Industry-level regulatory crackdowns in China and efforts to quash corruption are notoriously hard on investors, but over time, those clampdowns can pay off.
That could prove to be the case in China’s fast-growing healthcare sector. Long an epicenter of corruption, Chinese officials are doing something about that situation. Corresponding positive changes could be to the benefit of exchange traded funds such as the KraneShares MSCI All China Health Care ETF (KURE).
KURE is off 18.65% year-to-date with the bulk of those losses attributable to a recently announced crackdown on Chinese healthcare companies. So punitive was that move that Chinese healthcare equities shed a combined $27.9 billion in market value on August 7 alone. To its credit, KURE has traded modestly higher over the past 90 days, suggesting market participants are moving past the healthcare corruption crackdown or even embracing it.
Corruption Cure Could Help KURE
Beijing’s efforts to stem graft in the healthcare space are arguably essential and could prove beneficial to KURE holdings.
“Medical corruption has long stood as a prime grievance in China. This becomes particularly intriguing considering the history of disclosed hospital corruption cases. According to a study published in China Healthcare Management, corruption cases in public hospitals reached their zenith in 2017 and have been on a decline since 2020,” noted the Council on Foreign Relations.
For investors weighing KURE’s potential against the specter of regulatory issues, it’s worth noting the latter could be accretive to the former. After all, corruption, regardless of industry or sector, can be a drag on growth because it involves an individual or small number of parties prioritizing self-interest.
Specific to KURE, the growth story is compelling. China’s population is aging rapidly and its healthcare sector is growing at a faster pace than what’s seen in large developed markets. Additionally, Beijing is spending big on healthcare with 2022 expenditures on that front reaching $975 billion. The Chinese government is apt to continue or increase that pace because it wants consumers to spend on discretionary items and housing.
There’s also widespread support among Chinese provinces for the healthcare corruption crackdown, indicating that subsequent clarity could be a long-term boon for KURE.
“The campaign has the potential to significantly advance China’s healthcare reform. By breaking the corruption chain and ousting unscrupulous players, it could not only make healthcare more affordable but also pave the way for future overhauls in health insurance payment methods and doctors’ compensation,” according to the Council on Foreign Relations.
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