Investors Dive into County-Level Medical Gems as New IPO Prospectus Filed

Recently, a group of investors has begun seeking out healthcare projects in county-level cities.

Some are passive, while others are proactive. Investors who passively seek projects in county-level cities are mostly burdened with reinvestment mandates; whereas those who proactively invest in such areas have identified remarkable projects through in-depth industry research and aim to accelerate business growth through their investment.

Whether driven by passive circumstances or active choice, they have made a common discovery after moving into lower-tier markets: small county-level cities also harbor a few hidden gem medical projects.

These medical enterprises hidden in county-level cities are highly profitable, with some generating annual profits of millions, tens of millions, or even hundreds of millions of yuan. For instance, Jiute Medical in Changyuan City, Henan Province, achieved revenues of RMB 1.01 billion in the first five months of 2022 alone. Others are global leaders in specific niche sectors, such as Huaheng Biology in Qinhuangdao City (a prefecture-level city), Hebei Province, which holds the largest global market share for L-alanine. Some companies hold an absolute advantage in certain product categories; for example, Hongda Group in Jinxian County, Jiangxi Province, has an annual production capacity of 4 billion units/sets of disposable sterile medical devices, accounting for approximately 25% of the domestic market share.

Despite the presence of so many outstanding enterprises, most medical companies in county-level cities remain small-scale device manufacturers locked in fierce competition within a “red ocean.” Strangely enough, why do investors still go to these counties to “search for a needle in a haystack”?

Since 2021, fund-of-funds have continuously expanded their reach into county- and district-level cities.

Taking Hefei, a city known for its investment-driven industrial development, as an example, Feixi County in Hefei established a master fund with a total size of RMB 10 billion in 2022, including a biomedical industry sub-fund totaling RMB 2.7 billion. In March 2023, the Changfeng Hundred-Billion Master Fund was launched, aiming to guide social capital into investing in relevant industrial chains in Changfeng County, Hefei, and attract leading enterprises and emerging strategic companies to settle in Changfeng.

Not only Hefei, but also districts and counties in Jiangxi and Zhejiang are accelerating their efforts to leverage fund-of-funds structures to mobilize additional capital. For instance, Yongfeng County in Jiangxi established a RMB 1 billion Industrial Development Guidance Fund; Lushan City (a county-level city) in Jiangxi registered a RMB 1 billion Industrial Industry Guidance Fund; and Wan’an County in Jiangxi registered the Wan’an Fu Industrial Development Guidance Fund (Limited Partnership) with a size of RMB 1 billion. In Zhejiang, Yongkang City (a county-level city) and Linhai City have each set up fund-of-funds with scales of RMB 3 billion and RMB 10 billion, respectively...

In addition, districts and counties such as Shan County in Heze City, Shandong Province, and county-level cities such as Jinjiang City in Fujian Province are also establishing fund-of-funds, with most funds ranging in size from RMB 1 billion to RMB 10 billion.

According to statistics from the Fund of Funds Research Center,Since 2022, the proportion of district- and county-level government guidance funds among newly established fund-of-funds has been increasing.。Among these, the majority of government-guided funds are industrial funds, primarily focusing on strategic emerging industries such as high-end manufacturing, information technology, and healthcare.。

A relevant official from a government-guided fund previously stated: “Industrial investment projects do not seek controlling stakes or prioritize short-term gains; instead, they select investments along the industrial chain. This is the most fundamental distinction between government investment institutions and venture capital firms.。”

From the perspective of investment institutions, previously constrained by requirements such as local reinvestment ratios, their preferred fundraising targets were not local government guidance funds, but rather mature, market-oriented regional guidance funds. However, today, RMB-denominated venture capital and private equity fundsFundraising Challenges Have Become the New Normal in the Industry. Data released by the Asset Management Association of China (AMAC) shows a clear downward trend in both the total amount of funds raised and the size of individual funds. Meanwhile, from January 2022 to January 2023, the net number of venture capital and private equity fund managers registered with AMAC decreased by nearly 1,800 year-on-year, hitting a record high.

