Over the last few days I’ve received a number of inquiries from clients and colleagues about the on-going financial crisis in China’s stock market and what effect, if any, I thought it would have on their projects.
I’m reminded of the response of the quarterback of an American football team after his heavily favored team lost some of their early games. Bombarded with post-game questions about the collapse of his team and impending doom for the rest of the season, he responded calmly, “R.E.L.A.X.”
As has been pointed out by far more competent economic observers than me, the growing hysteria forecasting a collapse of the Chinese economy is not supported by the reality on the ground. An excellent article in The New York Times by Nicholas Lardylays out the economic argument for why this situation is a long overdue correction in its equity market and not reflective of the overall Chinese economy. I encourage you to read this article for a thoughtful assessment of the situation.
The article makes the point that “Services, not industry, are driving China’s growth, as has been the case for three full years. This is likely to continue since per capita incomes in China are reaching a level where a growing share of spending is on entertainment, travel and other services rather than on goods.”
Of all of the services pursued by the Chinese population, healthcare is the most compelling and the least likely to be impacted by what’s happening in China’s equity markets. Consider these points:
- Healthcare is largely a non-discretionary purchase of services. If you’re ill, you need these services regardless of what might be happening in the stock market. Or has been said many times, healthcare is a recession proof industry.
- Even such classical discretionary purchases of healthcare services as obstetrical care, elder care and IVF procedures become less ‘discretionary’ when considered in the Chinese context.
- The growth of the middle class in China has continued unabated over the last decade. This increasingly affluent and well-educated segment of the population has made healthcare for themselves and their family members one of their highest priorities. This attitude is unlikely to change based on what’s happening in the stock market.
- The demand for a viable alternative to the public hospital system with its inefficiencies, overcrowding and impersonal service is a market factor that is not going away. Private, for-profit, healthcare continues to be an undeveloped segment attracting strong investor interest.
In summary, you shouldn’t expect any major changes in the healthcare sector of the Chinese economy as a result of these recent events. China continues to be the world’s largest market for healthcare and a continuing opportunity for investors.