In 2016, Chinese companies invested more than $44B in the United States. The amount of investment has been growing steadily since 2000, increasing substantially each coming year. Over the last 16 years, there were more than 110 deals between Chinese investors and U.S. healthcare companies totaling $3.9 billion, 20 of which occurred last year in 2016. There are several factors that can be attributed to the increased amount of investment from China into U.S. companies in the healthcare business. After China’s “go global” policy at the start of the 21st century, many investors responded to the government’s strong promotion of FDI, or Foreign Direct Investment. Often times, financial stimuli were tethered to such investment, including tax incentives, financial assistance and an overall reduction in the administrative regulation process. As a result, Chinese investors are also making inroads into higher value-added segments of the U.S. economy, including healthcare and particularly, pharmaceuticals. Pharma is an an industry of strategic importance to China as its population ages and non-communicable diseases proliferate. Beijing-based JOINN Laboratories is a flagship Chinese investor in California, and recently committed $50M to set up a pharmaceutical production plant in cooperation with Staidson Pharmaceuticals. The plant will be located in Richmond at the former manufacturing facility of Bayer. Another Chinese outfit, Tasly Group, a biopharmaceutical company from Tianjin, established a subsidiary in Maryland. Tasly has a traditional Chinese medicine (TCM) drug now in Phase 3 of clinical trials that it wants to market in the United States. To date, no TCM drug has ever passed Phase 3 trials and been sold in the United States. Yet another area of the U.S. healthcare industry that has seen particular growth is the medical device sector, according to Ames Gross’ article, Chinese Investment in U.S. Medtech Companies. OneMedMarket reached out directly to Mr. Gross, who told us that over the last few years, Chinese money has been flowing out of China into U.S. device companies in large dollar amounts. He explained, however, that “given the new regulations, the outward investment is capped at $5 million, I believe.” These same Chinese investors can invest more money if the investment is made in a U.S. medtech's company's existing or new China operation. The only risk lies in if the medtech company has unique technology and sets up in China via Chinese investment, that company may jeopardize their intellectual property and potential copycat products coming into Western markets.” Given this, the fact remains that China’s healthcare industry itself has recently experienced a bout of unprecedented growth, with a greater demand for medical devices that are newer, more sophisticated, state-of-the-art, and equipped with the latest medical technology. American companies have recently become privy to China’s interest in their technology, actively seeking out Chinese healthcare investors. This phenomenon has come at a crucial time for many U.S. healthcare companies, as many have reported a large drop-off in funding from American investors. The number of medtech companies that have been issued IPOs have decreased, and 2016 represented a new low of $4B in the amount invested in medical device companies by U.S. venture capital, private equity and medtech firms. This figure is slated to be reduced even further at the end of this year, dropping to $3.5B. Many attribute the decrease in funding to a renewed focus toward other areas, such as IT and computer software. As a result, Chinese FDI is primed to fill the gap that the American investors have left behind as they look to investors in other sectors beyond healthcare. Over the last several years, there have been reports of Chinese healthcare companies successfully forming joint ventures and acquiring U.S., Canadian and European-based medical device companies. For example, toward the end of 2016, a Chinese company by the name of Microport Scientific Corp. made a $15M common stock and convertible debt investment into an Irvine, California-based company called Lombard Medical, a manufacturer of endovascular stent grafts. In exchange for the investment by Microport, the firm will gain exclusive rights to market Lombard’s products in China. The firm was also granted a technology license to manufacture Lombard’s products in China. This is not Microport’s first FDI deal. In 2015, they acquired a Memphis-based healthcare business called Wright Medical for $290M, and obtained rights to their own subsidiary thereafter, which they named Microport Orthopedics. U.S.-based healthcare company Histogen, working to treat hair loss through the use of embryonic stem cells, recently entered into a similar deal with Chinese investor Huapont, who infused $6M into the company. Huapont was the lead investor in the company’s Series D, and also the leading dermatology company in mainland China. CEO Gail Naughton spoke of the investment, explaining “To be able to have Huapont as not only a lead investor, but in addition, take an exclusive license for the hair product for mainland China is a tremendous endorsement for us.” The license is set to bring Histogen about $5M in milestones, escalations in favorable royalties, and about a 180% margin in products that the company manufactures. Huapont will also become the exclusive marketing partner in China, with connections to all of the top dermatology hospitals in China. Histogen will maintain the manufacturing rights, with Huapont as the promoter, sales and marketing force behind the company. The parties have also contracted to obtain CFDA (China Food and Drug Administration) approval, which is expected to take about one year. Another Chinese company, Sinocare, which specializes in biosensor technology, purchased an Indianapolis company called PTS Diagnostics last year for $200M. PTS specializes in biometric testing devices for point of care activities, such as glucose monitoring. As part of Sinocare’s business included diabetes care, the acquisition can be seen as very strategic, given that the company also just recently acquired yet another diabetes-related device company out of Ft. Lauderdale, by the name of Trividia. Another example of Chinese and American healthcare companies fusing together to create new joint ventures with the shared goal of heightening R&D and bringing development of medical devices with American technology to China, is the September 2016 $100M JV deal between Shanghai Fosun Pharmaceutical Group and Intuitive Surgical out of California. The goal of the partnership was to establish R&D in robotic-assisted medical devices for the early diagnosis and treatment of lung cancer. The joint venture is registered in China, as both the R&D will occur there, in addition to the manufacturing. The current political climate has not acted as a deterrent to Chinese investors. Despite messages by President Trump concerning a trade war, Chinese investors still have their sights set on U.S. biotech. Last year, Nanjing-based Sanpower Group Co. set a record after the $280M purchase of a cancer treatment business from Valeant Pharma. Many investment firms are hoping to foster similar deals in the future. For example, CTIC Capital recently held an event attended by Chinese venture capitalists and American biotech execs in San Francisco. The event was aimed at promoting dealmaking - which could be overheard in both Mandarin and English. Major conferences are also tailoring their programming to the shift in Chinese investment. JP Morgan now has an individualized track focused exclusively on Chinese healthcare companies. There has been an increase in these types of “meet and greet” conferences that are beginning to crop up in an effort to match American medtech companies with Chinese investors. This summer, the Chinese Biopharmaceutical Association (CBA) hosted the China Pharmaceutical Enterprise Association during its annual conference. The event was focused on the creation of a platform for collaboration in life sciences and the biopharma industry. During the course of the program, the group met with China BioVentures, an organization focused on the acquisition of medical technologies from Europe and the United States. CBV operates primarily by forming companies and selling majority control to leading Chinese companies, eliminating the challenges for both Chinese and American firms. CPEA met with CBV to hear more about their business strategy and learn more about the companies in their catalogue and their respective technologies. Read more about China BioVentures and the event here. While many see Trump’s recent comments about China as a potential to create a chilling effect on Chinese-American business dealings, especially as related to tariffs on Chinese goods and China’s response to increase scrutiny of American companies, many simply see Chinese investors going to Canada or Australia in search of new innovations and technology. Despite the political climate, Chinese investors still overwhelmingly look to the U.S. biotech and healthcare industry as the pinnacle place to invest. The U.S. represents the “highest technology” to many Chinese investors and CEOs, as well as an opportunity to “think globally” with their investment funds. There seems to be no slowdown in the vast opportunities that Chinese companies are identifying in the West with the intention of taking back home to China. As more new technologies are developed Stateside, the more attractive these companies will remain to outside Chinese investors and healthcare companies. As we continue to watch the Chinese healthcare market grow, we are sure to see many more examples of U.S. technologies being re-branded for sale in China, while at the same time giving American healthcare companies the investment they so desperately need.