On the other hand, local governments are also adjusting restrictions such as reinvestment requirements to make local government guidance funds more market-oriented.

As fundraising challenges intensify and county-level fund-of-funds become more active, investment firms and these local funds have forged a mutually beneficial partnership: investment firms have secured new sources of capital, while the assets of county-level fund-of-funds can be leveraged by more professional teams to mobilize greater resources.

In light of the above, over the past two years, a growing number of investors have begun raising funds in small county-level cities, embarking on a “needle-in-a-haystack” search for high-quality projects in these counties while under mandates to reinvest locally.

It is worth noting that investors tasked with local reinvestment obligations occasionally encounter their peers. However, these counterparts are not driven by such mandates; rather, they have identified high-quality projects in county-level cities through in-depth industry research. Examples include Huaheng Biological Technology, as previously mentioned, and established medical device companies that are strategically positioning themselves in emerging technologies.

Historically, IPO companies cultivated in county-level cities were mostly resource-intensive enterprises, most of which declined as their resources were depleted.

Yet today, a large number of tech-driven unicorns and IPO-bound enterprises have emerged from small county-level cities, such as Kangji and Zhejiang Tiansong Medical Instrument Co., Ltd. in Tonglu County, Zhejiang Province; Yadu Group and Tuoren Group in Changyuan City, Henan Province; Xiangyu Pharmaceutical Co., Ltd. in Neihuang County, Henan Province; Hongda Group in Jinxian County, Jiangxi Province; and LANHINE in Cixi City, Zhejiang Province...These medical enterprises, though based in small county-level cities, have sold their products to markets worldwide, including New York, London, and Canberra.。

For example, listed on the Main Board of the Hong Kong Stock Exchange in June 2020Kangji MedicalIt has become China's largest platform for minimally invasive surgical instruments and related consumables, providing services to more than 3,500 hospitals across China, including over 1,000 tertiary Grade A hospitals, with its business covering nearly 60 countries and regions worldwide.

With revenue of RMB 6.27 billion, holding a 48% share of the domestic anesthesia kit market and a 36% share of the infusion pump marketTuoren Group, it has now become an important calling card for the local region. Tuoren Group focuses on medical devices as its core business, primarily covering eight major fields: anesthesia, nursing, surgery, interventional medicine, pain management, diagnostics, hygiene and protective materials, and blood purification. Its products are used in more than 20,000 hospital endpoints and are exported to 78 countries and regions worldwide. The company has also established international subsidiaries in India, Uganda, Kenya, and other locations.

In addition, a high-tech enterprise specializing in endoscopic minimally invasive medical devicesTiansong MedicalRecognized as a “Hidden Champion” enterprise by the People’s Government of Zhejiang Province in 2020; deeply engaged in the field of rehabilitation medical devicesXiangyu MedicalListed on the STAR Market of the Shanghai Stock Exchange in 2021; specializing in the production of disposable sterile medical devices.Hongda GroupAnnual production capacity of 4 billion units (sets) of disposable sterile medical devices, accounting for approximately 25% of the domestic market share; sales of 750 million medical masks in 2020.LANHINE, has become one of the top three enterprises in China in terms of market share for medical masks.

It is worth noting that, unlike resource-intensive enterprises, the medical device industry—being talent-, technology-, and capital-intensive—has exceptionally high demands for skilled personnel, technological expertise, and funding. However, county-level areas often face significant shortages in all three aspects. How are medical device companies in these counties addressing such challenges?

First, most medical enterprises in county-level cities opt to separate production from R&D by establishing manufacturing bases locally while setting up R&D centers in talent hubs such as Beijing, Shanghai, Guangzhou, Shenzhen, and overseas. For instance, Xiangkang Medical has been continuously expanding the scale of its R&D centers in Neihuang County (where its headquarters is located), Zhengzhou, Tianjin, and Nanjing, and is further preparing to establish R&D centers in Chengdu, Shenzhen, and other cities to attract high-end rehabilitation technology talent from various regions.

