What We Do
PPSG connects venture capital and private investors in the United States to investment opportunities in the China healthcare services and medical devices industries. We provide investment opportunity identification, an extensive China healthcare network, due diligence, native Chinese speakers, a permanent China presence, U.S and China healthcare expertise, premier China-based fund management services, and management oversight and reporting.

The Opportunity in Chinese Healthcare Services and Medical Devices Industries

Unprecedented Economic Growth China’s transition to a market economy over the past quarter of a century has unleashed unprecedented economic growth. In 2002, China surpassed the United States to become the world’s largest recipient of foreign direct investment with $50 billion of foreign capital inflows.

Burgeoning Expenditures in Health China’s overall healthcare spending in 2003 increased 16.5% over 2002. Per capita spending increased from RMB 26 (US$3) in 1980 to RMB 513 (US$64) in 2003, with a compound annual growth rate of 17.9%, faster than the general Gross Domestic Product (GDP) growth rate of 8%. Though increasing over time, health care spending in China is still far below that of western levels. China spent 5.6% of its GDP in 2003 on healthcare, compared with 15.2% in the US. An increasing percentage of GDP is forecast to be consumed by healthcare spending.

Favorable Investment Environment China’s post-1980 healthcare reform has resulted in a change in the ownership structure of health care service organizations from single (state) ownership to multiple (private and public) ownership. The Chinese government’s determination to privatize its healthcare sector was further demonstrated by regulations released in 2000, in which the maximum foreign capital share increased from 30% to 70% of the total investment with a minimum of RMB 20 million (US$2.5 million).

Huge Market Base Largely concentrated in coastal regions, China’s affluent and upper middle class command nearly 35% of urban disposable income and account for 10% of total urban population. According to McKinsey’s projection, by 2015 these two segments will number some 80 million people, representing 30% of population in urban China, with a total spending power of over 6 trillion RMB. By 2025 the purchasing power of urban households in China will be equal to all Japanese household today. As income rises, housing and health will be two of the fastest-growing sectors. Private health expenditures by urban consumers are projected to grow annually at a rate of 11% over the next two decades, creating significant opportunities for health care providers.

Increasing Demand for Better Care State-owned facilities, plagued with inefficiency, high costs, corruption, lack of complete and fully implemented quality standards and poor services are unable to meet a strong demand for private medical care on fee-for-services basis.

Emerging Market for Private Investment At present, there are about 200 foreign-funded health care enterprises in China consisting of primarily small, fairly low profile joint venture clinics and departments within hospitals, as well as several modest-sized hospitals mainly located in economically developed coastal provinces and big cities. Among those, 50% have investment of less than US$2 million, and only about 10% have funding totaling more than US$10 million.

Sizeable Return on Investment A survey by the American Chamber of Commerce and other data indicate more than 65% of US companies in China are profitable and that their margins in China are equal to or greater than their global margins. The evolving health care market, relatively new to foreign investment, will provide potential for higher returns. The profit potential is further illustrated by the growing number of newly established joint venture hospitals and clinics and the fast expansion of existing facilities from one city to multiple cities. According to approximate government estimates, the average annual revenue of a first-class Beijing hospital is no less than RMB 400 million (US$50 million), and many of them earn more than RMB 1 billion (US$125 million) a year.

Venture Capital Growth Momentum China beats any U.S. state except California and Massachusetts and surpasses any individual European country except the UK in terms of VC investment. According to Asian Venture Capital Journal, $1.57 billion in private equity was invested in China in 2003, up from $ 350 million in 2002. Zero2IPO, a Beijing-based research firm, tracked $992 million in Chinese venture capital investment in 2003, an increase of 137%. Healthcare ranked No. 6 among the ten most popular sectors for VC investment, following electronic communications, biotechnology, manufacturing, financial services and material science.

Higher Margins than Western Counterparts Our own research of three publicly traded hospitals, two in China and one in the US, suggests higher EBITDA margins in Chinese hospitals than their western counterparts, presumably resulting from lower competition and less regulatory oversight. Healthcare payments are primarily made in cash in China as there is limited health insurance.

Our Strategic Focus

Target Population Our strategy is to assist our investment partners to capture the growing number of wealthy to middle class consumers who demand medical care that meets or approximates western standards.

Initial Target Location Major metropolitan or commercial areas such as Beijing, Shanghai, Guangzhou or Shenzhen are being considered. Central business district or bedroom communities outside these cities are preferred.

Private, For-profit Specialty Hospital or Clinic While the profit margin for state owned non-profit hospitals and clinics is estimated at 15% or more with strict price controls of routine procedures, private for-profit facilities can set their own prices for medical services, thus expect a much higher margin. Our initial analysis indicates clinics seeing net incomes of 30-40%.

Specialty Services Existing literature and interviews of health care experts consistently demonstrate several specific areas are ripe for investment including ambulatory clinics, maternity hospitals, primary and pediatric care, dental clinics, and cosmetic surgeries. Primary reasons include:
(1) China’s official family planning policy has made the child the focal point of the family; (2) Cosmetic surgery and dental services are growing in popularity in the large cities;
(3) Clinic costs for gear and gadgets is much lower than a general hospital;
(4) As patient flow increases, additional specialty services can be offered.

Management Existing private hospitals or clinics with strong management team are the primary focus.

Exit Strategy Options of exit strategy include
1) Direct buy-outs or investments by other foreign investors or capital funds;
2) A ‘put’ option with the hospital joint venture to buy the foreign partner’s interest;
3) or going public.