December 10, 2018

The Quiet Wave Of Corporations Funding Chinese Healthcare Startups


“Trade war and censors blow chill wind through China’s giant tech scene,” reads this Reuters headline from last month. “China startups brace for ‘capital winter,'” says this Forbes contributor. Meanwhile, SCMPgoes full Game of Thrones: “‘Winter is coming’ for China’s private market investors as economies slow.”

If you’ve been reading about the startup space in China these past few months, you could be forgiven for thinking the forecast is all gloom and doom, as analysts bemoan China’s national deleveraging (or debt reduction) campaign, tightening regulations, and tensions with the U.S.

But it’s not that simple.

China-focused venture capital firms continue to close new funds, adding new investor commitments to their pools of capital to invest into startups. Recent examples across a wide range of funding stages include Hillhouse CapitalGGV Capital, and Insight Capital. The partners at Seqouia Capital and Zhen Fund refute the idea of “capital winter” in China. Others hypothesize a herd-like “flight to safety” of investors or just a much-needed correction of overly high startup valuations.

That said, what matters to individual entrepreneurs is not the overall funding environment, but what specific resources exist in their immediate sector. And Chinese startups are seeing a surge of new support in at least one industry: healthcare.

Inflection point

Interestingly, it is not venture firms who are providing this new support, but rather established multinational corporations (MNCs). For a few reasons, big healthcare companies are increasingly keen to engage innovators in China:

Corporate performance
Many healthcare corporations seem be enjoying flush balance sheets and stock prices outperforming the market. Healthcare corporations have made record acquisitions this year, reflecting the cash boost of the U.S. Tax Cuts and Jobs Act of 2017. These companies’ strong financial positions gives them the stability to explore startup innovation in the first place.Market size
China as a market, with 1.4 billion people, cannot be ignored, especially as lifespans increase (China recently overtook the U.S. in a stat called “healthy life expectancy at birth”). And the Chinese are getting richer every passing year, with average disposable income per capita increasing in 2017 to nearly 26,000 yuan ($3,800). In parallel, healthcare needs are increasing due to multiple factors — aging, for instance. The proportion of Chinese over 60 is expected to double by 2050 when it will comprise over a third of the population. A bigger, richer, and older Chinese population represents a significant healthcare business opportunity.Innovation environment
For better or worse, it is cheaper, easier, and faster to test new health technologies in China. Talent, whether from fresh graduates domestically or experienced overseas returnees, is available. Evolving regulations, combined with the recently announced Healthy China 2030 campaign, create a relatively supportive environment. And everything in China happens faster, allowing for quicker iterations and rapid technology development.New competition
The previous factors are all positive for corporates; this last one is a threat. Competition in China is fierce and multifaceted. Ping An Insurance spun off its online healthcare platform Ping An Good Doctor, which has since grown to IPO this year in Hong Kong. Internet giants Alibaba and Tencent are each exploring multiple healthcare businesses in China, not to mention making their own investments into healthcare startups. As for healthcare startups, some are so promising that they are poaching talent away from corporations. With the multitude of new entrants entering their space (and not just in China), MNCs increasingly feel an urgency to innovate.

As a result, the number of healthcare corporations reaching out to engage startups in China has been quietly yet steadily growing. In the last few months, no less than four different multinationals — Merck, Johnson & Johnson, Sanofi, and GlaxoSmithKline (GSK) — have announced new programs that support startups addressing health problems in China. This is in addition to existing efforts from Bayer and Philips and previous experiments from Astrazeneca and Pfizer.

Get smart

Not all corporate innovation programs are created equal. The sudden proliferation of these programs can be overwhelming. One basic way to distinguish programs is by their focus area: digital health or life sciences.

Digital health is the application of information technologies to achieve better healthcare outcomes. Solutions include mobile apps for patients or hospital software. Four currently active programs focused on digital health in China:

Bayer’s Grants4Apps global startup program landed in China in 2016 and provides mentorship, access to partners through organized events, and 30,000 yuan ($4,360) grants.Philips Healthworks Startup program has included China since early 2018 and gathers startups based on themes; the current cohort’s theme is artificial intelligence (AI) in healthcare.Sanofi set up an Innovation Hub in Shanghai in 2018, from which it implemented its first Accelerate Program, providing startups with space, expertise, and pilot projects.GSK teamed up with semiconductor design company Arm in late 2018 to launch its Digital Health Accelerator to provide relevant startups with Arm Accelerator’s program, ecosystem resources from both MNCs, and potentially investment.

Life sciences is a catch-all term for pharmaceuticals, biotechnology, or utilizing living systems for health applications. Solutions can range from proprietary drugs to diagnostic assays. A few notable actors in this area include:

Merck China Accelerator is currently recruiting for its 2019 program and seeks to support startups with coaching, networking through events, and up to 395,000 yuan ($57,500) in funding at Merck’s discretion. Their scope is not restricted to life sciences, but also includes performance materials and other search fields.Johnson & Johnson is launching a new JLABS location in Shanghai in 2019, a facility capable of accommodating 50 life science startups. JLABS provides lab equipment, R&D expertise, commercialization training, and more to help entrepreneurs turn ideas into products.Astrazeneca has a global open innovation platform as well as an innovation center in Wuxi from which they have engaged startups.Pfizer has a global network of Healthcare Hubs which run startup programs, but it has yet to establish one in China.

