangible

advantages, such as prestige and

better opportunity for career ad-

vancement. CHC’s Guan says this

is among the most significant diffi-

culties private hospitals face. “Right

now private hospitals cannot com-

pete for talent, because you can’t

offer what the government offers,”

Guan says. “Government conceptu-

ally from the central level is trying

to get rid of this. They know this is

blocking private hospitals from de-

veloping, because it doesn’t matter

how good their infrastructure is,

if they don’t have the skilled phy-

sicians it means nothing.” Further

complicating the issue, public hos-

pitals fear losing talent to private

hospitals so where possible seek

additional ways to prevent such

shifts. “It’ll take time,” Guan adds,

“but the trend has to be that, there’s

no other direction.”

Private insurance – the missing link

According to the World Bank, in

the five years following the launch

of its current three-tiered system

of public health insurance in 2003

(the New Rural Cooperative Med-

ical Scheme, Urban Employees

Basic Medical Insurance, and Ur-

ban Residents Basic Medical Insur-

ance), coverage in China jumped

from 23% to 87% of the population.

Since reforms aimed at further in-

creasing coverage were launched

in 2009, various estimates now put

it at 95-97%. The government is

now seeking to improve the quality

of coverage, but faces funding is-

sues in doing so. Private insurance

has been growing rapidly and can

help bridge this divide, but it too

faces many obstacles.

Ernst & Young estimates that

the private health insurance market

grew from RMB1.5 trillion in 2014

to RMB2.4 trillion in 2015, and that

total medical insurance premiums

saw growth rates of 41% and 52.5%

over the past two years. Despite this

impressive increase, a 2016 BCG re-

port found that only about one in 20

people in China have supplemental

private insurance.

This lack of private coverage

constrains private hospitals. On

the one hand, the government is

encouraging these hospitals to ex-

pand – particularly into rural and un-

derserved areas – but on the other

hand, these are the areas where the

general population cannot afford

private hospitals. Affordable private

insurance could increase rural citi-

zens’ access to quality care, while

also incentivizing the expansion of

private hospitals into such areas.

CHC’s Guan wants to see some-

thing closer to a 50% commercial in-

surance, 50% government pay mix,

and considers this a key element

in successfully developing private

hospitals. “Only when there’s a pri-

vate insurance company coming in

can we set a fair price and can ne-

gotiate,” Guan says. “Then as long

as we’re the best hospital in town,

we have the power. But right now

we have no such negotiation power

with the government. Private hospi-

tals are never going to develop un-

til private insurance comes in to be

the payment source.” Guan remains

optimistic that things are heading in

the right direction regarding private

insurance, but adds “that will take

some time.”

the future of healthcare privatization

Today, private hospitals and in-

surance companies are redrawing

the lines of how much privatization is

acceptable in the healthcare indus-

try. While the results won’t be seen

for some time, the large increase in

private hospitals and rapid growth

of private insurance demonstrates

that these lines are shifting. “The

government is pursuing provision of

universal care to all its population,”

says EIU’s Frick. “They recognize

they can’t do it alone, without the

support of the private sector, with-

out the investment of the private

sector.” China’s massive population

and rapid economic growth has

long drawn interest from foreign in-

vestors, yet investment in hospitals

has so far been minimal. Now, with

the emergence of an increasingly

favorable policy environment, it ap-

pears more and more investors are

choosing to act. I

FEATURES

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China has an aging problem. What is

unclear is whether it will be a source

of disaster or opportunity. The sta-

tistics are staggering: In 2015, according to

the National Statistics Bureau (NSB), the

number of Chinese citizens over the age of

60 was 222 million, or 16% of the total pop-

ulation. The NSB estimates elderly citizens

(65 years old and over) will constitute one-

third of the population by 2050. As this hap-

pens, the U.S. Census Bureau projects that

the working age population will fall by 5% –

approximately 53 million people – between

2015 and 2030. A United Nations study es-

timates that there will be 64 retired elderly

Chinese citizens for every 100 workers by

2025.

For those that

get it right, meet-

ing the new needs

of this aging popu-

lation will be a prof-

itable endeavor:

Senior care is ex-

pected to become

China’s largest in-

dustry within the

next twenty years.

Historically, the

Chinese emphasis on filial piety was suf-

ficient to sustain the elderly. Parents and

grandparents could count on the financial,

physical and emotional support of their off-

spring as they aged and became increas-

ingly dependent. But Chinese society is

quickly changing, and this response is no

longer tenable for most people. One rea-

son is that many young people have moved

to new cities for school and work, leaving

their parents and grandparents far away

and in need of support from those outside

the family. According to the China National

Committee on Aging (CNCA), 70% of elders

in mid-size and large cities live alone.

Yet even when families remain geo-

graphically close, today’s Chinese chil-

dren face a unique burden as a result of

the one-child policy. Within the next ten

years, the first

generation to

have their family

size dictated by

the one-child pol-

icy will enter their

eighties and face

the “4:2:1” problem

- the difficulties a

single child faces

when they are

expected to care

for two parents

and four grandparents. This is an unreal-

istic expectation for many children, so the

Chinese government and private compa-

nies are preparing to help them shoulder

the burden as they begin turning to the

market for support. As it meets this need,

the senior care industry is expected to be

worth RMB 1.8 trillion by 2020 and 7.6 tril-

lion by 2050.

The senior care industry looks very dif-

ferent in different parts of China. Some-

times the government constructs com-

munities designed to meet the needs of

the elderly and leaves the operation of

these facilities to the private sector; other

times, the government simply subsidizes

the private sector. In a 2016 press confer-

ence, a vice mayor of Shanghai explained

the history of the Shanghai government’s

interaction with the senior care industry:

“In the past, senior care services were pro-

vided by organizations under the govern-

ment. They were subsidized by the gov-

ernment. Now, the government purchases

services from social organizations... Seniors

are subsidized and can choose services

themselves.” In-home care was declared

the government’s preference in 2010 when

the 12th Five-Year Plan outlined the govern-

ment’s goal for a “90-7-3” system, under

which 90% of the elderly are cared for in

their homes, 7% receive care in their com-

munity, and 3% receive around-the-clock

care in a residential facility. The interests

of China’s elderly seem to align with their

Old People,New Problems How China’s elderly could create the country’s biggest industry

By David Hicks

RETIRE COMM

Senior care is

expected to become

China’s largest industry

within the next

twenty years.

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Movers and shakers MoveRS AND SHAkeRS

11

and lifestyle purchases, so the question of

whether China’s aging population will be

willing to pay for the services from which

these organizations profit is fundamental.

This helps explain why China’s insurance

companies have been among the most

prominent Chinese players in the senior

care industry. Insurance companies like

Taikang Life Insurance and Union Life have

invested billions of RMB in building continu-

ing care retirement communities (CCRCs),

bundling the services their CCRCs provide

with the sale of long term care insurance.

Access to long-term capital puts China’s

insurance companies at an advantage in

developing CCRCs – where short- and me-

dium-term returns are usually slim but grow

over the long-term. Because they have di-

versified revenue streams and established

reputations with Chinese elderly, China’s life

insurance companies are well equipped to

build CCRCs that serve the middle class.

Meanwhile, foreign real estate and insur-

ance companies, along with venture capi-

tal and professional retirement home man-

agement firms, have been quick to meet

the needs of China’s wealthier citizens with

residential service offerings. In 2011, Cas-

cade Healthcare, a joint venture between

Seattle-based investment management

firm Columbia Pacific Advisors and senior

living community manager Emeritus Senior

Living, became the first foreign firm to re-

ceive approval for a for-profit senior care

facility. Cascade Healthcare’s first facility

opened in Shanghai’s Xuhui District in 2012

on a 50,000 square foot site with 100 beds.

They have since opened additional facili-

ties in Shanghai’s

Pudong District

and Beijing.

The Chinese

government has

a c k n o w l e d g e d

that it needs the

help of foreign

ventures like Cas-

cade Healthcare

to meet the needs

of the elderly pop-

ulation. In mid-2013, the State Council indi-

cated through an Opinion that they wanted

to encourage foreign investment in the

senior care industry. This was the first time

that the potential of foreign capital in se-

nior care was explicitly recognized by the

government. In 2015 the Ministry of Com-

merce followed suit and began offering

government: a 2010 survey by CNCA found

that about 85% of elderly Chinese prefer in-

home care to living in a nursing home.

In-home treatment is preferable to the

Chinese government because it is cost ef-

fective. Yvonne Wu, managing partner of

Deloitte’s Life Services and Health Care

division, noted that “due to the very tight

funding, the government still sees com-

munity care a suitable model to mitigate

funding pressure.” The government’s tight

funding was reflected in a 2012 World Bank

study which found that only 38,000 institu-

tions had been built for senior care, enough

to serve 1.6% of the population over 60 – far

short of the Bank’s 8% coverage standard

for developed nations.

The high costs and minimal profits of

community care have hindered some of

the most ambitious government efforts

to equip urban neighborhoods to serve

their elderly citizens. For example, in 2001

the government began a four-year effort

known as the Starlight Program to bolster

community care services for the elderly.

Under this program, the Chinese govern-

ment reported investing RMB13.4 billion

(approximately US$2.1 billion) in communi-

ty emergency aid, day care, health services

and recreational activities for seniors. By

2005, however, despite having established

32,000 Starlight Senior Centers and report-

edly benefitting over 30 million elderly

citizens, the program began losing finan-

cial support. A 2012 paper by a group of

Chinese researchers noted that, since the

Starlight Program wound down, “Self-sus-

taining, community-based long-term care

services remain largely nonexistent, except

in a few major urban centers like Shanghai.”

Cost-consciousness is not exhibited by

the government alone. When Ben Shob-

ert, managing director of Rubicon Strat-

egy Group, looks at China’s projected de-

mographic changes, his understanding

of price sensitivity among older Chinese

consumers makes him skeptical of the de-

mand that China’s elderly will have for se-

nior care services. “[This cohort of Chinese

elderly] lived through some of the worst

moments of China’s history, and they are

very, very savvy and wary consumers,” he

says. “One big question is whether they are

going to make a lifestyle-based purchase

decision, or if they are going to wait until it’s

purely needs-based.”

Senior care service providers usually

make most of their profit from amenities

tax exemptions and other fiscal benefits to

eligible non- and for-profit senior care in-

stitutions.

