China’s Greater Bay Area - the next global healthcare innovation hotspot?

I recently had the opportunity to deliver a keynote speech on the impact of southern China’s Greater Bay Area (GBA) on the healthcare industry. This was in the context of the opening of Merck KGaA’s second China Innovation Hub, located at the core of the Guangzhou International Bio Island. The preparation for that speech, my visit on the ground, and subsequent discussions with experts have led me to conclude that GBA’s potential for innovation in the healthcare space is not well understood and therefore underestimated. This article aims to spark interest in finding out more about the role of the GBA in the context of the healthcare sector and to initiate discussions around the topic.

GBA comprises 9 cities of the province of Guangdong and the special administrative regions of Hong Kong and Macau. Among the fastest-growing regions of China, its development is founded on the diversity of 3 of the world’s 50 “superstar cities”: Guangzhou, Hong Kong, and Shenzhen. For more on this, see the recent McKinsey Global Institute report “Superstars: The dynamics of firms, sectors, and cities leading the global economy”.[1]

As such, the area has a number of key strengths:

GBA is a state council–level priority for the development of China. On February 18, 2019, Chinese policymakers released their blueprint for the development of Guangdong–Hong Kong–Macau Greater Bay Area. The plan is ambitious, calling for the GBA to become "a vibrant world-class city cluster, a globally influential innovation and technology hub, an important pillar for the Belt and Road Initiative, and a showcase for deep cooperation between the mainland and Hong Kong and Macau". Concrete objectives have been set out for 2022 in the official blueprint document, and also for the mid-term with the expectation that “by 2035 the GBA should become an economic system and mode of development mainly supported by innovation, with its economic and technological strengths vastly increased and its international competitiveness and influence further strengthened.”

Today, the GBA is already equivalent to a large global economy. Whether you look at population—greater than the United Kingdom at almost 75 million people—or economic output, which at some US $1.6 trillion would rank it as the world’s 12th largest country (close to South Korea and above Australia), all the metrics point to the scale of the region. Even more impressively, on a purchasing-power parity basis, GBA is already almost equivalent to the size of the world’s 7th largest economy, France (about US $2.9 trillion).

GBA is growing faster and the population is younger than in the rest of China. On average, GBA has outpaced broader China’s growth by about two points over the past 20 years and now represents 12.5 percent of the Chinese economy. Forecasts estimate GBA’s economic output at US $3.6 trillion to US $4.0 trillion by 2030. To put this in perspective, it would be equivalent to size of the German economy today, which is currently fourth in the world. In addition, the population is younger than the China average; richer (with some 2.2 times the average GDP per capita of China); spends more on a per-household basis; and, importantly, is still growing. By 2030, GBA could reach 100 million people. Economic opportunities, good living conditions, and supportive government policies will continue to attract populations from other regions in China and, increasingly, expats with graduate-level education.

GBA is building a world-class infrastructure and integrating fast, on an unparalleled scale. It already has three of the world’s top ten container ports and five international airports; it has deployed a well-integrated high-speed intercity transportation system enabling the commute time between Hong Kong and Guangzhou to fall below one hour, for instance; and it is building key connections by bridge (for example, the Zhuhai to Macau bridge opened in late 2017). More broadly, same-day commutes are now feasible between its three superstar cities and most of the next tier of cities (such as Foshan) in an area equivalent to the land mass of Croatia.

GBA is already home to giants of the world economy, several with high relevance for healthcare. Overall, 20 companies headquartered in GBA are in the 2019 global 500 Fortune list, out of a total of 129 in China. Shenzhen and Hong Kong account for 7 entries each, followed by 3 in Guangzhou, 2 in Foshan, and 1 in Zhuhai. Companies include Ping An and Tencent, both based in Shenzhen, which have high ambitions in the healthcare space and are helping to spur an ecosystem of startups, in particular in healthtech and biotech.

GBA is the world’s core platform for prototyping and fast engineering, with both cost and timelines for prototyping being the lowest in the world. It is one of the great manufacturing engines of the world, with a long tradition anchored in Guangzhou and modernized in Shenzhen. As an example, 85 percent of all phones worldwide are assembled here, as are 50 percent of servers.

GBA can tap into multiple world-class universities and leading hospitals and academic centers. 4 universities, all in Hong Kong, are in the top global 100 QS World University rankings 2019: for example, the University of Hong Kong and the Hong Kong University of Science and Technology. More broadly, the region has over 200 universities, producing a large number of college and advanced degrees graduates—Guangzhou alone graduates over 570,000 college students a year. Numerous highly rated medical schools are in the area, including the First Affiliated Hospital of Sun Yat-sen University, which is a leading hospital with over 3,000 beds. Clinical trials can be run in over 42 centers across the area, while several world leaders in translational medicine are based in GBA, such as the lung cancer authority Professor Yi-Long Wu (vice-president of the Guangdong General Hospital and Guangdong Academy of Medical Sciences, and a director of Guangdong Lung Cancer Institute). 

Specifically for healthcare innovation, GBA can draw on complementary strengths across the area. Hong Kong can provide ample sources of funding with both HKEX and prominent healthcare focused VCs. It offers as well access to leading academic centers. Shenzhen is a high-tech mecca, with the presence of Ping An, Tencent, and a community of over 10,000 start-ups, also bolstered by rapid implementation of smart-city concepts. Guangzhou has a long history of manufacturing, now transitioning to advanced manufacturing, and similarly has a vibrant startup scene. The area overall benefits from strong government support and a mix of collaboration, integration, and healthy competition between the different centers. For example, the Pingshan district in Shenzhen has established the National Biological Industrial Base, while Guangzhou is developing the Huangpu biomedical base, with several anchor tenants already there including GE and Lonza Group.