Second, an increasing number of medical enterprises in county-level cities are beginning to collaborate with scientific research institutions such as universities and research institutes to accelerate the application of innovative technologies and truly promote the translation of scientific research achievements. For example, Yadu Groupwith numerous higher education institutions and research organizations, such as Jinan University, Beijing University of Chemical Technology, Zhengzhou University, and Henan Institute for Medical Device TestingPromote industry-university-research collaboration; LANHINE jointlyChinese Academy of Sciences and Wenzhou Medical UniversityConducting R&D and product applications of polymer materials; Kemei Medicalwith Nanjing University of Science and TechnologySuccessful development of nitrile latex...

Third, some county-level cities have chosen to strengthen talent acquisition and establish talent development bases. For example, Changyuan City in Henan Province supports enterprises in setting up postdoctoral workstations and key laboratories, attracting talent through policy incentives and financial support. Changzhou (a prefecture-level city) has built a Science and Education Town, introducing research institutions from 101 prestigious hospitals and institutes, including the Chinese Academy of Sciences, Peking University, and Tsinghua University, creating the notable phenomenon of “Changzhou having no famous universities of its own, yet gathering famous universities within Changzhou.” This has provided a talent foundation for the rapid development of enterprises in local county-level areas.

Fourth, medical enterprises in county-level cities are also continuously monitoring the latest industry trends and technologies, keeping pace with developments in a timely manner. For instance, when the surge of interest in surgical robots emerged, Kangji acquired Weijing Surgical Robot in January 2022, establishing its presence in this emerging field.

As can be seen,Throughout the development of medical enterprises in the aforementioned county-level cities, institutional investors have been virtually absent.Most of these enterprises, founded in the 1990s, relied almost entirely on their own efforts to produce and sell products and slowly accumulate capital. After years of persistent dedication, they have finally grown into hidden champions or leaders in their respective niche industries.

Certainly, the role of local governments cannot be overlooked. They help enterprises standardize production and quality standards, gather similar enterprises to form cluster advantages, and build docking platforms with universities and research institutions. For some leading enterprises, they also provide policy and financial support.

Driven by bottom-up innovation and breakthroughs, as well as top-down planning and promotion, some county-level cities have developed highly distinctive industrial clusters, accelerating the growth of medical enterprises in these areas.

Taking Changyuan, Henan Province as an example, villagers in Dingluan Town initially operated on a household basis, using workshop-style production methods to manufacture essentially only cotton swabs, which they sold to nearby health clinics and school hospitals at competitive low prices. Soon, a small number of villagers who achieved prosperity spurred other households to follow suit, causing the number of small workshops to surge rapidly from just over a dozen to more than a thousand, while their sales territory expanded quickly from surrounding villages and towns to the entire Henan Province and adjacent regions.

After witnessing the “nationwide, household-workshop-style entrepreneurship,” Changyuan resolved to optimize its industrial structure and pursue a path of industrialized, large-scale development. With the intervention and support of the local government, Changyuan’s medical device industry has transitioned from being “small, fragmented, and disordered” to becoming specialized, standardized, and scaled, exhibiting explosive growth.

Today, as the “Capital of Medical Consumables in China,” Changyuan is home to more than 70 medical supply manufacturers and over 3,000 related trading enterprises, employing more than 60,000 people. It accounts for over 50% of national sales in the medical device market and achieves a coverage rate exceeding 75% among major hospitals across China.

Throughout Changyuan’s development history, leading enterprises such as Tuoren Group and Yadu Group have received support and assistance from the local government, helping to foster the formation of an industrial cluster. These companies have subsequently benefited from the advantages of this cluster, thereby enhancing their market competitiveness.

