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Why China Is a Healthy Investment

A salesman uses his phone in a Chinese and western pharmacy in Hong Kong. Anthony Wallace—AFP/Getty Images

Over the last several months, some economists and investors have questioned the health of the Chinese economy. Although China has been a driving economic force for the last decade with significant annual increases in GDP, growth has slowed. Last year, China’s GDP grew 6.7%, the slowest in 26 years. Looking to the future, some question if a slowdown in China’s growth will be a long-term trend, not a short-term exception.

However, I see China as an important market for growth, particularly when it comes to the healthcare industry. I was just in Beijing for the China Development Forum, where multiple discussions centered on opportunities for economic growth, with healthcare as an industry high on the agenda for continued development. This reinforces President Xi Jinping’s remarks at the World Economic Forum in January, where he talked about the importance of innovation for economic growth, and committed to innovation-driven development in both traditional and emerging industries.

Today, China is the second largest pharmaceutical market in the world after the US, and its value is estimated to reach $315 billion in 2020. This is being driven by the enormous medical need in China, which – just like in other countries – is stemming from an aging population and an increase in chronic conditions. The number of people in China over age 65 is estimated to rise to more than 329 million in 2050, a figure that is more than the entire population of Germany, France, Japan and Britain combined. Almost 15% of women and 10% of men in China are overweight, making it the population with the largest number of overweight people in the world. China also has 100 million diabetics, a number higher than in any other nation. It also accounted for 20% of the world’s new cancer cases in 2015, with 4.3 million.

In response to these growing medical needs, the Chinese government has rolled out significant reforms to its healthcare system over the last decade. Today, over 95% of China’s population has access to health insurance. Last year, the Chinese government approved its Healthy China 2030 Planning Outline, the first long-term strategic plan for the country’s health sector since 1949. The plan aims to significantly expand China’s health industry, making it a mainstay of the national economy. In addition to focusing on prevention through healthy lifestyles, the plan aims to accelerate innovation, bringing China to the forefront of cutting-edge medical research. This year, China added 300 drugs to its national reimbursed drug list. Last Friday, the China Food and Drug Administration (CFDA) proposed new policies that would no longer require drugs submitted for approval in China to either be in at least Phase II development or already approved outside of China. The requirement to conduct China-specific clinical studies in order to gain an approval would also be eased. In addition, the CFDA now plans to enable digital filings for new drug applications by the end of this year. These reforms are expected to help speed the entry of new drugs to the Chinese market.

Another positive sign is the level of talent in China, which is rising. In 2016, China had 4.7 million new STEM graduates – by comparison, the US had 568,000. And nearly 30,000 students in China earn PhDs in science and engineering each year, according to a 2016 McKinsey & Co report. China has also rolled out some impressive firsts in science. In addition, our first drug discovered in China, MAK683 (an epigenetic drug for nasopharyngeal carcinoma, which is more prevalent in China than elsewhere), has entered Phase I clinical trials.

At Novartis, we see great opportunities for innovation in China, and our investments reflect our confidence and commitment for the long-term. We first opened our research center in Shanghai 10 years ago, and have invested $1 billion to make it state-of-the-art. It’s a true discovery center for China, with hundreds of scientists working to find new therapies for diseases that primarily affect the Chinese people. In addition to our R&D operations in China, we also have manufacturing facilities and a diversified business portfolio, covering innovative medicines, eye care and generics. We’re also working with the local government in Xinjiang, a province with 23 million people and limited healthcare access, to train healthcare workers. Other companies are realizing the need to invest in China. For example, Apple (AAPL) just announced plans to invest $500 million in new research centers in the market.

Looking to the future, there is also great opportunity for innovation in new areas of healthcare in China, such as mHealth. An estimated 700 million people in China have access to the internet, and the vast majority of them – 86% – can connect through their phones. While there has been a lot of investment in the mHealth space over the last several years, with companies like Alibaba and Baidu exploring services such as virtual physician consultations and online pharmacies, uptake has been slow and there is room for improvement. Digital health is an area to watch in the years ahead.

I’m optimistic about China as a strong market for investment and future growth, particularly for healthcare. China has the infrastructure, the talent, and government support – as well as high medical need – to be a thriving market for healthcare innovation. Continued development of the industry can also attract foreign investment and create jobs, while improving the health of millions of people. We, at Novartis, look forward to working to deliver new innovations that will improve and extend the lives of many more Chinese patients in the years ahead.

Joseph Jimenez is CEO of Novartis.