News & Views

Where now for our promising life sciences and medtech relationship with China and the Chinese? The virus crisis seems to have polarised our opinion of them but strengthened their opinion of us.

ARTICLE FIRST PUBLISHED IN Business Weekly, Guest blog: 15 May 2020

China’s appetite for UK health technology has never been greater. Investment capital awaits us in China if we could only access it, and the vast and growing Chinese market offers us the opportunity to generate the best form of company financing of all – revenue. But have travel quarantines and personal prejudice now extinguished any lingering aspirations to re-engage?

I think not.

There is a way forward, building on what we have learned. But let’s start with that polarisation of opinion:

• “Stop eating bats”; “confess to errors made”; “China has shown its true, dark and foreboding colours”; “leave well alone” say some.
• “China’s turn to lead”; “America’s loss is Britain’s gain”; “strong central government has some merit”; “Come to China” say others.

Both sides are broadcasting their messages with equal vigour, whilst the Dangerous Oaf blunders on, frightening scientists and others with his unending stream of self-promotion at the expense of all else (Dangerous Oaf? What a beautifully succinct moniker that is for America’s 45th President, as coined by Business Weekly’s own editor Tony Quested).

Board opinion of China has polarised too, depending on how a particular company has traded with China in the past:

• Companies that engaged with ‘old’ China as a sub-contract manufacturing base treat the crisis as a catalyst for change. Worried that too much manufacturing power was concentrated in one geography, many Boards had been considering whether to spread manufacturing capacity more widely. The crisis galvanises these fears into action and we will see many companies moving manufacturing to different locations. Interestingly one potentially attractive option that is apparently being considered by many, due to its low labour costs and an increasingly stable environment, is Mexico. I can almost hear the President’s reaction from here.
• But companies linked to the innovation economy see the crisis as a catalyst for change in the opposite direction. It is time to take the growth opportunities unique to the Chinese market. Take healthcare, for example, to understand the opportunity. Only around 15% of the Chinese population currently accesses Western Medicine, whilst the majority still rely on Traditional Chinese Medicine. The Chinese government has set a target of 80% access to Western Meds as an important commitment of government policy. With a population of around 1.5bn this provides an extraordinary opportunity for our pharma and life sciences companies. Imagine, then, if the world goes into a deep recession. Where will new revenue come from? With the statistics above, China will represent one of the few growth opportunities globally, even if China’s GDP goes backwards.

Personally, I come from the ‘Its China’s turn’ camp and have a happily biased view. We held the baton of world leadership once. America took it from us. China is stepping up to run the next leg – and of course the US is resisting handing it over. But new China will surpass US GDP before long and whilst I don’t expect a world dominated by one superpower I do believe that China will be the strongest force in years to come – whether we like it or not.

Much of my China experience has been centred around the now-famous city of Wuhan in Central China. I had never heard of Wuhan before my first visit there but was shown round by a friend at a Chinese contract research firm that I was talking to and he and his colleagues helped me participate in a major local funding competition called the 3551 Talent Program. We didn’t win in the first year, but in the second year we did – generating hundreds of thousands of pounds of what the Chinese call ‘free money’ ie non-dilutive funding from Chinese government sources designed to attract companies to a particular location.

As it happens I was in Wuhan – a City that I have been visiting every two months or so for the last eight years – on the 14th January this year, then flew up to Beijing for meetings with Chinese government ministers before flying back to the UK on 17th Jan, as the crisis took hold. Friends in Wuhan and across China have been giving me a running commentary on the crisis and China’s response since then. In Wuhan right now one’s degree of Lockdown depends on the incidence of Covid-19 in your community – the group of apartment blocks in the gated community you live in. Those with high incidence continue to have strict Lockdown measures in place. Meanwhile Beijing – where Lockdown measures were almost as stringent as those in Wuhan – travel and quarantine restrictions for those travelling within China have at last been lifted. International visitors flying in to Beijing still need to spend 14 days in quarantine, but visitors arriving in Beijing from within China do not. Life is slowly returning to normal.
But here is the problem.

As any China enthusiast can tell you, doing business in China is all about personal relationships and these must be developed face-to-face. It seems that Zoom might come to the rescue, however. Many of us have been re-trained to make initial contacts by video conference over these last few weeks. Just today I have met a tech team on Zoom to discuss use of their cloud service, had a team meeting that would normally have been held in Nottingham UK and had a 1:1 Zoom update with a friend in Wuhan whom I have always previously met face-to-face. He tells me that Zoom and WeChat video conferencing are being embraced but we are yet to prove that the Chinese will accept their use for first meetings once the dust has settled.

But I believe that the promise is there. More importantly we have confirmation that UK companies can participate in upcoming funding events in Wuhan by video conference. This would be genuinely useful and valuable.

Meanwhile the most frustrating consequence of the crisis for my colleague Richard Leaver and me is that we have been forced to put our new growth capital fund on hold. It will come back, but we have decided to develop Team Kapital – our Advisory Division - to lead the way in the short term, with our new colleague and former listed company broker Nicholas Malins-Smith, which will run alongside the fund once it is back on stream. The Dynastybio advisory business is helping UK companies access China, it is using our local teams in China to make the local connections and it is making maximum use of Zoom et al. We are already in discussion with a number of listed and private life science companies who want to lean on our personal networks in China and our first virtual-delegation will be ready soon.

The louder the Dangerous Oaf complains, the stronger the relationship between China and Britain becomes. Grant funding, equity funding, subsidiary set up, market access, accelerated clinical trials and industry partnering are all on offer for our biotech, medtech and pharma companies prepared to make the effort. It is time for empathy, virtual engagement, humility and basic common sense on all sides. Much of that will be difficult for some world leaders. We have to ensure that we are not among them, start looking ahead and preparing for the next big issue of antibiotic resistance, allow ourselves to generate real benefit for UK companies and technologies by re-engaging with new China, and hope that the market realities post Covid-19 help us deliver on the promise of the UK-China relationship.