TAIWAN'S MEDICAL INDUSTRY - CATCHING CHINA FEVER?

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 004153

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COMMERCE FOR 3132/USFCS/OIO/EAP/WZARIT
TREASURY FOR OASIA/LMOGHTADER
USTR FOR STRATFORD, ALTBACH

E.O. 12958: DECL: 12/19/2016
TAGS: EINV ECON PREL CH TW
SUBJECT: TAIWAN'S MEDICAL INDUSTRY - CATCHING CHINA FEVER?


Classified By: AIT Economic Section Chief Daniel K. Moore, Reason 1.4 d


1. (C) Summary: Taiwan investors and medical providers
are increasingly involved in healthcare services in the
PRC. Taiwan firms have opened or plan to open eight
hospitals in China. According to one AIT source, as many
as 100 Taiwan-invested clinics have applied for PRC
permission to operate in the Mainland. Academic medical
exchanges also continue to flourish. We expect Taiwan
investment and other cross-Strait economic activity to
continue growing in healthcare and spread to other
service industries. End summary.


2. (U) Every day Taiwan's economy grows more closely
integrated with Mainland China's. Cross-Strait economic
relations began primarily with Taiwan firms investing in
manufacturing operations in the PRC in the late 1980s.
The earliest investment was concentrated in labor-
intensive industries like footwear, toy, and apparel
manufacturing. Later Taiwan's highly successful
information technology (IT) manufacturers moved
operations to the Mainland. Rising cross-Strait trade
quickly followed investment as Taiwan firms shipped
inputs and components from Taiwan to factories in the
Mainland. More recently, investment has spread to other
manufacturing industries, agriculture and services as
well. Taiwan's medical services industry has not been
immune from this trend.

Major Symptom - Building Hospitals
--------------


3. (C) Taiwan investment in PRC hospitals has been widely
reported, even though these cases are few in number
compared to Taiwan's total investment in the Mainland.
Taiwan's Ministry of Economic Affairs (MOEA) has approved
more than 35,000 applications for investment in China,
but fewer than 10 for hospitals. Victor Chang, President
of the Association of Chinese Healthcare Management and
President of Landseed International Medical Group, told
AIT that Taiwan investors have built or plan to build
seven hospitals in the Mainland. He described the
following cases:

-- Shanghai Chen Xin Hospital (Landseed) - Opened in 2003,
Landseed's hospital is run by about 30 Taiwan managers
and doctors with about 100 PRC doctors on staff. It has
100 beds and serves mainly Taiwan investors and their
families living in the Shanghai area.

--Want Want Group - Taiwan processed food manufacturer
Want Want Group opened a hospital in Changsha, Hunan, in

2005. It has 300 beds and targets local patients.

--Ford Lio Ho - The Taiwan affiliate of the U.S.
automaker plans to open a 500-800 bed hospital in Kunshan
in May 2007.

-- Chang Gung Hospital - The medical care subsidiary of
Formosa Plastics Group is one of Taiwan's largest
healthcare providers. It plans a hospital with 1,200 to
3,000 beds to be opened in Xiamen in 2007.

--BenQ Hospital (2 facilities) - The Taiwan electronics
manufacturer plans to open a 3,000-bed hospital in
Nanjing in 2007 and a 1,500-bed hospital in Suzhou in

2008.

--Shanghai Landseed International Hospital - Landseed
plans a second hospital in the Shanghai area targeting a
broader clientele, which will include local PRC patients.
The hospital will have approximately 300 beds.


4. (U) These projects fall into two broad categories.
Want Want, Ford Lio Ho, and BenQ are manufacturing
companies that have made large investments in the PRC.
They chose to build hospitals in part to care for
employees of their factories and sometimes to reinvest
funds earned in the Mainland. The others, Landseed and
Chang Gung, are Taiwan health care providers interested
in expanding to the Mainland.

Facing Obstacles

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5. (C) Chang pointed out that Landseed's first hospital
was the only Taiwan hospital in China that targeted
Taiwan investors and their families as patients. The
others aim more broadly at other foreigners and wealthy
PRC patients. Chang commented that Landseed's first
hospital was losing money and targeting Taiwan investors
was an unsuccessful strategy. He said even though the
hospital is not profitable, foreign investors are
interested in acquiring it in order to gain its
experience in the PRC healthcare market.