But these benefits have not been

enough to entice foreign providers to offer

the in-home care that the Chinese govern-

ment knows is needed. As Shobert notes,

the government’s incentives do not “give

any meaningful reimbursement for home

health care providers.” Foreign companies

also continue to face an uncertain and

burdensome regulatory environment. “The

regulatory framework that guides home

health care is still very out of sync with

what we can do in the West, from a clinical

and care point of view,” says Shobert. “Many

times the Ministry of Health doesn’t have

the regulatory capacity to approve a home

health care provider as a home health care

business, so what they end up doing is

regulating a home health care provider the

same way they would a hospital.”

However, regulation has not deterred

Chris Alford, director of Asia operations for

Home Instead Senior Care, one of the world’s

largest home care service providers. “I don’t

think the [regulatory] uncertainty is a big deal.

That’s one of the costs of doing business

here, there’s always uncertainty,” he said.

Home Instead is a franchise business with

Chinese branches in Shenzhen and Wuhan.

According to Alford, one of their biggest

challenges has been educating Chinese

consumers on the value of in-home service.

In his view, “We are probably two or three

years away from home care really taking off.

But right now the main component is edu-

cation. It’s easier to sell a nice nursing home

because you can

point to tangibles –

‘the beds are nice,

it’s a new build-

ing.’ But for Home

Instead, when we

say ‘here’s why our

care is professional,

here’s our training,

certifications, etc.’

– those things are

very hard for [Chi-

nese consumers] to really feel and under-

stand why they should pay a premium.”

While no Chinese institutional care

providers would comment for this article,

it seems clear that the cultural challenges

of educating a country on the value of hir-

ing specialized in-home care providers or

convincing a thrifty generation to indulge

FEATURES

RETIRE COMM

These are not

management teams that

know how to take

something to Toronto,

let alone Tianjin.

12

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in the amenities of a nursing home, along

with the regulatory uncertainties as the in-

dustry begins to mature, might play a ma-

jor role in dissuading foreign companies

from expanding into China.

Another reason foreign companies may

be reticent to come to China is simply a lack

of international experience. “Most of the se-

nior living companies that you would view

as potential platforms that could be export-

ed into a market like China have very little

to no international experience of any sort,”

said Shobert. “They are heavily domestic,

neighborhood-by-neighborhood business-

es ... These are not management teams that

know how to take something to Toronto, let

alone Tianjin.”

China’s coming demographic changes

are certain, but the ability of foreign busi-

nesses and the Chinese government to

satisfactorily address the senior care in-

dustry’s many regulatory, financial and

cultural challenges is not. Yet creating a

reliable and affordable senior care indus-

try is essential for China to meet one of its

greatest social challenges. I

In-Home Care and the AyisIn-home care providers in China face a unique challenge from ayis

and baomus. While live-in ayis and baomus are not in direct compe-

tition with home care providers, the companionship and support that

they can provide to the elderly does overlap with the service offerings

of in-home care providers. As these providers educate consumers,

they are paying attention to how they can differentiate themselves

from these mainstays of Chinese culture. “What does a caregiver re-

ally look like? How are they different from an ayis or a baomu? Why is

specialized care more important? Those conversations are starting to

happen, but at this stage we are basically educating from the ground

up,” said Chris Alford, director of Asia operations for Home Instead

Senior Care, one of the world’s largest home care service providers.

While Home Instead is not aiming to replace ayis, Alford notes that

in-home care companies hope to supplement the services that ayis and

baomus provide with caretakers who are specially train月月ed and always

dependable. “Caregivers are backed by 24/7 office support. If an ayi gets

sick, there is no substitute. That’s fine for house cleaning but doesn’t work

if a senior is relying on someone showing up for daily living activities.”

If China’s army of ayis and baomus were properly trained in senior

care, they would be of major benefit to China’s burgeoning senior

care industry, which is greatly limited by a lack of properly trained

local staff. The Ministry of Civil Affairs has set a professional standard

for the industry, but only 40,000 of the over one million staff in the in-

dustry meet the standard. The costs for foreign firms associated with

identifying and training caregivers to service their China operations

are thus usually greater than in their home country.

Nov

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Movers and shakers

13

Nothing says a country has

arrived quite like a thriving

biotechnology industry.

Whether it be a lifesaving drug or

therapy, national pride gets a boost

from the scientific excellence and

sophisticated entrepreneurship it

takes to deliver innovative biotech-

nology to patients. Biotech is also

a high-risk, costly endeavor riddled

with obstacles and setbacks. Many

governments have tried to jump-

start their biotech industry only to

fail. But China, starting from a low

bar, with a market dominated by

generic chemical drugs and a few

follow-on biologics, looks set to

reliably deliver meaningful innova-

tion to patients within the next 10

years.

The government has certainly

worked hard to support it. Biotech-

nology has been called out as a key

industry in the 12th and 13th Five-

Year Plans. It is estimated that the

government spent US$6 billion in

R&D pharma investments between

2010 and 2015. Although less than

what the U.S. invests, the R&D dol-

lar stretches farther in China’s lower

cost environment. Today, China

excels in basic research - where

it tops rankings for the number of

published papers in peer reviewed

journals and quantity of patents -

but remains weak in translational

medicine: the tough task of getting

exciting lab discoveries to work in

the complex system of the body.

This is because R&D is only the

seed; it takes a flourishing eco-

system for a biotech industry to

function. It requires science-savvy

venture capitalists to finance the

start-ups; biotech CEOs and em-

ployees that combine entrepre-

neurship with scientific vision;

qualified hospital investigators that

follow clinical trial protocols to de-

liver clean data; transparent, pre-

dictable regulations that adhere

to global standards for approving

safe, effective drugs and therapies;

an IP culture that protects patents

and trade secrets and robust finan-

cial markets that provide investors

with a profitable exit. And this is

only a partial list; it also takes big

pharma, contract research organi-

zations (CROs) patient groups, an

army of doctorates and much more.

China has been fortunate to

have a flood of experienced ‘re-

turnees’ (often called ‘sea turtles’)

to accelerate the development

of its biotech ecosystem. These

China-born scientists, educated

in North America or Europe with

valuable industry experience, are

filling positions across the life sci-

ence industry. Now that China is

the world’s second largest pharma

market, after the U.S., China has

become an opportunity too good

to pass up.

Many are lured by the generous

offers made by the 100-plus bio-

tech parks that dot the country. In-

centives include free office space,

generous financing for labs and

manufacturing facilities, tax breaks

and the promise of an amenable

living environment for the high-

tech workers they hope will settle

in the park. Backed by municipal

governments, hi-tech parks often

prefer to invest in tangible assets.

Innovent, a successful biotech

based in Suzhou BioBay, is a clas-

sic example; it received financing

for a US$120 million biologics man-

ufacturing facility from the local

government.

The more remote or less es-

tablished a high-tech park is, the

more generous the enticements

By shannon Ellis

China’s Coming Biotech Revolution

FEATURES

A resident of China since 1998, Shannon Ellis has worked for a Chinese NGO, the Canadian and British embassies in Beijing, and Nike. For the past three years, she has been reporting on China’s bio-tech industry for BioWorld. She also writes white papers for IMA Asia, an executive roundtable for MNCs.

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might be but the harder it is to at-

tract top talent. The older parks,

where one can find big pharma

and mature biotechs, are Shang-

hai Zhangjiang Hi-Tech Park,

Suzhou BioBay and, in the area

of genomic editing, Shenzhen.

In these parks, there is a higher

concentration of top employees,

but competition is fierce, and tal-

ent retention can be tough.

But until recently, the regulatory

system had not caught up with the

government’s push to spur innova-

tion. New drug applications were

delayed for two years or more be-

fore they would be greenlighted for

testing in humans, an administra-

tive step that usually takes 30-days

in the U.S. That all changed in Au-

gust 2015 when the State Council

issued Circular 44, giving the China

Food and Drug Administration

(CFDA) the mandate to make dra-

matic reforms. The CFDA has made

substantial progress; clearing the

backlog, hiring more reviewers

and speeding up review times. The

changes have been hard on China’s

3,000 pharma companies that fo-

cus on making generics. The CFDA

recently kicked out 1200 drug ap-

plications for fraudulent data, most

of them for generic drugs. While

this unusual government disclo-

sure highlights the seriousness of

problems with clinical trial man-

agement, the regulators are now

freed up to focus on higher quality

applications.

In important ways China’s

pharma sector is adopting world

standards – mandating good man-

ufacturing practice (GMP) and

good clinical practice (GCP), re-

quiring bioequivalency for generics

and biosimilars, and allowing con-

tract manufacturing by instituting a

market authorization holder (MAH)

system. China’s objectives are “to

ensure the country has a viable

domestic manufacturing capacity

to produce basic medicines and

to create a new export industry

that represents higher technol-

ogy products,” explains Benjamin

Shobert, managing director at Ru-

bicon Strategy Group.

The policy changes have been

warmly received by leaders in the

biotech industry, although there re-

mains concerns about the govern-

ment’s ability to transparently com-

municate and predictably execute

the changes. “The white lines of the

landing strip have been set, now we

just hope they don’t move again,”

said David Deere, chief commercial

officer of PaizaBio, a contract man-

ufacturer looking to invest in China

in response to the reforms.

For the MNC pharmaceutical

companies, the regulatory re-

forms are forcing them to recon-

figure their China strategy. For the

past decade, MNCs sales in China

have relied on imported, off-pat-

ent drugs that enjoyed a price pre-

mium. China was an afterthought

when developing global clinical

trials for first-in-class drugs. The

government reforms now offer a vi-

able regulatory path for new drugs,

but they must be developed and

manufactured in China. The im-

ported drug path still exists but will

be much slower, eating into valu-

able patent time while preferential

pricing for imported drugs is being

phased out. MNCs are looking at

how they can partner locally, are

beefing up their global R&D cen-

ters in China and figuring out how

to manufacture and develop new

drugs in China, for China.

There is widespread recognition

that navigating the China pharma

market requires a strong local

partner. This has been a boon for

China’s emerging crop of start-up

biotechs that have been snapping

up deals with big pharma and bio-

techs from the U.S., Europe, South

Korea and Japan. According to

data compiled by ChinaBio LLC, a

Shanghai-based consultancy that

acts as a bridge between West-

ern firms and China, publicly an-

nounced cross-border pharma

deals last year totaled US$3.5

billion with biologics accounting

for over 70%. The hot therapeutic

indications follow China’s signifi-

cant unmet medical needs with

oncology topping the list, followed

by immunology, neurology and di-

abetes.

