China’s anti-corruption drive erases US$9 billion of market value in healthcare stocks deemed as haven assets

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by Zhang Shidong at

China’s drive to rid its healthcare system of corruption has roiled the defensive pharmaceutical sector, wiping out 67.5 billion yuan (US$9.4 billion) in market value over the past two weeks.

The CSI 300 healthcare index, which tracks the nation’s biggest makers of medicine and medical equipment including Jiangsu Hengrui Pharmaceutical and Shenzhen Mindray Bio-Medical Electronics, has dropped almost 5 per cent over the past fortnight, while the benchmark CSI 300 Index hardly moved in the period.

The sell-off in drug stocks intensified this week after a slew of headlines on busting industry corruption caught the attention of traders. More than 150 bosses and party secretaries of local hospitals across the country have been placed under government investigation this year, twice the previous year’s number, according to local media.

Investors including Huichen Asset Management said this would immediately hit sales, with medical companies postponing deliveries to hospitals amid increased scrutiny.

“Corruption has long been a malaise affecting China’s healthcare system and now, the campaign is a game changer that will reshape the rules of the industry,” said Dai Ming, a fund manager at Huichen Asset in Shanghai. “During the campaign, there will be short-term pain for the industry as we may see slowing sales at some drug companies.”

The campaign shows China’s efforts to eradicate corruption have spread beyond the financial and sports industries, areas where the government has cracked down on economic malfeasance in recent years.

The government turned its gaze to the healthcare sector after a raft of reports emerged of medical companies bribing officials of public hospitals. In May, China’s anti-corruption body exposed a hospital chief in southern Yunnan province for taking 16 million yuan in bribes for buying a medical accelerator worth 15 million yuan.

China’s health ministry hosted a video conference last month to enforce a year-long rectification of corruption within the industry. Local authorities in Beijing, Shanghai and Jiangsu and Guangdong provinces also pledged to ramp up the clampdown.

The drive has already spilled over to publicly traded pharmaceutical companies. Winning Health Technology Group, a Shenzhen-listed medical software developer, said last month that chairman Zhou Wei was investigated for allegedly offering bribes, without elaborating.

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