Posted by Damjan DeNoble

Over at the China Law Blog, a top flight publication (that, in my mind, sets the standard for China analysis along with Jamestown.org) Dan Harris just published a post, China Business. We Never Said It Would Be Easy, describing some dangerous trends in the Chinese business market that are becoming more and more accentuated as companies and factories in China start to feel the pinch of the shrinking world economy.  Co-blogger Steve Dickinson chimed in to point out that Chinese officials’ actions are consistent with intent to uphold and strengthen current labor laws, not to weaken them; the idea being to strengthen China by guiding it to a position of greater ethical stability and economical self reliance.  The greater point is a warning against assuming the opposite trend will take hold as the economic recession worsens.

At the end of the post Mr. Harris asks “What are you seeing out there?”

Feeling that my comment would be too specific and so appear self serving if I posted my response directly on China Law Blog, I will write a brief response here.

I am seeing misguided attempts to capitalize on  managed health care schemes in China.

It is tempting to see the creation of some sort of cost containment entity which could act as a go between China’s private health care providers and large health insurance companies as an ‘easy play’ in the Chinese health care market for several reasons.  But the bottom line is that the current regulatory environment in China will not allow that to happen without a lot of preparatory work (the timeline is in years not months), and for a fuller explanation go here, and here.

If you are thinking about giving anyone money to build some sort of cost containment, managed care entity such as a TPA or a general practitioner’s office, or if you are thinking of building one yourself, understand that the only way to do it profitably is to do it legally and by working with current industry players.  This takes a lot of time and precludes any unilateral action; all final decisions are going to need the approval of Chinese authorities.  Anyone saying otherwise has either not done their homework, or is being deliberately misleading for whatever end.

I am seeing the proliferation of private hospitals without a real plan to attract patients, and the potential for real estate flipping

Investors in Malaysia, Indonesia, S. Korea, and even Vietnam are all giddy about the prospect of millions and billions of medical tourism dollars flooding into Southeast Asia as the economic crisis worsens and American and Europeans start looking to abroad for cheaper medical options.  So, private hospitals are starting to be built all over the place.  ”I have a plot of land and I want to build a hospital.  Get me an architect.”

The problem, of course, is that building a hospital is a bit more complicated than building a house, because, for one, before you even know whether a hospital can be built, you have to figure out where patients are going to come from.  People who have never built hospitals before assume there is a Field of Dreams effect where if you build it, people will come.

The truth of the matter is that you can build it, but you also have to build clinics/medical office buildings to bring the patients, and a recruitment strategy to bring in medical and administrative staff.  It might also be a good idea to know what kind of patients you will be getting so that you will have the proper instruments and services in place – this requires some study.  Again, if you are an investor interested in building a hospital, do the research before you start the build.  Anyone who just wants you to put down money, before they even know whether a hospital will actually be able to attract patients is, at best, trying to flip the property (i.e. sell the hospital soon after its built for double what was paid).  Unfortunately, unlike hotels or restaurants, a broken hospital is harder to fix, and, therefore, harder to ‘flip,’ as well.