Many deals involve Chinese

companies searching for Western

technology, while Western firms

seek to leverage local expertise to

navigate the development path-

way smoothly. Lee’s Pharma, Sci-

clone, CanSino and CANBridge are

among the dozen or so companies

that signed in-licensing deals last

year. Newly founded Zai Labs is

particularly on fire, having signed

deals with GlaxoSmithKline, Tesaro,

Hanmi, UCB and Sanofi since its in-

ception in 2014. While most deals

are for early stage assets, 3SBio, a

commercially successful biologics

maker, nabbed two marketed dia-

betes drugs from AstraZeneca in

October. China’s traditional pharma

companies, recognizing that the

business case for generics will not

last forever, have also been head-

ing west, looking to buy novel drug

candidates with market potential

in China. Chinese biotechs have a

reputation for paying low upfront

payments, relying on milestones to

sweeten the deal, but this remains

hard to assess since few Chinese

biotechs disclose financial terms.

Western firms looking for more

control in China have set up lon-

ger-term partnerships and joint

ventures. WuXi AppTec, a platform

service company that has moved

up the pharma value chain, has

set up joint ventures with Juno, a

leading U.S.-based immunother-

apy company with CAR-T tech-

nology, and Medimmune, the bio-

logics arm of AstraZeneca. Eli Lilly

has been very active partnering

with Chinese companies, setting

up a ten-year, US$1 billion deal

with Innovent as well a collabora-

tion with WuXi AppTec.

Increasingly, Chinese biotechs

are making money by licensing out

global rights to their assets, demon-

strating China’s strength in drug

discovery. In a deal that was viewed

as a significant industry milestone,

Jiangsu Hengrui Medicine Co. out-li-

censed a preclinical immunotherapy

drug, PD-1 antibody, to U.S.-based

Incyte Corp. for US$795 million in

2015. Hengrui is also leading a wave

Many deals involve

Chinese companies searching

for Western technology,

while western firms seek to

leverage local expertise

Nov

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Movers and shakers

15

FEATURES

of Chinese biotechs that are initiat-

ing clinical trials in the U.S. They are

looking to get a piece of the much

larger U.S. market but also to take

advantage of the more predictable

regulatory system in the U.S. that

allows them to collect clinical trial

more quickly than in China.

Last year there were two nota-

ble Nasdaq IPOs for China-based

biotechs - Beigene and Chi-Med

- and both companies were led by

foreign-born CEOs who were able

to get U.S. investors interested in

the China biotech story. Beigene

raised US$756 million in January

2016 with Chi-Med going public a

few months later, raising $650 mil-

lion. Both are clinical stage compa-

nies with rich oncology pipelines

that leveraged out-licensing deals

with big pharma to help finance

the development of their assets.

But China remains a tough place

for clinical stage biotechs to raise

capital on the stock market. The

rules ban pre-revenue companies

from listing, and the Third Board in

Beijing offers little liquidity.

But not being able to exit on the

public market has not stopped an

explosion of venture capital fund-

raising for life sciences. In 2015,

over US$10 billion was raised fol-

lowed by $7 billion more in the first

three-quarters of 2016; a 19-fold

increase over 2014 for investments

in drugs, devices and services,

according to ChinaBio data. VCs

now have to get busy investing

this capital - not surprisingly, most

biotech CEOs say that fundrais-

ing is not a problem. Beigene, Zai

Labs, Innovent and CStone have all

raised rounds in excess of US$100

million. Many VCs are investing

outside of China and are willing to

finance western biotechs if they

can see a China connection to the

technology.

The biotech industry in China has

been growing by leaps and bounds,

but before one can say it has truly

arrived, a few barriers still have to

be overcome. The question of re-

imbursement remains: who will pay

for innovation? While the size of the

China market promises substantial

sales by volume, how the govern-

ment will price and compensate

biotechs for novel drugs is a crucial

issue. Moreover, China’s biotech in-

dustry has to brace itself for surviving

the high-profile clinical trial failures

that are sure to happen, as they do in

any biotech industry anywhere. And

in the 13th Five-Year 月Plan, the govern-

ment will start looking for a return on

its investment. But, in the end, much

will be forgiven and forgotten if and

when China delivers its first block-

buster drug to the world. I

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You trained as a general surgeon but

moved into the medical business. Why

did you change careers?

I graduated from Shanghai Sec-

ond Medical University in 1989, when

China was starting the open policy. A

lot of doctors like me left the so-called

‘state system’ to join hotels or multi-

national pharmaceutical companies. I

earned about 200 RMB a month, and if

you joined a multinational in China you

earned about double that and you felt

that your efforts would be rewarded. In

my industry there are many people who

are former doctors or English teachers.

Now it is not like that. Not many people

are leaving medicine.

Since you left medicine and joined in-

dustry, what are the three or four most

significant changes that have taken

place in the Chinese healthcare market?

First, there are fewer doctors joining our

industry because the overall environment

for doctors is improving. On the other hand,

there is more competition in our industry,

so fewer people are trying to jump in.

Another factor is the overall coverage

of healthcare by the government, by in-

surance companies, or by an association

like Xin Nong He, where all the farmers

put money together, and if someone

gets sick, it pays the bill. When I first

came into this industry, less than 20 or

30% of the population was covered by

the government or by an association.

Now about 90 to 95% of the population

has coverage, although the value is still

relatively very small.

Third, market access is getting

tougher. Ten or 20 years ago it was not so

hard to get an import license. Now there

are a lot of controls, starting from an im-

port license, post market surveillance,

tendering requirements, and now clini-

cal trials for imported medical devices.

These kinds of controls can be good for

patients but can also cause unnecessary

lead times. The Chinese patient may not

be able to be treated with latest medical

technology. There have also been many

changes on the policy side, and technol-

ogy today is also very different.

Looking at the future, while some fore-

casts see GDP growth dropping below

6% next year, we anticipate healthcare

spending as a percentage of GDP will

keep increasing. And healthcare costs

will also increase.

Can you tell us more about the regis-

tration fee and clinical trials?

It depends on the product’s nature.

Products are divided based on risk, and

the highest risk level is Class Three. The

registration fee alone, not including test-

ing or samples, is about US$51,000. A big

multinational company easily has 20 or

30 new products every year, so it’s a siz-

able payment. If the market for a product

is small, it may not be worthwhile.

Class Three devices need clinical tri-

als, and it takes five to six years to fin-

ish the registration and clinical trial. To-

gether the registration fee and clinical

The Surgeon’s ToolboxStryker China’s Managing Director William Jin on China’s medical device market

By Ian Driscoll

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Movers and shakers

trial fee can be about US$2-3 million.

This is the biggest challenge for U.S.

medical device companies: in our indus-

try, average product life circle is five to

six years, so as soon as something is ap-

proved here, it’s out of date in the U.S.

When you start to register a new Class

Three product, you need to anticipate a

five to six year timeline, and you need to

check with manufacturing and R&D that

you will still have that product in five or

six years.

Overall, the registration of medical de-

vices is getting more and more rigorous.

Some AmCham members say it’s harder

for Western medical device compa-

nies to compete with local companies

because the playing field is no longer

level. Is this true?

Compared with 10 or 20 years ago,

that’s correct. But the government

should have been doing then what it is

doing now. For imported products, for

example, multinational companies must

now hold clinical trials. Previously only

local companies were required to have

clinical trials. The imported products

need clinical trials even if they are U.S.

FDA approved or have been trialed in

other markets. If you dig into the details

there are some differences, but it’s fair to

say that it is now equal.

The other area to consider is market

access. Ten to 20 years ago, every com-

pany enjoyed 20 or 30% growth and the

provincial and municipal governments

had little control over pricing and reim-

bursement. Now there are strict controls

over pricing and reimbursement with the

‘green book’. On the pricing side, each

province has a so-called ‘tender’, which

is different from the western world. In

the U.S., the tender means you agree

on a price, and they [the hospital chain]

commit to a volume and you sell the

committed volume at a certain price. But

in China, a tender is like a price cut. So

they pick the lowest price you can sell

in that particular province. Then you go

to each hospital, and they negotiate with

you again regarding what is the lowest

price. And this process is getting tougher

and tougher.

Are government healthcare policies

driving these changes?

On the one hand, the government

wants to protect patient safety and cure

more patients; on the other hand, they

want to control healthcare expenses. Ad-

ditionally, there are many new start-up

companies in China, and they [the gov-

ernment] not only want to regulate them

but also help them grow.

China is trying different ways to control

healthcare costs in addition to tender-

ing, such as the DRG payment scheme,

two-invoice requirement, etc.

Will the central government exert more

control over healthcare in the future?

Yes, but It’s hard to anticipate how.

I think that in the next five to ten years

there may be more streamlining of mar-

ket access regulations such as around

clinical trials. If the government feels

there are too many hurdles to execution,

they may make adjustments, such as pro-

viding an excepted product list, accept-

ing more clinical evaluations, etc. They

may either centralize more regulations or

the central government will give clearer

rules to provincial governments on what

they should do. This is because a lot of

payments for healthcare come from the

provincial government, not from the cen-

tral government, so there is a lot com-

plexity to manage.

What I am also seeing and expect, and

it’s not to do with policy, is improvements

in IT, robotics, and other things that will

make the system more efficient.

Where do you see the biggest growth

opportunities for domestic and foreign

companies? Or do you think foreign

companies will be forced out by local

competition.

Multinationals will prevail in sectors

where there are more innovative prod-

ucts, like in the high-technology or

life-threatening areas. Locals will pre-

vail in commodity-type products and in

areas like chronic diseases. It depends

on the product and the nature of the

treatment. For example, the pacemaker

market is dominated by multinationals

because no patient or doctor wants to

risk their life. There’s very high technol-

ogy inside a pacemaker, it keeps being

upgraded, and it’s difficult for local com-

panies to keep up with the development

pace. If you look at products like hip and

knee replacements, they’re more reli-

ant on design, on materials, and they go

through many upgrades, so people want

imported products.

On the other hand, stents are now al-

most a commodity. There’s not much de-

sign, they are very similar, and the market

is now dominated by local players. Even

J&J has withdrawn from the market. More

and more of the trauma market is also

going to the local market. This is because

trauma is emergency surgery and if you

get hit by a car, you have to be treated

very quickly. The products used to treat

you won’t be very different whether they

are foreign or local. Also, local companies

will prevail with diseases like diabetes or

hypertension, where it’s not immediately

life-threatening, but where you need

something that is required every day and

MoveRS AND SHAkeRS FEATURES

William Jin

Modern mobility aid

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which needs to be conveniently reached

like a consumer good.