These two categories are imperfect but a good first step. Any serious founder will more deeply consider (1) what concrete support a program offers, (2) how it addresses their startup’s most pressing needs, and (3) what it will cost the startup in terms of bandwidth, equity, and/or independence. If there is a fit, these corporate startup programs can be a boon to startups who take advantage of them.

Beyond generalizations

In healthcare at least, as established companies seek out external innovators, startups in China are witnessing a growing wave of support from major healthcare companies. Perhaps in this particular niche, it is not winter but spring that is coming?

Alleged hybrid warfare against Pakistan

Comment by a reader on the above article

The author's dissemination on the alleged hybrid warfare against Pakistan betrays a paranoid mind-set that has been the bane of most Pakistani commentators. 

Pakistan is a country that has seen numerous tinpot dictators, who blamed their own downfall on various "conspiracies" hatched by unseen enemies, when the more prosaic explanation would be their own incompetence and corruption led to their demise! 

The author says, on one hand, the country is divided (as always) and is rife with historical, ethnic, religious, socio-economic, and geographic differences, but urges all Pakistani institutions to join forces to fend off the alleged hybrid attacks on a failing state like Pakistan. 

The USA or other forces, supposedly hostile to Pakistan, don't have to do anything because the stupidity and ignorance of Pakistanis will ensure that it will self-destruct of its own accord. A former Pakistani diplomat in The Dawn newspaper said as much a while back. 

Pakistanis are past masters at self-destruction without needing the excuse of “unseen” enemies doing the needful! 

When the masses of Pakistan are mostly illiterate, ignorant or uneducated, and rely on rumour-mongering passing off as authentic news, how does the author think his country is going to fend off the metaphorical enemies?

Sonny Azak

December 09, 2018

Google and Facebook's billion reasons to keep Beijing happy
Bill Bishop

The Information reported on how the Chinese government is helping Google connect with small Chinese companies to advertise their products on Google's global platform:

On the 20th floor of a nondescript office building in China’s southern boomtown of Shenzhen, employees from small businesses such as electronic-component makers can often be seen in a colorful bright office checking out big TV screens displaying Google Search, Gmail and YouTube — which are otherwise blocked in China...

They are in one of more than two dozen Google Export Experience Centers scattered around China. Their purpose: to show Chinese advertisers what the internet looks like beyond the strict censorship of the Great Firewall and get them to promote their businesses with Google...

While everyone from Google employees to regulators debate whether Google should relaunch its censored Chinese search engine, the company is continuing to grow its advertising business in China with substantial help from local Chinese governments and Communist Party officials.

The officials shower the centers with incentives like free rent, according to government statements and people familiar with the deals, and promote them through elaborate ribbon-cutting ceremonies. The centers help Google build political goodwill by aligning with China’s economic goals to boost exports from small businesses.

Facebook has a similar businessselling ads to Chinese firms marketing outside the PRC. According to The Information's reporting, those sales for Google and Facebook are massive:

All in, Google is generating between $1 billion and $2 billion a year in China, former Google employees estimate, about 2% of parent company Alphabet’s total revenues last year...

Facebook is even bigger. The social network could generate between $5 billion and $7 billion from China this year, estimates Brian Wieser, a senior analyst at Pivotal Research Group.

Go deeper:

Google Shut Out Privacy and Security Teams From Secret China Project. (The Intercept)Google and Tencent Secretly Explore Cloud-Computing Cooperation. (The Information)China Steps up Nationwide Crackdown to Silence Twitter Users — the Unmediated Story. (China Change)

Erdoğan: Ideological but not Suicidal

By Burak BekdilDecember 7, 2018

Recep Tayyip Erdogan image via Vimeo

BESA Center Perspectives Paper No. 1,030, December 7, 2018

EXECUTIVE SUMMARY: Turkey’s radical shift in crises, first with Russia and then with America, shows that while President Recep Tayyip Erdoğan can be confrontational along ideological lines, he is not suicidal. He cannot afford to risk a punishing economic crisis that might cost him his power. 

Is Turkish President Recep Tayyip Erdoğan a devout ideologue or a pragmatist? The answer is both. Perhaps a more relevant question is: When is he a devout ideologue and when a pragmatist?

In late 2010, at the peak of the diplomatic crisis between Turkey and Israel after the Mavi Marmara flotilla incident, a senior Israeli diplomat asked this author: “Is there a way to push Erdoğan from blind (anti-Zionist) ideology to rationalism so that we can normalize our relations?” My answer was, “Costs… If a crisis costs him economically, then politically, he will switch from ideology to reason.” A comment on that conclusion made by a friend of the diplomat explains why Ankara and Jerusalem have had erratic but deeply hostile relations since 2009: “Israel is a powerful country but not big enough to make Turkey pay a price for its antagonism.” After a theoretical normalization of diplomatic ties in December 2016, Turkey and Israel once again downgraded their diplomatic missions in May 2018.

