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A bridge from east to west: linking Chinese investors with European companies

Written by ALB on in the category Insights with the tags , .


There are two main reasons why a European company might want to establish official links with a Chinese investor: funding, and access to the second largest healthcare market in the world. But don’t go rushing in blind!

In November, a large delegation of Belgian companies, accompanied by Princess Astrid of Belgium will be undertaking an economic mission to China. The purpose is to foster the development of economic and trade relations.

Strengthening ties with China is something an increasing number of European companies are interested in. For numerous reasons, European companies are starting to turn their gaze to the East just as Chinese investors are looking to the West for opportunities. This is particularly true in high tech industries such as biotech and the life sciences.

At the forefront of this tentative outreach between Europe and Asia we find a company called Agio Capital & Business Solutions which functions as an advisory firm. Their main mission is to connect European companies with suitable investors and partners, with a strong focus on the Chinese market.

There is a big need for all kinds of medical equipment, services and medicine, and the Chinese players cannot always provide the right quality yet. So, they have to rely on Western innovation. - Sven Agten, Agio Capital & Business Solutions
 

BioVox interviewed Henk Joos, one of the company´s directors and former general manager of flanders.bio, and Sven Agten, a Belgian turned Chinese businessman, to find out what China has to offer and how a life science company should go about setting up shop in China.

China: an attractive healthcare market

In the past few decades, the Chinese economy has grown astronomically. This boom has also been reflected in the healthcare market. From a commercial perspective, China is incredibly attractive for a company involved in the life sciences. The Chinese healthcare market is currently the second largest in the world (only surpassed by the US). Agten explained why it is expected to grow even larger:

“There are now 300 million Chinese middle-class people who can afford both healthcare and luxury products. That’s a huge market for Western companies. The Chinese middle-class have a lot of money and they’re getting richer every day.

China also has a lot of issues with pollution, food scandals and changing lifestyles. These are leading to an increase in cancer and obesity-related diseases. The ageing population is also an enormous factor. There is a big need for all kinds of medical equipment, services and medicine, and the Chinese players cannot always provide the right quality yet. So, they have to rely on Western innovation.”

Looking to Europe for innovation

The need for innovative healthcare solutions, backed by the ability to pay for them, has been the driving force behind Chinese investment in the sector. However, the Chinese life sciences industry is still lagging behind the ecosystem in the US and Europe. Joos elaborates:

“When we look at the life sciences landscape, and the research that is being done, we can clearly see that China is catching up rapidly. But they don’t yet have the network and experience in place to translate the research into successful companies.

In Flanders, we know how difficult translation is: we have been quite successful, but it essentially took 45 years for us to start building successful companies like Galapagos and Ablynx. It requires a combination of talent, managerial expertise and experienced investors.

The Chinese are currently repatriating a lot of their talent from the US and Europe, but they are still in early development. There is therefore currently a big desire to bring on board technology and management expertise from abroad.”

We are at the right time and the right place: for European companies that want to enter the Chinese market, the critical timeframe will be the following 10-15 years. - Henk Joos, Agio Capital & Business Solutions
 

With the US and China currently locked in a trade war, the Chinese are actively being blocked from working with US companies. With no end in sight to this economic cold war, China is turning its gaze towards Europe, which has opened up a window of opportunity for European companies. Joos emphasized the urgency of this chance:

“It’s very clear that the US and China are decoupling in any way possible. Cut off from their US networks and opportunities, Chinese investors are becoming increasingly interested in what Europe has to offer.

We are at the right time and the right place: for European companies that want to enter the Chinese market, the critical timeframe will be the following 10-15 years.”

Don’t go rushing in blind

It is clear that Chinese investors have a lot of capital available. The average fund size is now $765 million. In 2018, China’s VC investments into the life sciences exceeded even the US. Beyond the money, working with Chinese investors or partners also opens doors to the Chinese market. Without ties to the local network, success in China can be devilishly hard to attain.

It’s still critical for a Western company to find a trustworthy Chinese partner who will fight for your IP and regulatory approvals. But the government has clearly taken a number of measures... to make the system more robust. - Henk Joos, Agio Capital & Business Solutions
 

As with any endeavor, however, it pays to do your homework and come prepared. When considering working with Chinese funds, people have a lot of questions and concerns. One of the main reasons for reservation is often the threat of IP theft and licensing issues. Agten acknowledged that this used to be a real problem:

“Up until 5-10 years ago, Chinese companies didn’t have a lot of IP. To compensate, they would sometimes steal IP from Western companies and this is where they got their bad reputation from.

In the past decade, things have changed dramatically. Last year, 43% of all the global patent applications came from China. Chinese companies are now at the point where they have developed so much IP that they need to protect their own assets. The Chinese government has acknowledged this and have made vast improvements to their IP laws.

International Chinese investors are also a lot more vigilant: they invest in listed companies and cannot afford any controversy. They absolutely cannot be caught up in IP theft or licensing issues; they have a reputation to protect.”

Does this mean that everything has been resolved? Joos replied:

“Is everything rosy? No: it’s still a work in progress. Which is why it’s still critical for a Western company to find a trustworthy Chinese partner who will fight for your IP and regulatory approvals.

But the government has clearly taken a number of measures, with IP firms and the China FDA (now the National Medical Products Administration (NMPA)), to make the system more robust. It is rapidly approaching a polished state.”

Read this previous BioVox article to learn about the Belgian biotech OCTIMET who are looking to China for investment opportunities.

Prepare for the future

It will be interesting to see how many deals come out of the November economic mission. Joos and Agten will both be present, along with a number of interested European life sciences companies. According to them, the next few years are ideal for European companies wanting to access the Chinese market.

Current events are creating an opportunity for European companies to focus not only on two markets, Europe and the US, but on three: Europe, the US and China. - Sven Agten, Agio Capital & Business Solutions
 

Joos and Agten both cautioned not to rush in blind though. As with any opportunity, you need to do your research. According to them, the number one thing is to get your foot in the door and establish links with the existing Chinese network. Agten left us with the following advice:

“As a company, you have to build for the long term. Current events are creating an opportunity for European companies to focus not only on two markets, Europe and the US, but on three: Europe, the US and China. The time is ripe now.”

This article was sponsored by Agio Capital & Business Solutions.

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