Are western companies in this industry

slower than local competitors when it

comes to marketing?

If you look specifically at the China

market, western companies sometimes

are slower, simply because there are a

lot of hurdles to entering the China mar-

ket. But if you look at the global market,

I think that in our industry, western com-

panies are much more advanced and pi-

oneering than the local companies. One

of the advantages for local companies

in China is simply that because they are

based here, it’s easier to get to the end

user market.

When Chinese companies go to the

U.S., do they face similar hurdles as U.S.

companies coming here?

Similar, but bringing products to China

is more complicated. In the U.S. there

are clear rules for companies. In China,

a lot of rules are not written, so no one

can give you a book and say read this and

you will know the rules. And every six to

twelve months, new rules come out.

Our industry associations like Ad-

vaMed, like AmCham, all try to lobby

the government about how to improve

the market access for U.S. medical de-

vice companies, for example, using FDA

or other western countries’ data to try to

prove that this is a valid product, a good

product, and to except it from a clinical

trial. This has gone to the JCCT, but it’s

still being discussed.

Can patients choose whether their new

hip or knee joint is a foreign or domes-

tic product? Can you say you want a

particular brand?

Normally, the doctor won’t ask you

which brand. The doctor normally

asks you which kind of reimbursement

scheme you have. For example, if your

product costs RMB 10000, the govern-

ment may say RMB 8000 is the maximum

reimbursement it will pay if you choose

the imported product, and you need to

pay the rest by yourself. If you select the

local product, you may get a 100% or 90%

reimbursement, but the maximum may

be RMB 5000. So it’s your choice. It’s the

same with stents. If a guy is lying on the

operating table, the doctor may come

out and say to the family member: “He

needs two stents; do you want local or

imported?” If you select imported prod-

ucts, there will be different prices.

Do you ever wish you were still a sur-

geon?

I’m still very interested in surgery and I

think being a surgeon is very good thing.

But I still don’t want to be a surgeon in

Chinese medical system. I

This chart demonstrates that the high impact boards that were

surveyed (boards with a strategic impact score above 4.5 on a

1-5 scale) had a percentage (in orange) of these different impact

points. As you can see, 76% of these boards conducted evalua-

tions. This is the second-most common factor, only topped by the

number of board meetings per year.

Another interesting statistic revealed by our survey of private

companies considering building a board in 2015 is that 71% of

them were planning on implementing a board evaluation process.

In addition, 80% of those companies were planning on conducting

board evaluations annually.

However, once these companies build their boards the odds

are that they will not follow through on implementing a board

evaluation process. This is shown in the data collected in 2015

from directors and CEOs of private companies:

We have some theories as to why these boards do not follow

through on the seemingly logical idea of evaluating the board’s im-

pact on the organization. For example, it can be difficult and time-

consuming to set up an objective board evaluation process if the

company has not had a system like this in the past. It can also be

difficult to initiate a board evaluation system from a cultural perspec-

tive in different parts of the world or for certain types of companies.

why is a formalized boardevaluation process beneficial?Regardless of why it may be difficult to implement this initiative, N

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HighImpact BoardsA common practice that high impact boards follow

By Bob Arciniaga and Alan Hepburn

In our discussions with CEOs and board members around the

world, we are often asked the question: what is the one thing we

can do to get more value from our board? The complexities of

a board mean that there is rarely one simple answer that will help

achieve this outcome. But based on our data, we have identified a

common factor that many high impact boards have that other less

impactful boards do not.

One common trait of most high impact boards is that they

conduct formal evaluations of the board, and in some cases

the individual independent board members. We are not imply-

ing causation from this one data point, as we feel this is one of a

number of common traits that, when combined, yield the greatest

board value. But the correlation is compelling and we believe this

is an important component of an high impact board, as demon-

strated in the following chart.

Bob Arciniaga is the Founder of Advisory Board architects (aBa)

Alan Hepburn is the managing Partner of aBa asia based in singapore.

ABA is a global firm that works with companies to create greater strategic impact from their boards.

common traits of high impact BoardsFrom 2015 ABA web application survey of 647 private companies

Non fiduciary (advisory)

Conduct evaluations

3-5 meetings per year

Board members from other countries

4-5 independent board members

Provide upside compensation

62% 38%76% 24%82% 18%

48% 52%52% 48%

57% 43%

2015 Board Evaluation SurveyActual data from ABA web application survey of 716 private companies with boards

Do you conduct board evaluations?

The 28% that do evaluate their members have an average increase of 43% in strategic value vs those that do not.

28% 72%

Yes No

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evaluations may greatly enhance a board’s impact. While an eval-

uation system may not be the sole reason that these boards out-

perform their counterparts, we see an average 43% increase in the

strategic value of boards that do conduct evaluations. And there are

other benefits beyond the potential of greater strategic value. For

example, our first-hand experience working with boards around the

world has provided some of the following qualitative benefits:

� For many family-owned businesses, a board evaluation pro-

cess provides a level of objective analysis to the value that the inde-

pendent board members bring to the organization. This can create

greater family harmony and less conflict with some executive teams

when the objective value of the board is assessed and communi-

cated.

� This process often aligns the board members and the execu-

tive team with the strategic initiatives that are most important to the

organization, which is often the basis of the board evaluation sys-

tem. This alignment results in more engaging board and committee

meetings because the board members are more focused on sup-

porting the executive team in achieving the defined strategic goals.

� Boards are costly. By analyzing the value (return) that the

board is generating for an organization, it is easier to under-

stand and justify the cost of the board. This would be normal

for any capital expenditure of a company.

These are only a few of the subjective benefits that companies

that have implemented evaluation processes have realized. There

are many more, and when combined with our objective data of

the impact that has been realized by those companies, this is a

powerful component of high impact boards.

Caption

types of evaluation systemsNot all boards are created equal, and a board’s structure and

the cultural nuances of an organization will dictate the type of

evaluation system that would be most beneficial to a company.

Listed below are some of the common evaluation systems used

by hundreds of boards around the world.

� No evalution

� Self assessment

� Peer assessment

� 360 evaluation

We have learned that board evaluation systems that are more

objectively based, such as 360-degree evaluations, are far more

effective than other evaluation processes. However, even the most

subjective board evaluation system can generate a higher board

impact than no evaluation process at all.

Regardless of the evaluation system that is used, cultural as-

pects need to be considered. We are not suggesting that culture

should prohibit the implementation of an evaluation process, since

not having an evaluation process can greatly increase the proba-

bility of dysfunction within the board and the organization. On the

contrary, we suggest that an evaluation process might need to be

a phased approach that becomes more objective over time.

Our data, and other data collected on boards, shows that

companies rarely apply the same rigor to the evaluation of

board performance as they do to the rest of the organization. It

is common practice for many boards to objectively evaluate the

impact of the CEO, so why not evaluate the impact of the board

and the value it generates for your organization? Given that the

board is directly responsible for driving shareholder value, it

seems only logical. I

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Case studyThe Power of an Objective Board Evaluation Process

OutcomeThis alignment of board focus, outcomes and metrics led

to clarity of the value of the board to all of the stakeholders in-

volved. Not only were the goals accomplished, but they were

accomplished in a shorter time frame than first envisioned. The

board cost more since the compensation increased due to the

successes and the risk-adjusted model, but returns were far

greater for the company than had previously been achieved.

Ultimately, his led to much greater family harmony es-

pecially for the chairman and CEO. Trust between the family

shareholders, board members and the executive team in-

creased and the board members were more highly engaged

to continue to support the company.

solutionThe organization implemented a two-step evaluation

process. The first step was a subjective evaluation of the

value of each board meeting to identify how the board pro-

cess could be more focused on the strategic initiatives that

were integral to the company’s success. This questionnaire

format measured the level of engagement and strategic im-

pact of board meetings and was completed by the board

members and executive team members after each meet-

ing. Results were analyzed and recommendations were dis-

tributed through the governance committee.

This “real time” analysis was combined with a more com-

prehensive analysis of the aggregate of all of the board

meetings annually. Similar to many companies, specific

outcomes and objectives were set for the company and

the executive team. The difference was that the board was

also tasked with these same metrics and this information

was tracked. The role that each independent board mem-

ber played in supporting the executive team to achieve its

goals, and the outcomes, was collected.

Board compensation changed to a “risk adjusted” model

that was tied to these outcomes. Board stipends were lowered

but upside was provided that was tied directly to the success-

ful completion of the board metrics (strategic initiatives).

Issue

The family business board and executive team decided

to embark on an aggressive international expansion strategy

that included growth through acquisitions, establishing new

markets in different countries and a new innovation strategy.

The problem was that the board process was designed to

be more reactive to information and less proactive. Due to

a series of missteps, the initiatives that were implemented

by the team began to run into significant difficulties. Due to

a lack of transparency with regard to the role of this very

expensive board, both the family shareholders and the ex-

ecutive team began questioning its value.

BackgroundOur client is a fourth-generation food manufacturing

business based in Latin America. The company has over

$400 milion in annual turnover and the chairman and CEO

is currently a third-generation member of the family that

owns the business. She has been running the company for

22 years and has worked in the business for over 30 years.

The family has instituted a professional executive team and

there are a few fourth- and third-generation family mem-

bers working in the business in middle management.

The board has a majority of family members but also has

four independent board members who did not have pre-ex-

isting relationships with the company or the family before

they were invited to join the board. The board has devel-

oped a set of strict governance procedures that rivals those

of many listed companies in the United States. One aspect

that was missing was a comprehensive board evaluation

process. While the board members were highly compen-

sated, the family felt that they had impressive resumes and

titles and would not be open to a formal evaluation process.

Not just a sinecure

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China’s Integration of Healthcareand Medical Device Regulatory Reform

Keeping pace with advances

in drugs, medical technol-

ogies and healthcare ser-

vices is a significant challenge

for many healthcare systems, in-

cluding China - the world’s sec-

ond-largest healthcare market.1

China’s challenge is particularly

daunting because its goal is to

raise the standard of healthcare

drastically, while also encourag-

ing the development of the most

advanced technologies very fast.

This is a process that usually hap-

pens gradually, but China is look-

ing for a breakthrough by 2020.