In 2009, then-PM Erdoğan (or his Islamist/ideologue self) boldly challenged Beijing when more than 100 Muslim Uighurs were killed in clashes with China’s security forces. This was at a time when Turkey’s economy was performing spectacularly and posting high growth rates year after year. Championing his “leader of the umma” persona, Erdoğan called the deaths of Uighur Muslims “a genocide.”

Today, with Turkey’s economy badly ailing over record-high inflation and interest rates and the national currency having lost a third of its value against major western currencies since the beginning of the year, a much different Erdoğan is on display: Not a word against Beijing from the “leader of the umma” in the face of a crackdown in which China has forcibly put hundreds of thousands of devout ethnic Uighurs in “rehabilitation camps.” Erdoğan has also rejected relocating Uighur militants fighting in northern Syria into camps on Turkish soil. Why Erdoğan’s reasonable self all of a sudden instead of his ideological self, which champions the Uighur cause? Simple: He needs loans, investment, and more trade with China.

In September and October 2015, Turkey started to complain of airspace violations by Russian military aircraft along its border with Syria. It announced that it had changed the rules of engagement with foreign aircraft violating Turkish airspace: Such (Russian) aircraft would be shot down. In November of that year, the Turkish military did indeed shoot down a Russian Su-24, claiming it had violated Turkish airspace. Then-PM Ahmet Davutoğlu announced that the same rules of engagement would be applied if there were further violations. Erdoğan boldly demanded of the Russians, “What business do you have in Syria? You don’t even have a border with Syria.”

An angry Vladimir Putin immediately installed Russian air defense systems in northern Syria in a not-so-subtle move to threaten Turkish military aircraft flying over Syrian skies. The Turkish military had to stop flights in Syrian airspace. Putin also announced scores of punishing economic sanctions on Turkey and Turkish companies doing multi-billion dollar businesses in Russia. The sanctions included bans on Turkish exports and a travel ban that quickly hurt Turkey’s tourist industry. More threateningly, Putin said the Russian sanctions could include “military retaliation,” reminding the Turks of their less-than-glorious military past with pre-Soviet Russia.

It took a mere six months for Erdoğan to move from demanding an apology from Moscow to personally apologizing to Putin. In June 2016, Turkey and Russia “normalized” their frozen diplomatic ties. Since then, Ankara has committed to acquiring the Russian-made S-400 air and anti-missile defense system despite warnings from its NATO allies, and will become the first NATO member state to deploy that system on its soil. Erdoğan has said Turkey would also consider buying the S-500 system now under development. Non-military trade normalized too, and flocks of Russian tourists have arrived at Turkey’s Mediterranean resorts.

More importantly, Turkey has radically moved from “what business do you have in Syria” to allying with Russia in Syria. The two countries, along with Iran, are partners in the Astana process. Moscow orchestrates every strategic move in northern Syria, and Ankara simply complies with its dictates.

Enter America. In the first half of 2018, Ankara and Washington went through their worst diplomatic crisis in decades over several major disputes. Turkey claimed that America was harboring its most wanted terrorist, Fethullah Gülen, a Muslim cleric in self-exile in Pennsylvania accused of being the mastermind behind a failed coup against Erdoğan in July 2016. Also, a senior Turkish government banker was in a US prison, with his bank a potential target of billions of dollars in US sanctions for violating the Iran sanctions. In addition, Ankara accused Washington of equipping what it calls “Kurdish terrorists” east of the Euphrates in northern Syria. America views them as allies in its fight against ISIS.

The US responded to Ankara’s purchase of the S-400 system by threatening to suspend delivery of the next generation F-35 fighter to Turkey. Washington also sanctioned two Turkish ministers and doubled its tariffs on imports of Turkish steel and aluminum. Ankara retaliated by sanctioning two US secretaries.

At the heart of the matter was an American pastor, Andrew Brunson, held in a Turkish prison on charges of espionage and terrorism. “As long as I am in power,” Erdoğan once roared, “that spy (Brunson) will never be set free.”

Then came the reversal. The Turkish lira lost more than 40% of its value in eight months. In what traders called the Brunson effect, the markets went into a meltdown. Turkish bond yields rose to record highs and recession loomed, with huge conglomerates knocking on banks’ doors demanding debt restructuring. Several large-scale companies announced bankruptcy.

In October, “the spy who would never be set free” was released, flew to America, and posed for the cameras with President Trump. Markets sighed with relief, and the lira is now trading at its highest point since August. On Nov. 2, Ankara and Washington bilaterally dropped sanctions against each other’s ministers.

Erdoğan can be offensive and confrontational, in keeping with his neo-Ottoman ideology. But he is not suicidal. He knows that an economic crisis can quickly turn into a political crisis that could cost him his closely guarded power, and he will change his tune accordingly.

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Burak Bekdil is an Ankara-based columnist. He regularly writes for the Gatestone Institute and Defense Newsand is a fellow at the Middle East Forum. He is also a founder of, and associate editor at, the Ankara-based think tank Sigma.

BESA Center Perspectives Papers are published through the generosity of the Greg Rosshandler Family