Health Silk Road 2020: A Bridge to the Future of Health for All

Abstract

The outbreak of the Coronavirus crisis at the end of 2019 has led to a surprise acceleration and expansion of the HSR and a boom in studies of this topic by global financial press, think tanks and universities. The team from China Investment Research (CIR), Grisons Peak, a London based consultancy focused primarily on emerging markets with a specific focus on the BRI, and the Shanghai Institutes for International Studies (SIIS), a leading foreign policy think tank based in Shanghai, collaborate for the third time .

Our major findings include the following: Firstly, China had already significantly scaled up medical assistance in various forms and secured the operation of medical supply chain for the world. At the World Health Assembly in May, President Xi promised a series of measures in helping with the world deal with the COVID-19, including providing US$2 billion assistance over two years, ensuring security and efficiency of anti-epidemic supply chains by establishing global humanitarian response depot and hub in China in collaboration with the UN, pairing up Chinese hospitals with 30 African hospitals, accelerating construction of African CDC headquarters, and providing Chinese-developed vaccine as global public good, etc.. The pledges are being delivered. By October of 2020, China had provided assistance to 150 countries and seven international organizations and exported over 179 billion masks, 1.73 billion protective suits, and 543 million testing kits. At present, 46 resident Chinese medical teams are in Africa helping with COVID-19 containment efforts, such as in Ethiopia, Ghana, Guinea and Zimbabwe. China Development Bank and the two new multilateral development banks with China being the most important shareholder, i.e., Asian Infrastructure Development Bank and the New Development Bank, provided billions of timely COVID-19 related loans abroad.

Secondly, Chinese companies accelerated “going out” in both volume and value in the health sector while the aggregate outbound investment has been declining. While it is true that Chinese announced outbound equity investments have declined annually since the 2016 peak, both deal volume and aggregate amounts in healthcare have increased substantially over the past 2 years. The number of investments more than doubled from 22 in the first quarter of 2019 to 52 in the third quarter of 2020, while the value increased even more significantly from 390.5 million US Dollars to 2.72 billion US Dollars in the same period. Despite the rising concerns on the “decoupling” of China and US technological development, slightly over 50% of the 224 Chinese outbound healthcare investments during this period had some involvement with the USA, even though such investments were virtually all minority investments and/or small components of much larger primarily USA-led VC/PE syndicates. Considering the background of rising geopolitical tensions, this represents a structural trend of Chinese firms’ outbound investment in following the model of the two tech giants Tencent and Alibaba and taking small stakes via growth capital. Biotech increased to about half of these investments in some quarters from 20-25% in early of this period.

Thirdly, bio-tech and bio-pharma companies also became the most active components in Chinese capital market, which dwarfed many FDI inbound sector amounts. Strong developments in capital, technology and markets have enabled China to play a bigger role in maintaining global health. While company formation declined in other major markets such as the US, Europe, and Japan, the number of new Chinese biopharma companies has risen steadily over the past three decades, accelerating dramatically in the last ten years. More than 140 new biotech companies emerged in China from 2010 to 2020. Fueled by an ever-growing demand for healthcare, healthcare/life sciences is expected to be a long-term driving force of the A-share IPO market of China. During 2018-2019, the three major Chinese stock exchanges in Hong Kong, Shanghai and Shenzhen, relaxed their rules or launched new platforms, such as the Science and Technology Innovation Market (STAR) in Shanghai, in allowing companies has yet to earn a profit to raise funds via initial public offerings (IPOs), providing a significant boom to drug developers. By the end of the period, life sciences IPOs were among the most active in all of these exchanges. Shares in the 29 biotech companies that listed in Hong Kong since mid-2018 until 13 December 2020 — 27 of which are Chinese — rose by 53% on average from their IPO prices, according to Dealogic. This is also paving the way for Chinese capital market to become the world’s largest biotech fundraising hubs. Hong Kong plans to overtake NASDAQ as the world’s largest biotech fundraising centre by 2025.

Fourthly, China provides vaccines around the world in a "public product" manner and has played an integral role in global vaccine development and distribution. China published the genetic sequence of SARS-CoV-2 in mid-January triggering a global R&D activity to develop a vaccine. The first COVID-19 vaccine candidate entered human clinical testing with unprecedented rapidity on 16 March 2020. By mid-year 2020, there were five Chinese biotech companies active in the COVID vaccine space that were publicly listed: CanSino Biologics, Sinopharm and its vaccine and bioscience subsidiary the China National Biotec Group Co Ltd (CNBG), Chongqing Zhifei Biological Products, Fosun Pharma, and Sichuan Clover. By the third quarter of 2020, China had been piloting vaccines in 16 developing countries around the world, beyond the narrowly defined “BRI countries”. In the fourth quarter, two of China’s 5 vaccines being trialed were approved, less than 3 weeks after the vaccines from the world’s largest and more established biopharma firms. Approved Chinese vaccines were sent for use in Bahrain, Chile, China, Egypt, Indonesia, Turkey and UAE, while agreements were signed with Brazil, Mexico, Morocco, Pakistan and Ukraine and similar agreements were under review in Bangladesh, Jordan, Malaysia, Philippines and Peru. Chinese vaccines provide reasonable alternates for lower-and middle-income countries that cannot provide the extensive cold storage network required for the distribution of Pfizer and Moderna vaccines. It is most noteworthy that Chinese private sector has been playing an active role in the process. In the fourth quarter of 2020, Cainiao announced its partnership with Ethiopian Airlines to launch a special cold chain air freight to transport temperature-controlled medicines twice a week from Shenzhen to Africa, and to the rest of the world via Dubai and Addis Ababa.

Keywords: Health Silk Road, Belt and Road