To meet this challenge, China

has been pushing for legal and

policy reform on three fronts. First,

it has been reforming its health-

care system, including the system

for reimbursement for drugs and

medical devices, under the state-

run healthcare plans for urban

residents and employees and ru-

ral residents. Second, it has been

taking steps to encourage inno-

vation in science and technology

broadly, including medical thera-

pies through government-funded

programs, such as the precision

medicine initiative (an effort to

promote personalized medicine),

and other grants for medical re-

search in areas the government

deems to be high priority. And,

third, it has been reforming its

regulations on the development,

approval, manufacturing and dis-

tribution of drugs and medical

devices, including procedures to

facilitate the approval of products

that fill key currently un-met med-

ical needs.

Over the last three to four years,

the central government, includ-

ing the State Council and its agen-

cies such as the National Health

and Family Planning Commission

(“NHFPC”), the China Food and Drug

Administration (“CFDA”), and the

Ministry of Science and Technology

(“MoST”), have begun to more vig-

orously examine ways to encourage

higher-quality drugs and medical

devices that serve a broader range

of patient needs, thereby integrating

product innovation and healthcare

needs. Indeed, the buzz-word now

in many healthcare-related docu-

ments from the government is “inno-

vation.” While this is certainly as true

for drugs as it is for medical devices,

a more comprehensive reform has

taken place in the medical device

space, whereas drug reforms have

only begun implementation this year.

This article examines how some of

these reforms have taken shape.

Innovation and comprehensive policy reform for devices

Incentives for innovation have

grown up alongside new regula-

tions to ensure safety. The State

Council issued a 12th Five-Year

Plan on Drug Safety in 2012. That

document made it clear the gov-

ernment would make it a priority

not only to ensure that safe drugs

would reach patients, but also to

“support and encourage compa-

nies to engage in scientific and

technical innovation and increase

drug and medical device innova-

tion.” These goals have been re-

peated more recently in the draft

Plan Regarding Items in the Thir-

teenth Five Year Plan on Medical

Device Scientific and Technical

Innovation released for comment

by the Ministry of Science and

Technology in September, 2016.

The overall goal is for state-spon-

sored or encouraged programs

and products to steadily increase

domestic innovation.

Meanwhile in 2014, the State

Council amended the framework

regulation governing the research

and development, manufacturing

and distribution of medical de-

vices, referred to as the Medical

Device Supervision and Admin-

istration Regulation. This reform

was the starting point for a com-

plete revision of all of the CFDA’s

rules on medical devices, includ-

ing Good Clinical Practices, man-

ufacturing rules and Good Man-

By John Balzano and Anna Zhao

John Balzano is counsel to the Food and Drug Practice group in the New York office of Covington and Burling.

Anna Zhao is an associate in the Food and Drug Practice group in Covington’s Washington, D.C. office.

1. According to the U.S. International Trade Administration China is the second largest pharmaceutical market in the world and expected to grow from $108 billion (2015) to $167 billion by 2020. Total healthcare expenditures are expected to double from $640 billion to $1.1 trillion by 2020, available at http://trade.gov/topmarkets/pdf/Pharmaceuticals_China.pdf.

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Movers and shakers

ufacturing Practices, and distribution

rules and Good Supply Practices. The

last pieces of this reform, such as regu-

lations on post-market surveillance, are

still being finalized. It also led to other

more targeted reforms, such as the “in-

novative device” pathway.

A. Innovative Devices

Created by a new CFDA rule in 2014,

the innovative device pathway provides

benefits in the application review pro-

cess to applicants who can meet certain

criteria. Specifically, they must own the

patent rights to the core technology in

China (or have received those rights or

usage rights via transfer) and demon-

strate that their device is internationally

regarded as innovative technology that

would represent a clear clinical advance-

ment in China. The applicant must also

have completed the research and an ini-

tial prototype, and the research must be

complete and traceable.

Applicants must file materials sup-

porting these criteria for evaluation by a

commission of experts organized by the

CFDA’s Center for Medical Device Eval-

uation (“CMDE”). Preliminary decisions

on innovative devices are also released

publicly on CMDE’s website and must,

like other priority review items now in

China, be made available for public com-

ment. Those admitted to the pathway

do not get an express expedited time-

line for approval, as they might in other

jurisdictions. Rather, they get access to

meetings and communications with re-

viewers at CMDE (not granted regularly

as a matter of right) to better tailor their

application to agency expectations, and

the CMDE will prioritize the substantive

“technical review” of the application and

related testing. This aims to drive the

process forward faster.

Beyond these benefits, the innovative

device pathway offers another incentive.

It was arguably an initial step in China to-

ward adopting a marketing authorization

holder concept. Under normal circum-

stances prior to the innovative device

pathway, an applicant for a domestically

manufactured device has to hold a man-

ufacturing license and a product license.

This was true even if the applicant in

China wanted to contract out manufac-

turing in whole or in part to another fa-

cility that it did not own. This meant that

the applicant had to have the necessary

facility, personnel and quality systems to

hold the manufacturing license.

Innovative device pathway changed

that. Qualifying applicants are permit-

ted to contract out manufacturing with-

out holding their own manufacturing

license. This type of marketing autho-

rization holder concept has now been

adopted in a fuller fashion for drugs in

a recent pilot program authorized by

the National People’s Congress and

implemented by a plan issued by the

State Council in 2016. The intention of

this type of a program, as made clear

by recent documents is, at least in part,

to permit “research institutions” and

individual inventors to hold marketing

permissions, incentivizing biotechnol-

ogy innovation by smaller stakehold-

ers. However, these reforms may also

present companies that might have

restricted themselves to offshore man-

ufacturing with the opportunity to ex-

plore domestic options in China.

Recent annual reports from the CMDE

indicate that it has reviewed 166 inno-

vative device applications, granted 29

products with the innovative device re-

view status, and ultimately approved

nine innovative devices in 2015.

B. “Examination and Approval” systems

Another concrete reform to further

innovation at the regulatory level was

the effort to facilitate faster approvals,

particularly efforts to facilitate drugs

and devices that meet un-met medi-

cal needs. In August 2015, China’s State

Council issued an Opinion on Reform of

the Drug and Medical Device Review

and Approval System ( known as “Doc-

ument No. 44”) -- in part, a plan to en-

sure that CFDA has regularized and effi-

cient procedures in place for approving

drugs and medical devices, in particular

those that meet un-met medical needs.

In consultation with the National De-

velopment and Reform Commission, at

roughly the same time, CFDA also in-

creased the fees associated with reg-

istration applications, in part, in order

to provide the resources necessary to

meet these goals.

CFDA has now created procedures

to implement priority pathways in this

respect. For drugs, this includes inno-

vative drugs that have not been mar-

keted in or outside China, and certain

drugs with clinical advantages and for

specific indications: HIV/AIDs, tubercu-

losis, viral hepatitis, orphan diseases,

oncology drugs, those with pediatric

uses, and those for diseases prevalent

among the elderly.

In line with Document 44, on Octo-

ber 25, 2016, CFDA finalized a priority

review pathway for medical devices.

This is a new pathway primarily for

medical devices that address unmet

medical needs and is distinct from the

innovative device pathway. The priority

categories under this pathway include

devices that treat orphan or oncolo-

gy-related indications, devices that

treat diseases prevalent amongst chil-

dren or the elderly, devices that treat a

condition for which there is no existing

effective clinical treatment in China,

and devices that correspond with na-

tional initiatives and priorities for scien-

tific research. The new priority pathway

will become accessible to applicants

from January 1, 2017.

While these reforms are still in their

infancy, they show how CFDA continues

to expand regulatory reform to meet

goals regarding innovation and broader

access to healthcare. Companies that are

operating in this and the drug space may

continue to find these types of oppor-

tunities presenting themselves as China

and CFDA seek to implement such re-

forms to meet larger goals and targets,

such as those in the 13th Five-Year Plan

which is a driving force in encouraging

innovation.

Future prospectsIn the past year, according to the CDE

and CMDE websites, a number of inno-

vative drugs and medical devices have

been granted special review status. How-

ever, the programs mentioned above are

still new, and their impact remains to be

seen. For example, China will have to

determine whether in future revisions

to medical device or drug legislation

there will be a more permanent place for

concrete special review timelines and a

more generally applicable marketing au-

thorization holder concept. I

The views expressed in this article are not

necessarily those of Covington and Burl-

ing, or of its clients.

POLICY PERSPECTIVES

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New Guidelines onRegulating Inbound Investment By trevor Clark

On October 8, new legislative guide-

lines were approved during a

State Council executive meeting

and were followed by the issuance of the

Temporal Method of the Establishment and

Alteration Filing Management of Foreign-in-

vested Enterprises by the Ministry of Com-

merce. These new guidelines are, according

to the Chinese government, designed to

improve the procedures regulating inbound

investment into China. According to the Xin-

hua News Agency, “those willing to invest

in China no longer have to go through ap-

proval procedures if they invest in non-re-

stricted sectors outlined by the Catalog of

Industries for Foreign Investment which was

approved last year, and do not contradict

with the special requirements regarding eq-

uity rights and level of management.”

These new rules are designed after the

negative list approach used in China’s free

trade zones (FTZs) in Shanghai, Guangdong,

Tianjin and Fujian. The negative list process

allows foreign investors to register their com-

pany, as long as that company’s industry is

not on the negative list, rather than apply

and wait for administrative licensing. To ac-

complish this, the new legislation creates a

new filing management system that will al-

low for online processing – when previously

firms had to apply for approval and wait for a

license to be issued, allowing them to invest.

Registration wait times reduced

Under the new filing management sys-

tem, for any industry that is not restricted or

banned, companies will be able to complete

an online registration, which will be processed

and completed within three working days.

This is a dramatic decrease from the more

than 20 days it took under the previous ap-

plication system. The Chinese government

estimates this change will reduce administra-

tive procedures by 95%, and some 500 enter-

prises submitted applications within the first

week of the new legislation being in place.

High-tech industries and R&D encouraged

General manufacturing is now, reportedly,

much more open for investment and invest-

ment in modern agriculture and services,

high-tech industries, new energy and green

business is being strongly encouraged by

the Chinese government. In particular, China

is hoping to attract more foreign investors

that will invest in research and development

in China and generate new technology within

its borders. China also hopes that these

types of reforms will signal that the market

and industry are playing important roles in

the development of China’s domestic econ-

omy, with the government releasing control

and enhancing transparency.