Given those strengths, I see several areas where GBA could innovate in healthcare, with early signs of potential success:

Biologics and cell therapies manufacturing. Traditionally, biomanufacturing sites in China have been located around the Shanghai-Suzhou area and Beijing. However, recent developments by firms in the large molecules and cell therapy space indicate that the map is expanding, with GBA emerging as a credible alternative. For example, Huangpu/GDD in Guangzhou is home to BeiGene Biologics’s large molecules manufacturing site (a US $330 million investment); Lonza is investing over US $100 million to build a contract development and manufacturing organization (CDMO) site for biological drugs in pre-clinical to early commercialization phase, while Innocare is investing US $300 million to build an R&D and production site. GE LifeSciences is also very active with its BioCampus, as well as collaborations with biotech companies, such as Akeso. One could envision a future whereby GBA becomes a global center of excellence for biomanufacturing with improvements in processes and speed, and helping to solve the elusive “speed and quality and cost and scale” equation confronting the industry.

MedTech. Various leading local MedTech companies have their headquarters in GBA, including Mindray (Shenzhen), SonoScape (Shenzhen), or LifeTech Scientific (Guangzhou). Several multinationals also have manufacturing sites in the area, for example Zeiss. Shenzhen’s strengths in advanced electronics and prototyping is a natural fit with the MedTech industry, and can leverage the Shenzhen exchange board. One would therefore expect more innovative companies in that industry to emerge and develop over time.

Healthtech. GBA has seen several remarkable data-oriented companies emerge over the past few years with BGI Group and iCarbonX both based in Shenzhen. BGI is one of the global leaders in gene sequencing services, while iCarbonX aims to “combine artificial intelligence and the internet to improve life”. Beyond those two “moonshot” companies, an ecosystem of smaller players has emerged: for example with Tsimage Medical leveraging AI for precision diagnostics, Imsight Technology driving AI-based medical imaging, and Bainuo developing a bid data platform for disease management. Moreover, Tencent and Ping An are participating in the build of this ecosystem: Tencent invested in iCarbonX, for example, while Ping An manages a US $1 billion investment fund, Voyager, which is focused on growth stage fintech and healthtech companies.

Retirement communities and health services. Here the GBA can benefit from favorable living conditions, with a warm climate, easy transportation, quality medical institutions, and even cheaper real estate — Guangzhou, for example, is still affordable relative to other major Chinese cities. The area is ripe for investments in new care delivery models, including nursing homes, retirement homes, or medical tourism.

The rapid ascent of GBA and its future trajectory have several implications for multinationals operating in China or considering setting up in the market. Here are five points to note:

1. It is time to think about China as having multiple large clusters, equivalent each to a large global economy. This concept of “multiple China, not one China” is typically poorly understood at company headquarters level. The magnitude and ambition of the GBA is certainly not well appreciated by most stakeholders in Europe or the United States. As a minimum, organizations need to be more aware of this and integrate implications in their China strategy.
2. Regionalization might be back in fashion. About eight years ago, a couple of pharma multinationals experimented with a “regional model,” intending to get closer to their customers in order to promote faster decision making and better service. While those models were not entirely successful back then and were rolled back, it may now be time for organizations to revisit this idea to think through the next level of localization of their business model and footprint. In fact, AstraZeneca recently announced the creation of a South China region HQ in Guangzhou, along with North, West, and East regions.
3. Some multinationals and emerging local biotechs are already taking note of GBA and more moves should be expected. In manufacturing, BeiGene Biologics selected Guangzhou for commercial-scale manufacturing of its PD-1, while Lonza has announced plans to build its first large-scale manufacturing site in the same city. Thermo Fisher opened a precision medicine customer experience center in Guangzhou in 2017, while GE LifeSciences, in collaboration with the Guangzhou Development District, announced in December plans to open a bioprocessing academy in 2020. In cell therapy as well, we see some manufacturing sites getting off the ground: for example, Xiangxue Pharmaceutical. It is around those pioneers that you would expect an ecosystem of manufacturing and services such as contract research organizations (CROs) to emerge.
4. New external innovation models may be needed to tap into the potential. Merck KGaA is showing the way with its Innovation Hub Guangzhou, aimed at building connections with the local startup community, academia, and local government. Other models could be explored, with the intent of getting much closer to the GBA community, to ride the wave of favorable governmental policies, and tap into the collective brains trust of the area.
5. New foreign market entrants in China healthcare could consider GBA as a place to start, instead of the more established Shanghai and Beijing areas. They will find a productive population, favorable policies, and lower-cost of operations, as well as a fast-maturing ecosystem. They will also potentially have an edge when it comes to attracting young talent.

Multinationals to date have largely held a Shanghai/Hangzhou or Beijing/Tianjin–centric view of the world. Granted, those two areas will continue to be critical to the economic development of China, and in fact have plans of their own to expand in healthcare. It may be time however to challenge this "2-poles" paradigm given the fast emergence of the Greater Bay Area and the underlying trends supporting its long-term development. At a minimum, companies should explore what China’s GBA could mean for their business, and what a presence here could lead to in terms of participating in this future hotbed of global healthcare innovation.

I’m a Senior Partner with McKinsey & Company, based since 2005 in China (Shanghai and now Hong Kong). I serve biopharma, biotech, MedTech and Consumer health clients in China and more broadly in Asia. Please reach out to connect or follow me here on LinkedIn. I’m also on Twitter @fle864

[1] James Manyika, Sree Ramaswamy, Jacques Bughin, Jonathan Woetzel, Michael Birshan, and Zubin Nagpal, “Superstars: The dynamics of firms, sectors, and cities leading the global economy,” McKinsey Global Institute, October 2018, McKinsey.com.