Health Care: China’s Innovation Hotbed

June 16, 2016

Driven by an increasingly health-conscious population and fueled by government investment and a booming private sector, China's health care sector is primed for innovative growth. That's the view of Jesse Wu, former chairman of Johnson & Johnson China, who spoke at the 2016 Duke International Forum at Duke Kunshan University.

"China is poised to be a vital force in the global innovation scene, in particular in the area of health care," Wu said. There are three factors, he said, that will drive the county's ability to replicate its unprecedented manufacturing growth in the health care sector: significant demand among the populace; a firm government commitment; and growing private sector investments of financial and human capital.

Demand

Health care spending in China is expected to reach $1 trillion within five years, with an annual growth rate of 11 percent, Wu said.

"The market demand for health care in China is tremendous and constantly growing," he said. That growth will be spurred by roughly 100 million people entering the middle class in the next decade, people with more discretionary income who are increasingly health conscious, reducing under-diagnosis and under-treatment, Wu said. The population is also aging, with the next five years expected to see 25 million Chinese people reaching 65, the age at which health care consumption increases sevenfold, Wu said. Hospitals already have seen a 10 percent increase among inpatient admissions in the last 5 years, about 17 million additional patients a year.

"In any market with such strong demand, you will see financial capital flow in to support human capital," Wu said. "Innovators will be competing and collaborating to provide the new and high-quality health care products and services to capture the growth in the market."

Government support

Wu said the stakeholders in health care can be divided into five "P"s: Physicians, providers, payers, policymakers and patients.

"In China, the first four Ps are closely related to the government sector," he said, giving the government the motivation as well as the ability to foster innovation.

"The government sees health care as a major force for national development," he said. In the last year, it has highlighted plans to overhaul the review and approval process for new drugs, and has targeted the pharmaceutical and medical device industries for growth as part of its strategy to "upgrade the nation from a big manufacturer to a strong manufacturer."

"The government clearly understands the importance of innovation and is taking action to make it happen," he said.

Capital, both human and financial

"In order for innovation to take root in and thrive in China, the ideas and skills of the best minds must have financial resources to nurture and to develop new products and solutions," Wu said.

Many of the best ideas in China's pharmaceutical and biotech industries are coming from native Chinese returning home after obtaining advanced degrees and work experience abroad, said Wu, a 1982 graduate of the Daytime MBA program at Duke University's Fuqua School of Business.

"These entrepreneurs come back to start up a business, leveraging their intimate knowledge of the unique local needs to inspire innovation," Wu said. They pursue the opportunities with agility and energy that can really give multinationals a run for their money."

He cited the example of the Beijing Genome Institute, a Shenzhen-based biotech company that recognized that genome sequencing is largely based on computing power and data-mining. The firm hired more than 2,000 PhDs and tapped China's enormous population for genomic data. BGI now produces more than a quarter of the world's genomic data, Wu said.

"This is an example of how Chinese companies, through ingenuity and scale, will forge ahead in the industry," he said.

Johnson & Johnson established an innovation center in Shanghai to invite scientists and entrepreneurs to work with the company. "This partnership is helping innovators bring transformational solutions to the marketplace with a higher success rate — and faster," Wu said.

Multinationals are investing more than $1 billion in research and development in China each year, Wu said, and are moving from a strategy of "in China, for China" toward one of "in China, for the world."

Wu said he's hopeful the combination of demand, government support and private investment can fuel health care innovation in China for years to come.

"Multinationals and local startups alike can capitalize on this trend and serve as the forerunners in the unveiling of China's next innovation renaissance," he said. "In doing so, they will all play a part in making meaningful improvements to China's quality of life and future prospects as a global leader in innovation."

Contact Info

Gregory Phillips
Duke University
The Fuqua School of Business
100 Fuqua Drive
P.O. Box 90120
Durham, NC 27708-0125

Tel: 1.919.660.7801
Email: gregory.phillips@duke.edu

Erin Medlyn
Duke University
The Fuqua School of Business
100 Fuqua Drive
P.O. Box 90120
Durham, NC 27708-0125

Tel: 1.919.660.8090
Email: erin.medlyn@duke.edu