Limited impact on mergers and acquisitions

For mergers and acquisitions, the new fil-

ing management program will apply when

foreign investors purchase existing for-

eign-invested enterprises in China. However,

if foreign investors purchase domestic, non

foreign-invested enterprises, both equity

mergers and asset mergers will continue to

be regulated by the current administrative

system and they will need to get approval ac-

cording to the regulation of the Provisions on

the Merger and Acquisition of Domestic En-

terprises by Foreign Investors. And, if the tar-

get company is listed on a domestic stock ex-

change, the Measures for the Administration

of Strategic Investment in Listed Companies

by Foreign Investors will continue to apply.

streamlined administrative approvals and increased local government powers

China’s State Council has also moved

to streamline administrative approval and

give more power to local governments to

promote investment projects related to

container terminals, vehicle engines, urban

transit systems and inland water transpor-

tation. In addition, more private investment

will be encouraged in various sectors, in-

cluding healthcare, education, culture and

sports. However, a number of these indus-

tries face significant regulatory challenges

in market access, equity caps and pricing,

among others that American companies

struggle to navigate.

These new regulations and reforms

come as China is trying to modernize its

economy and move away from export-

driven growth and into consumption and

domestic-driven growth. These goals are

hampered by the decrease in global foreign

investment in China in the past year. Ac-

cording to the United Nations Conference

on Trade and Development, global foreign

investment flows this year will decrease by

10-15% compared to 2015.

To jumpstart investment, the Chinese

government experimented with regis-

tration and administrative reforms in the

China (Shanghai) Pilot Free Trade Zone

(FTZ). It also introduced the concept of a

negative list as a way to manage invest-

ment in the FTZ. In addition, it used the

negative list mechanism in its negotia-

tions with the United States on a Bilateral

Investment Treaty (BIT). While the pace

of reforms in the FTZ has been slow, with

many noting the need for China to more

aggressively reduce the negative list, the

introduction of new national guidelines that

will reduce filing and registration burdens

for foreign-invested firms could be seen

as an improvement and an example of the

positive impact of the FTZ. However, many

observers have noted that the guidelines

have just come into effect and more time

is needed to determine the actual impact

of the reforms.

Pushing for further reforms of China’s in-

vestment regulations and for the finalization

of a strong, effective BIT are two of AmCham

Shanghai’s key advocacy priorities. Be on

the lookout for future AmCham Shanghai

Government Relations events on these and

other topics in the months ahead. I

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MoveRS AND SHAkeRS

2525

MEMBER NEWS

GOVERNORs

MEETING ATTENDANCE

Present: Ker Gibbs (Chair), Tim Huang, Ning Lei, Nancy Leou,

Helen Yang, Eric Zheng, Jimmy Chen (by phone), Mike Crotty

(by phone), Aina Konold (by phone), Vincent Yang (by phone)

Apologies: Cecilia Ho, Gentry Sayad, Glen Walter, Cameron Werker

Attendees: Kenneth Jarrett (President), Helen Ren, Titi Bac-

cam, Patsy Li, Leon Tung, Jessica Wu

Ker GibbsChinaBio

Cecilia hoInternational Paper Asia

CHAIRmAN

VICE CHAIR

Jimmy ChenFedEx Express

michael CrottyMKT & Associates

timothy huangBank of America Merrill Lynch

aina e. KonoldGAP Inc.

Ning Lei Lei Group

Glen WalterCoca-Cola

helen Ching-hsien YangDuPont

Vincent YangIndividual Member

eric ZhengAIG Insurance

Board of Governors Briefing

Highlights from the September 25, 2016, Board of Governors Meeting

CHAIR’s REPORt

The Chair welcomed Nancy Leou who has replaced Bill Duff at the

Consulate as the Political/Economic Section Chief and will be an

honorary member of the Board. The Chair also welcomed Leon

Tung as the new Director for Business Services. The Chair noted that

AmCham Shanghai recently placed an op-ed on Internet controls in

China in the South China Morning Post. This is the third op-ed the

Chamber has placed this year.

CONstItutIONAL AmENDmENts APPROVALs

The Board authorized AmCham Shanghai to propose three con-

stitutional amendments to the general membership for approval

during the upcoming Board elections. These amendments would

modify the election process for the Board Chair, redefine the

structure of Board officers and expand the definition of members

with voting rights. The President said he will work with the Board’s

Legal Advisor to refine the language for all three amendments,

present a draft to the Board for review, and then send a notice to

all members outlining the recommended changes.

NEC REPORt

NEC Chair Jimmy Chen reported that the NEC approved 15 nom-

inations for the upcoming Board election. There are six seats

that become vacant this cycle. The NEC recommended that the

Chamber establish a minimum period of Chamber membership

before someone is eligible to run for the Board. This would ensure

that all Board members are knowledgeable about the Chamber.

wAsHINGtON DOORKNOCK (sEPt. 19-21)

According to AmCham GR/CSR Director Titi Baccam, this year’s Do-

orknock included a joint reception with the Chinese General Chamber

of Commerce, roundtables with Hill staffers, and a message that fo-

cused on gaining support for the TPP and BIT. The delegation met with

Administration officials, approximately 40 members of Congress and

staffers, and 25 academics and business association representatives.

(See the Doorknock article in the August Insight for more details.)

The AmCham Shanghai 2016 Board of Governors

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Event Report

FAsHIONABLE FutuRE: sustAINABLE Is KEY

On October 13, 2016, AmCham hosted its second session of the

CSR Executive Dialogue Series with a discussion on current CSR

and sustainability trends within the apparel industry. Guest speak-

ers included Scott Miller, director of business development at the

Sustainable Apparel Coalition (SAC), Sun Wei, CEO of Hangzhou

Sino-Tytex Weaving Co. Ltd, and Liang Xiaohui, deputy chief econ-

omist at the National Textile Information Centre. Lu Jianzhong,

global partner at Brunswick Group, moderated the event.

Scott Miller described the “Higg Index” as the core tool of the

Sustainable Apparel Coalition. Miller seeks to use the Higg Index

as a globally trusted industry standard for measuring and im-

proving sustainability. Sun Wei’s Hangzhou Sino-Tytex Weaving

Co. aims to provide opportunities for more material and intellec-

tual growth to contribute to the advancement of green fashion.

“Sustainability means less human impact on our planet,” said Sun.

He believes that all business activities are demand oriented, and

therefore sustainability isn’t solely the fault of the manufacturers,

but also of consumers who aren’t aware of sustainability in fashion.

During the Q&A session, participants raised topics such as con-

sumer awareness on sustainability, recycling ‘end-waste’ of ap-

parel products, and the criteria and targets companies have used

to achieve their sustainability goals. Liang Xiaohui gave his input on

what he believes was the driving force for CSR and sustainability—

companies driven by the agent of consumers. Both Miller and Sun

agreed that consumers may be for or indifferent to sustainability.

BRIEFING ON CHINA OutBOuND ACQuIsItIONs

AmCham Shanghai held a briefing on China Outbound Acquisi-

tions on October 19 discussing Chinese firms’ acceleration of out-

bound acquisitions across different industries. The keynote speakers

were Stella Yuan, Ernst and Young partner, Jerry Lou, founder of Ever-

pine Capital, and Harry Spencer, consultant at Interfoot.

Stella Yuan discussed the overall environment of China’s out-

bound acquisitions regarding different industries participating in

M&A, differences between private-owned enterprises and state-

owned enterprises, and post-deal integration. Jerry Lou followed

up with his experiences while at Morgan Stanley and more re-

cently during his founding of Everpine Capital. Lou also discussed

his ideas on the future trends of Chinese M&A. Harry Spencer

honed in on more industry-specific M&A regarding individuals and

companies acquiring, sponsoring and investing in football clubs.

READING tHE tEA LEAVEs: tHREE JOuRNALIsts DIsCuss

CHINA’s FutuRE

On October 20, AmCham hosted three esteemed foreign corre-

spondents for a panel discussion on China’s economic, social and po-

litical future. Guest correspondents were Andrew Browne, columnist

for The Wall Street Journal, Duncan Hewitt, a correspondent who has

reported for Newsweek and the BBC, and Simon Rabinovitch, Asia

economics editor at The Economist. AmCham Shanghai’s Director of

Communications and Publications, Ian Driscoll, moderated the event.

During the panel discussion the guest correspondents ad-

dressed various topics and policies that currently affect China’s

political, economic and social future. Regarding China’s political

policy, correspondents also answered questions on how internet

policy as well as social media will affect China’s future. On the

topic of leadership, correspondents discussed rumors in political

circles that President Xi Jinping will seek a third term as president.

Participants debated whether or not the U.S. elections as well as

Brexit will have any effect on the Chinese people’s views on de-

mocracy. China’s influence on the future of Hong Kong and Taiwan

was also raised by an audience member.

AmCham participants asked the correspondents questions about

China’s current economic status. With corporate debt being high and

exports dropping, the correspondents spoke about the potential dan-

gers ahead for the Chinese economy. As China becomes ever more im-

portant as a global partner, correspondents were asked about the pros-

pects for a successful passage of the TPP. At the domestic and local

level, the potential housing bubble burst in Shanghai was also raised.

In regards to the social future of China, the audience was curious

about the impact of President Xi Jinping’s crackdown on Western ideas

in textbooks, media and other educational outlets. All participants pre-

sented opinions on what the Chinese people want for China’s future

and how the Communist Party will tackle the needs of the people. I Panel discussion on fashion sustainability

A worship of writers opine on the tea leaves

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Movers and shakers

27

MEMBER NEWS

Suzhou Report

suZHOu CENtER HOLDs GENERAL mANAGERs mANuFAC-

tuRING FORum

The AmCham Shanghai Suzhou Center held a Suzhou

General Managers Forum to discuss strategies on how man-

ufacturers reposition their China manufacturing strategies in

a dynamic business environment on Thursday, September

22nd, at the Hyatt Regency Suzhou. The event featured key-

note speakers Denise Rutherford, vice president Greater China

& managing director of 3M China and Ligang Liu, managing

director and chief economist of Citigroup, as well as three

panels featuring speakers from Mettler-Toledo, General Elec-

tric, Caterpillar, IDEX, Flex, Xi’an Jiaotong Liverpool University

and Microbenefits. Moderators for the event included Aiying

Wang, VP & GM of Eaton (China) and vice chair of the Am-

Cham Shanghai Suzhou Center Advisory Council月; Christopher

Corkery, principal and head of Fit for Growth Platform for PwC

Strategy; T.T. Chen, operating partner of Shanghai Taplow Lon-

gitude Management Consulting and chair of AmCham Shang-

hai Manufacturers’ Business Council; and Pilar Dieter, chief

representative and partner of Solidiance.

