A woman sorting medicines at the pharmacy of Yueyang Hospital, which is part of the Shanghai University of Traditional Chinese Medicine in Shanghai.
JOHANNES EISELE | AFP | Getty Images
China’s healthcare sector is likely to be the next to be examined, analysts warn, as the country’s regulators crack down on everything from technology to education and data security.
Chinese President Xi Jinping has reiterated this week again the need to support moderate wealth for all, or the idea of “common prosperity” that he has been promoting for months.
Analysts say this is what is driving the avalanche of crackdowns on companies.
“‘ Common prosperity ’remains an idea that is still in search of an implementation strategy,” said Rory Green, Chinese economist at TS Lombard. “At the moment, it is much easier to regulate industry and capital markets than to introduce structural reform.”
He predicted that alongside the real estate market, health care will be Beijing’s next target.
The health industry is one of the so-called “three great mountains” of the country, which refer to the spiraling costs in the sectors of education, real estate and health, which are obstacles to an affordable life. .
Health care is “the only one that has not yet been subject to regulatory scrutiny” and is “particularly vulnerable,” Green said in an Aug. 31 note.
Earlier, the Chinese government promised to keep prices under control, but now it intends to intensify efforts, Capital Economics said in a note on Tuesday.
“Public housing and health care are likely to expand, while private medical providers and real estate developers could soon face greater constraints on their ability to set prices and pursue profits,” Julian wrote Evans-Pritchard, senior economist at Capital Economics.
Chinese regulators have already stepped up restrictions on the country’s education sector and targeted the billion-dollar extracurricular tutoring segment.
Shares in China could sink another 15%
China’s crackdown in the past year has been on a wide range of industries, from technology to education and food delivery.
This led to strong sales of Chinese stocks, which ended with billions of dollars worth of technology stocks in recent months.
So far this year, China’s health stocks have fared better than China’s broader indices.
MSCI’s healthcare index in China has declined marginally below the flat line to date, compared to China’s MSCI index, which has fallen more than 13%.
But some healthcare stocks, especially companies that use technology platforms, are already hurting. JD Health, for example, has fallen nearly 50% this year. Alibaba Health has fallen more than 40% to date.
Green said TS Lombard predicts the MSCI China index could plunge by 10% to 15%, at worst.
He warned investors to be cautious and said the political risk will remain high until the 20th National Congress of the Chinese Communist Party next year.
“The political timetable is busy; and with cadres wanting to bolster populist credentials in pursuit of promotion, political scrutiny of markets is likely to remain high (rather than shrinking) in the coming months,” wrote Green.
What could be safer to buy? The so-called government favorites, Green said. They include relatively secure sectors such as technology hardware, clean energy and defense.