6. (C) Chang explained that serving Taiwan investors in
China was unprofitable because Taiwan patients are
accustomed to Taiwan's national healthcare system and
expect to pay very low prices. However, they also want
to see Taiwan doctors, who demand higher salaries than
their PRC colleagues. According to Chang, doctors in
Taiwan are paid ten times the salary of doctors in
Mainland China. In addition, Taiwan doctors must be paid
a premium of about 20 percent to get them to relocate to
the PRC. He also noted that it's difficult to recruit
Taiwan doctors to work in the Mainland because they lose
their Taiwan certification when they go there. Chairman
Huang Min-ho of Show Chwan Memorial Hospital, a Taiwan
healthcare provider that has established a clinic in the
PRC, noted another problem in hiring Taiwan doctors to
work in the Mainland. Huang explained Taiwan doctors
want to be department chiefs before they will transfer to
the PRC, further increasing their compensation. They are
not willing to relocate to be staff physicians, he said.


7. (C) Huang also emphasized the difficulty in obtaining
approval from PRC authorities as a problem for Taiwan
healthcare providers. He reported that his firm's clinic
was visited by more than 20 different Chinese officials
before it was approved. Chairman Paul Hsu of Phycos
International, a Taiwan consulting firm for companies
investing in China, commented to AIT that another problem
is the regulatory framework of Taiwan's healthcare system.
Hsu said because Taiwan hospitals must be non-profit
organizations, it's difficult for them to invest directly
in the PRC. He noted that they couldn't raise funds on
capital markets and were restricted from using their
names in overseas investments.


8. (C) Another problem, according to Landseed's Chang, is
a preference among local patients in the PRC for public
hospitals over private ones. Chang said 97 percent of
hospitals in Mainland China are government-owned and they
are generally respected by the public. He also pointed
out that public hospitals don't recognize credentials of
private hospitals, making it more difficult to recruit
local doctors as well.

Other Indications - Clinics and Exchanges
--------------


9. (C) Investment in large hospitals is only the most
visible sign of cross-Strait activity in the medical
services industry. There is also investment in smaller
scale medical facilities in the PRC. Huang of Show Chwan
Memorial commented that there are about 100 small clinics
proposed by Taiwan investors that are awaiting PRC
approval. Ministry of Economic Affairs (MOEA) Investment
Commission Deputy Executive Secretary Emile Chang said
that the Commission had approved approximately 30
applications to invest in medical consulting or medical
care facilities. However, he pointed out that small
clinics in Taiwan do not need MOEA approval to invest in
the Mainland.


10. (C) There are also numerous academic and other
healthcare exchanges among both doctors and healthcare
administrators. Landseed's Chang told us that in the
past the PRC's clinical expertise was far behind Taiwan's
and medical exchanges mostly helped improve the medical
skills of Mainland doctors. Now, he explained, the best
doctors in the PRC are as good as Taiwan doctors and
there is more two-way exchange of clinical knowledge.
Chang claimed that Taiwan's healthcare management is
still much more advanced than the PRC's and exchanges in

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this area still consists of Taiwan passing its expertise
to the China.


11. (C) On October 30, 2006, the PRC hosted a conference
on cross-Strait medical cooperation. According to media
reports, approximately 700 Taiwan doctors were invited
and 400 accepted the invitation. Bureau of National
Health Insurance President Liu Chien-hsiang commented to
AIT that it was the largest event of its kind. He
attributed the high level of interest among Taiwan
doctors to the participation of former Department of
Health Minister Chang Po-ya.

Comment - The Next Wave in Cross-Strait Integration
-------------- --------------


12. (C) Taiwan investment in PRC healthcare facilities is
still very small compared to Taiwan' overall investment
in the Mainland, but we expect it will continue to grow.
This kind of investment is important because it shows how
the process of cross-Strait economic integration
continues to march forward. Integration is increasingly
occurring in service industries that were previously
untouched and will likely spread further. As more Taiwan
businesses have a stake in economic relations with the
Mainland, we believe support for further cross-Strait
economic opening will grow.
WANG