AmCHAm sHANGHAI HOsts 2016 suZHOu muNICIPAL GOV-

ERNmENt LuNCHEON

AmCham Shanghai hosted its annual Suzhou Municipal

Government Luncheon on October 19, attracting a wide range

of senior government officials and AmCham Shanghai mem-

ber companies.

Approximately 80 attendees gathered at Shangri-La Su-

zhou over lunch to discuss the manufacturing outlook for the

city amidst the launch of the 13th Five-Year Plan. Chamber Pres-

ident Kenneth Jarrett said in his remarks about the importance

of Suzhou, “The gross domestic product of Suzhou ranks sev-

enth in China, which strongly proves the governance capability

of Suzhou Municipal Government.” Jarrett also mentioned the

importance of the 3-Year Action Plan for Open Economy Inno-

vation and 3+1 Initiatives for Deepening Innovation Driven De-

velopment as key initiatives for American companies to focus

on for future development. U.S. Consul General in Shanghai

Hanscom Smith followed by emphasizing U.S. investment in

Suzhou, stating that 10% of U.S. investment in China is located

in the city and nearby.

Vice Mayor Sheng Lei discussed Suzhou’s focus on de-

velopment in the smart manufacturing and new technology

sectors, particularly in new energy vehicles and biotechnology

and medical devices. The vice mayor also discussed Suzhou’s

focus on promoting its cross-border e-commerce platform,

developing Suzhou into a destination for global equipment re-

pair, as well as transitioning Suzhou’s export processing zones

into areas where companies can increase both their interna-

tional and domestic sales. Lei mentioned that there are over

1000 American-invested projects in Suzhou and over 150,000

expatriates living in Suzhou.

The 2016 Suzhou Municipal Government Luncheon was

supported by Platinum sponsors PPG and TE Connectivity as

well as Corporate sponsor Eastern American.

Corporate Sponsor木s

Corporate sponsor

Platinum sponsors

Networking sponsor

Booth sponsors

Venue sponsor

In Kind sponsor In Kind sponsor

AmCham Shanghai

AmCham Shanghai hosts Suzhou Municipal Government Appreciation Luncheon

AmCham Shanghai’s team building event in Moganshan Park

A panel discussion on the creative industry in China

A briefing on fashion sustainability

AmCham Shanghai Month in Pictures

A panel discusses future sustainability trends

for the apparel industry

U.S. Consul General Hanscom Smith speaks with

the Suzhou Vice Mayor

U.S. Consul General Hanscom Smith meets

Suzhou Vice Mayor Sheng Lei

Members networking at the monthly member briefing

A panel of distinguished journalists discussing China’s future

Journalist Duncan Hewitt lobbing a profundity

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Exit Interview

Carl Wegner is a former vice-chair of the AmCham Financial

Services Committee. Previously a managing director at

Deutsche Bank, he now runs the Greater China division of R3,

a blockchain software startup.

When did you first come to China?

The first time I visited was in 1984 as a tourist. I was a major in Chi-

nese language and history in the USA, and had spent a year study-

ing Chinese in Taiwan. After studies finished I had the opportunity

to travel around China for a month with my father, who had been a

Sinophile for some time, but had never before had a chance to visit.

We worked our way from Guangzhou to Shanghai and surrounding

cities on trains. Back then as a foreigner you needed to apply for a

visa to move from city to city and only then could you buy a train

ticket for the next city. Definitely no high speed rails back then.

When did you first work in China and in what role?

The first time I came to work was in 1990/91. I was working for

Bank of Boston in Hong Kong and was tasked to set up the bank’s

rep offices in Beijing and Shanghai. As soon as I was the Chief Rep

for both locations I was required to spend at least 10 days a month

in each city, so commuted back and forth between the two cities

and Hong Kong. After handing over to local reps, I moved back to

Hong Kong and eventually moved to Standard Chartered Bank in

1995 to start the Cash Management business for China and Taiwan.

What advice did you give your successor?

As a newcomer to working in China, I said make sure to listen to

your one-downs because they are key to being successful. I men-

tioned that when I check in six months from now, I hope that he will

not only see the challenges of working in China first hand instead of

being in a regional role but hopefully he will be able to take the mes-

sage back about the incredibly dynamic environment here in China.

What was your biggest professional success in China?

At Deutsche Bank, it was helping set up our Qingdao branch,

setting up a sub-branch in the newly formed Shanghai Free Trade

Zone, and being chosen in the first phase of CIPS clearing banks.

What did you learn from your Chinese colleagues?

When I first hired people in 1991, it was the opening up of Shanghai,

and out of the woodwork came all these people who were already

bilingual, well-educated and who were dying to enter this interna-

tional marketplace. It seemed they had been just dormant, waiting for

the market to open up – and that was the time it really started.

Twenty-five years later, it’s the same thing – the caliber of the

people is amazing. They are multilingual, international and capa-

ble. It’s always a challenge to manage such a strong group, but a

rewarding one, and I was happy to be able to help some of them

who wanted overseas roles move so they could take the China ex-

perience to other locations in Asia and Europe.

Are there elements of Chinese business culture that you think

Western businesses should adopt?

The importance of building relationships and of guanxi is stressed

in China all of the time; it’s just a part of the local fabric. But relation-

ships are important wherever you are working and sometimes are just

as important as the legal framework. So instead of thinking that guanxi

is this exotic challenge that we must master in China, just think about

the other ways that businesspeople connect in the West, over sports

or other areas – it’s just called building friendships – and that is good

business.

How do you see Western banks fitting into the Chinese financial

landscape in the future?

Western institutions overall have a much broader range of prod-

uct knowledge because regulations in China do not allow the full-

est range of products. As regulations in China continue opening up,

the international banks will bring that knowledge into the market

and customers and the whole ecosystem will benefit.

What concerns you most about China’s economy and what gives

you the most optimism?

Like everyone else, I am concerned by the slowdown and how it

affects the world globally. But the fact is that China is still a massive

economy; in fact, it’s multiple economies, from the tier-one cities to the

tier-two and tier-three cities. The advantage of China is that everything

has scale, and you have to take advantage of these multiple econo-

mies in these many cities and almost look at them as different markets.

Do you have advice for AmCham Shanghai members?

Between the old members and the [new] members, I would say

that there’s a tremendous amount of knowledge, literally thousands

of years of knowledge, about China. It’s an easy place for newcomers

to meet a lot of people quickly, people from all different kinds of in-

dustries who you would not meet in your building or your complex. I

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Movers and shakers

31

MEMBER NEWS

Committee Chair’s Corner

A Chat with David Basmajian

We talk with David Basmajian, head of policy, Asia Pacific for Baxter International.

He is the chair of AmCham Shanghai’s Healthcare Committee.

Many significant reforms to healthcare policies have

taken place in China over the past several years. How

have these impacted U.S. companies in the healthcare

market?

There’s no doubt that reforming China’s healthcare system

is a priority for President Xi. He’s made this clear in public

statements and policy speeches. What is less clear is the

long-term impact on U.S. companies competing in the China

market. But it’s safe to say that the overall objective is to

broaden and deepen healthcare coverage for the Chinese

people, while at the same time reducing the growth of

healthcare costs paid by Chinese patients. They’d also like

to promote innovative domestic drug and device companies

and to encourage the private sector to play a larger role in

the provision of healthcare, so you’re seeing a lot of attention

given to our sector right now. That can be good for industry,

and it’s also introduced some challenges.

The 13th Five-Year Plan identified narrowing the gap

between rural and urban citizens as a top priority, and

investing in rural healthcare infrastructure is a big part of

that. We’re talking about more clinics, more hospitals and

more resources to deliver primary care so people in lower-

tier cities can have greater access to healthcare. There’s

also an increase in private investment. China has identified

opening up the hospital sector to both domestic and foreign

investors as a way to increase access for the Chinese people.

Today, too many patients will go directly to top tier hospitals

in tier-one cities. This creates a problem in terms of capacity.

They don’t have the trust in their local facilities, or they don’t

have access to local facilities. So developing local primary

care, especially at the county hospital level, is a top priority

for the Chinese government.

In terms of market access for American companies,

timelines to get your product registered, to get market

authorization in China, are still quite long. China’s FDA is

working to reduce those timelines and they’re doing it in a

number of different ways with varying degrees of success. On

the pharma side, we saw an increase in the number of drugs

being authorized in China last year. I think on the device side

it’s still to be determined.

As I mentioned earlier, reducing the cost of healthcare

is a priority for China. In the past, the NDRC set prices for

pharmaceuticals. But in 2015 they stepped away from that,

which most considered a positive development. Today, pricing

for most drugs is handled at the local level via the tender

process, but this hasn’t reduced pressure on the price of drugs

and pharmaceuticals. Tenders are much more rigorous and in

too many cases focused almost exclusively on price.

Also relevant is public hospital reform. Public hospitals

in China receive very little public funding and the revenue

generated from the sale of drugs has been an important

revenue. China has instituted a “zero markup” policy for

hospitals in order to address what they perceived to be high

drug prices as well as corruption concerns. This is being rolled

out throughout the country. Reform was clearly needed, but

what it’s also done is put pressure on hospitals to pass along

the cuts to manufacturers to maintain their margins.

The government sees reimbursement as another way

to slow the growth of healthcare costs. A key concern for

member companies is the seven-year delay in updating

the National Reimbursement Drug List (NRDL). Meant to

be updated every two years, this delay has significantly

impacted reimbursement of foreign drugs in China.

Also of concern, officials are considering a change of

reimbursement rates for off-patent drugs to match the price

of the generic drug in that category. Other pilots are being

considered that test more favorable reimbursement policies

that take into account the quality of the drug or one that

rewards innovation. The pilot they land on will shape the

market moving forward.

Industry is working with our government partners and other

stakeholders on all of the above and more to encourage

China to implement policies that reward innovation, safety

and quality. Doing so will help China meet its healthcare

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32

objectives and will ensure Chinese patients have access to

the latest drugs and most innovative medical technology.

Tell me about a positive development in the healthcare

industry in China.

Over the past 15 years, China has achieved healthcare

coverage of 95% of its population. And the government’s

commitment to deepening coverage – to provide safer and

better treatment to Chinese citizens – is of course a positive

development for everyone. Looking ahead, allowing the

private sector to play a bigger role in the market will continue

to improve access to and the quality of healthcare for Chinese

patients. Private hospitals – in particular specialty hospitals - is

an area where private investment is growing and could really

serve the Chinese patient and create a more stable healthcare

system in China.