There are many such examples. As a national base for the medical endoscope industry, Tonglu County currently hosts over 1,000 medical device companies, including 82 manufacturers. Its supporting surgical instruments account for more than 30% of the domestic market share. Tonglu is an important cluster for the medical device industry in Zhejiang Province and the largest production base for rigid endoscopes in China. High-quality enterprises such as Kangji and Zhejiang Tiansong Medical Instrument Co., Ltd. have emerged from Tonglu.

Jinxian County, known as the “Hometown of Medical Devices” in China, is currently home to 151 medical device manufacturers and nearly 600 local distributors, commanding over 31% of the domestic market share for single-use infusion devices. According to official statistics, Jinxian County boasts a sales force of more than 60,000 individuals, has registered over 5,860 sales companies nationwide, and serves as an agent for the sale of more than 6,000 types of medical devices. In 2019, the total sales volume exceeded RMB 200 billion, accounting for approximately 40% of the national market share.

Driven by the innovative development of local entrepreneurs and strong support from local governments, county-level cities such as Changyuan, Tonglu, and Jinxian have developed distinctive industrial clusters, which in turn have spurred rapid local economic growth. Leveraging cluster advantages and policy support, enterprises within these ecosystems have accelerated their development, ultimately achieving a multi-party win-win outcome for businesses, industries, local governments, and county-level economies.

Nowadays, industrial clusters have become benchmark cases for county-level development, and the state is promoting the development of distinctive industrial clusters in each county.

In December 2021, the Ministry of Industry and Information Technology released the “14th Five-Year Plan” for Promoting the Development of Small and Medium-sized Enterprises. It proposes: Supporting various regions to cultivate a batch of industrial clusters with focused positioning, complete supporting facilities, and standardized operation and management, based on their industrial development orientation and resource endowments and centered around industrial chains.Specialized Industrial Clusters for Small and Medium-sized Enterprises。

In May 2022, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued the “Opinions on Promoting Urbanization with County Towns as Important Carriers,” which proposed leveraging county towns as key platforms to develop industries with distinctive competitive advantages and guide the concentrated and clustered development of industries within counties.

In September 2022, the Ministry of Industry and Information Technology issued the Interim Measures for Promoting the Development of Specialized SME Clusters, to promote high-quality development of small and medium-sized enterprises (SMEs) and enhance the specialization, distinctiveness, and clustering levels of SME industrial clusters.

Based on the aforementioned support,Building on their existing specialized industrial clusters, regions such as Changyuan, Tonglu, and Jinxian are intensifying investment promotion efforts to compete with industrial parks in Beijing, Shanghai, Guangzhou, and Shenzhen for projects. They are also optimizing park infrastructure to drive the transformation and upgrading of enterprises from low-value consumables to high-end manufacturing.

With the development of specialized industries and the strengthening of county-level economies, an increasing number of high-tech enterprises are considering establishing production bases in counties that offer convenient transportation and favorable policy incentives. Meanwhile, enterprises originally located in these counties are accelerating their development with support from local governments and continuously transitioning toward mid-to-high-end manufacturing.

In addition, with government support, medical enterprises in county-level cities have established connections with universities and research institutions, applying new technologies developed by experts to industrial practice. This effectively promotes the translation of scientific research achievements and achieves a perfect integration of “industry, academia, and research.”

With the challenges of talent and technology addressed, the surge in fund-of-funds activity and the downward penetration of investors will resolve the financing difficulties faced by medical enterprises in county-level regions. In the past, medical companies in county towns primarily relied on gradual capital accumulation through product sales, only expanding production and investing in R&D after reaching a certain savings threshold, resulting in slow growth. Today, however, medical entrepreneurs in county areas with promising projects will no longer face capital shortages; government subsidies and investment funds will compete to provide financial support to high-quality enterprises.

Overall,Against the backdrop of fund-of-funds and investors collectively shifting their focus downward, alongside the rise of the county-level economy, medical enterprises in county towns are poised to become a new force in medical device innovation. This time, investors are expected to witness and participate in the remarkable development journey of this new generation of county-level medical enterprises.。