The encouragement of private health insurance companies,

both domestic and global, to provide coverage to Chinese

citizens, is also a step in the right direction. China sees this as

a way to provide more healthcare coverage on top of the basic

medical insurance that the government provides. This could

also expand the market for companies selling medical devices

and drugs in the Chinese market by reducing out-of-pocket

expenses for Chinese patients.

What are the biggest structural challenges facing healthcare

in China?

There are several macro trends that are impacting how

healthcare is delivered in China. In the 13th Five-Year Plan,

China is calling for 100 million people to be moved into cities

by the year 2020, and this is expected to result in an increase

in patient volume. Another important trend is aging. China is an

aging society, and with that comes an increase in the disease

burden. By 2020 they’ll add more people over the age of 50

than the population of Germany today. And then the third trend,

a rising middle class. This is a good thing for the economy. It’s

good for economic growth. But as people’s disposable income

grows they’re going to have greater expectations for access to

healthcare and the quality of it.

These trends are creating challenges for China as they

develop and execute their plan to increase the capacity and

capabilities of local healthcare systems. Opportunities exist for

American companies to work with the Chinese government and

other stakeholders to address those challenges. To the extent

companies can do that, they’re going to be in a better position

to compete in the China market.

Generally speaking, China has been quick to adopt new mobile

and e-technologies. How do you think these will help the pa-

tient population?

New, innovative technologies and solutions are already

improving access to health information and that will continue

to empower Chinese patients, allowing them to make more

informed decisions about their health. So the extent that they

have access to other sources of information allows them to

make more informed choices.

The Healthcare Committee hosted an event in October that

profiled companies offering new and innovative services to

Chinese consumers. Today it can be difficult to see a doctor,

and when they do they don’t have a lot of time with them. The

Carevoice app helps people find doctors and read reviews

from actual patients before making an appointment, to see

if he or she is the right fit. Trusted Doctors describes itself

as a “mobile partner” to doctors. It integrates with WeChat

allowing doctors and patients to communicate and includes

management tools for doctors to track the health and

recovery of their patients.

Reading through China’s new Internet+ policy, it is clear

the government is highly supportive of this trend. They’re

encouraging online healthcare services like digital care for

the elderly and e-commerce in the healthcare sector, to

name just a few.

Chinese healthcare companies are improving their product

lines. Where do you see them competing most with western

healthcare companies?

China Manufacturing 2025 – a policy that aims to leapfrog

development of China’s manufacturing sector – has highlighted

10 priority industries including pharma and the medical

device sector, so there is strong government support to make

Chinese companies global leaders. Already, innovation and

large-scale manufacturing has brought improved quality

and cost advantages to local companies in the med device

sector. Chinese medical technology companies like Mindray

are competing with American companies here and in markets

around the world.

In terms of pharmaceuticals, Chinese companies are

already competitive in the generic drug market. And if you

look at the drugs waiting for approval from China’s FDA,

80% of them are generic drugs. But they have their sights on

developing innovative drugs as well. Chinese companies have

partnered with foreign companies to leverage their respective

strengths. Partnerships are focused on the development,

registration, commercialization and distribution of drugs for

the China market and abroad. Zai Labs and WuXi AppTec are

both active in this area. Ideally these relationships are good

for both partners. Chinese pharmacos will develop faster than

they otherwise would while helping Western companies gain

greater access to the fast growing Chinese market.

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33

MEMBER NEWS

What are the most pressing goals or concerns of the AmCham

Healthcare Committee?

As a committee, we’re focused on the immediate challenges

facing companies in the China market. We’ve brought in

speakers to talk about where things are headed with pricing

and tendering, both fundamental issues to any company

competing in this highly regulated sector. And we’ve had

a series of off-the-record round table discussions about

compliance and how rules around compliance are changing.

But we’ve also kept a close eye on the future. Programming

has included trends in private healthcare and we covered

the impact digitally-empowered patients will have on the

healthcare market here. Next on the list is the fast-moving

wellness industry, a US$260 billion sector in the U.S. poised to

take off in China. So we also want to look forward to where the

market is going, where the opportunity might be tomorrow.

In terms of our most pressing concerns, we want to make

sure that companies are rewarded for innovation. American

healthcare companies are supportive of China’s healthcare

reform goals and we look for ways to be in line with China’s

priorities. A system that rewards quality and innovation

will help China meet its healthcare objectives and ensure

Chinese patients have access to the latest drugs and the most

innovative medical technology.

China’s in the middle of developing a new regulatory

framework. We’re working with partners in government

and in industry to make sure this framework protects

intellectual property and is consistent with international

standards. Regulatory harmonization is a goal, so that

companies aren’t dealing with several different regulatory

frameworks. To the extent that China can be harmonized

with the U.S., with the EU, with other markets, that’s good

for everybody.

Any sage advice for foreign companies working in health-

care in China?

Number one, the market has changed. In its China

Business Report, AmCham Shanghai lays out China’s new

normal in terms of its impact on the American business

community here - GDP growth rates have slowed and

companies have to be smarter about how and where they

compete. The same is true in the healthcare sector. While

growth rates may be lower, China is focused on how to

cost-effectively provide safe and effective healthcare to

greater numbers of its population. And on an individual

basis, Chinese citizens have higher expectations. So

while American companies are well positioned to respond

to China’s healthcare priorities, it’s really important to

understand the market opportunity. That means knowing

more than there are a lot of patients of a certain profile that

meet your particular drug, device or service before you

invest. You need to know how you’re going to differentiate

yourself in what is increasingly a very competitive, cost

constrained market. I

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Esoterica

Sitting the Month

Like millions of Chinese women each

year, I will voluntarily sequester myself this

winter within the confines of a small room

for a full month. I will putter around in my

pajamas while being served meals and

snacks six times a day and undergo routine

check-ups by a team of state-certified

nurses and doctors.

No, I am not participating in a medical

experiment on the effects of isolation, nor

am I temporarily seeking asylum from a

noisy, unpredictable world to purify my

mind, body and soul. I am pregnant and in-

tend to partake of a time-honored Chinese

tradition dating back thousands of years.

Immediately after giving birth, women in

China have long been obliged to—or in

more recent years, chosen to—remain in-

doors in a practice called zuo yuezi, literally,

sitting the month. It is believed that when a

woman’s body is fragile after birth and her

pores are open to the elements, she must

be prescribed adequate rest, be shielded

from cold and wind, and adhere to a strict

diet. This, it is believed, aids recovery. Not

doing so may result in everything from pre-

mature aging to arthritis later in life.

Many Chinese mothers, I suspect, would

balk at the notion of getting plenty of fresh

air and exercise immediately after giving

birth, in the way that is often advised in

Western countries.

But then in most cases, the traditional

rules of zuo yuezi are also not followed to

the letter today as they once were. The rules

were, after all, developed during a time

when China was a largely agrarian society,

clean water was not as accessible and mor-

tality rates for new mothers were consider-

ably higher. The modern Chinese woman

desires her creature comforts while main-

taining a patina of adherence to custom.

Many new mothers still sit the month at

home, under the watchful eye of a mother or

mother-in-law, but in this past decade the

tradition has also been rebranded and com-

mercialized into a billion-dollar industry – one

that is expanding rapidly each year.

Many middle-class moms these days will

choose to hire a live-in doula, called a yue-

sao, who will care for, clean and burp the

baby, as well as help the mother sit the

month. In first-tier cities, they can fetch a price

of RMB15,000 per month. Some households

even hire an ayi in addition to the yuesao to

help with the cooking and cleaning, as the

mother is not supposed to work at all.

Others (like myself) may avoid all of the

hassle and instead check themselves into

one of the many maternity hotels around

their city that have sprung up, like bamboo

shoots after a spring rain. In Shanghai alone,

over 100 maternity hotels are now listed on

Dianping.com, with prices for a 28-day stay

ranging from RMB30,000 at the low end to

luxury establishments that exceed RMB

100,000. From 2010 to 2014, maternity hotel

revenues grew by 40% per year on average,

reaching RMB5.6 billion in 2015. According to

a report by GF Securities, an investment bro-

kerage, the maternity hotel market is esti-

mated to grow to RMB6.9 billion for 2016

and hit RMB15 billion in 2019.

I began my hunt for a maternity hotel in

July, six months before my due date, as I

was informed that hotel bookings for

January/February were already in short sup-

ply. Prices have risen sharply in recent years.

One sales rep told me that this was due to a

combination of rising incomes, the recent

relaxation of the one-child policy and the

preference of many couples to have a child

in the Year of the Monkey (which ends in late

January 2017).

New mothers may also find that sitting

the month at a maternity hotel, in the care

of professionals, feels more liberating than

sitting at home, where well-meaning rela-

tives can sometimes be a little too close

for comfort.

The maternity hotels that I visited resem-

bled boutique hotels with distinctly feminine

atmospheres. The rooms were decorated in

soft, pastel tones with nurses dressed in

light-pink uniforms and princess-style furni-

ture set in public spaces. Boy and girl dolls

hung on the doors of each room to denote

the gender of the baby.

Though every hotel I visited claimed to

have unique features, they shared common

themes. Representatives presented me

with special menus of nourishing soups and

foods that supposedly help new mothers (a)

recover vitality and (b) produce more milk.

They explained that medical professionals

would conduct regular check-ups to make

sure the baby is healthy and growing ac-

cording to schedule (the baby’s weight and

vitals are recorded every week by most ho-

tels; some do it every day).

I will have a doula sharing my room to

help take care of the baby, as well as provide

key services such as giving me milk-stimu-

lating massages and hand-washing my

clothes (my husband will also be there,

learning how to change diapers and burp

the baby). Yoga classes will be offered. There

will also be a “baby spa,” with the baby given

light massages and plopped into a small tub

(secured in a life preserver) to float around.

To Westerners, the practice of sitting the

month may seem strange, and maybe even

outdated and superstitious. But for Chinese

people, behind the strict diet and over-pro-

tectiveness, there is a philosophy that a

new mother needs all the support she can

get during this intense period of her life.

The first month after giving birth can be

wondrous and exciting, but it can also be

stressful and exhausting. Why not ease the

burden? The hard part comes next. I

MEMBER NEWS

By Ruoping Chen

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She’ll start with a gentle stimulating massage, followed by a 30-min hydrotherapy bath, followed by a facial and mani-pedi…

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YCIS PDF for Kelly.pdf 1 10/27/16 2:24 PM