Mental-Health IPO Is a Leap Forward for China

(Bloomberg View) -- The number of Chinese registered as suffering from depression, anxiety, alcohol abuse, dementia, and other mental illnesses increased by 25 percent between 2014 and 2016, according to Chinese authorities. By one recent accounting, they number 173 million. Only 20 million receive professional treatment.

Long-standing social stigmas and a lack of treatment options account for most of the gap. But those biases and institutional weaknesses are starting to break down. This week, Wenzhou Kangning Hospital Co. Ltd., a chain of psychiatric hospitals, announced that it's seeking a $29.5 million initial public offering on China's A-share market — making it the first mental-health-focused business to be listed in mainland China. It won't be 2018's flashiest or most lucrative IPO. But in terms of social significance, its value can't be underestimated.

The need is acute. Four decades of economic development have improved living standards while fraying social ties and creating new social pressures. A once-rural society held together by extended families is now an urban one in which single children compete fiercely from preschool onward. Depression, anxiety, and insomnia are increasingly common among the young, while dementia increases among China's growing ranks of elderly.

The failure to treat sufferers is as much a cultural problem as an institutional one. In China, those who suffer from mental illness are shunned. Families and individuals will often hide mental illness for fear of alienating friends, colleagues and potential spouses.

There's a political dimension, as well. In the 1960s, Mao Zedong outlawed the practice of psychiatry (he viewed it as bourgeois) and closed psychiatric hospitals, most of which were founded by foreign missionaries. The public hospitals have since reopened, but they're often used to incarcerate political dissidents.

In a recent survey, Chinese medical students expressed negative attitudes toward psychiatry as a specialty, citing the low pay and low prestige associated with the profession. They aren't mistaken. Chinese psychiatrists earn less than other medical specialists, especially if they work in public hospitals and clinics where fees are tightly regulated. That low pay, combined with a kind of guilt-by-association with the stigmatized patients they're treating, makes psychiatry a low-status profession. As a result, there are too few mental-health clinics and professionals to go around. In China, there are fewer than two psychiatrists for every 100,000 people; in the U.S. there are 12.

With the public sector failing to meet needs, China's rapidly expanding private hospitals, which already account for 57.2 percent of all hospitals in China, are stepping up. Wenzhou Kangning is the biggest chain focusing on mental health. Founded in 1996, it operates eight hospitals and nearly 2,600 beds on China's affluent east coast, where its outpatient practice is primarily focused on young, white collar workers exhibiting anxiety and depression. Business is good: The company claims that profit margins have exceeded 38 percent since 2014. And it will remain good. The mainland China mental-health-care market is expected to be worth $10 billion by 2019.

Profits and projections like that allow the company to do things that the public sector can't, such as train its own doctors, pay them well and provide them far more time to evaluate patients than over-stressed public hospitals. That model offers dignity to patients and encourages individuals and families to seek out care. Of course, it's not for everyone. With fees that can range as high as $750 per night for a private room, China's lower-income masses won't be getting treatment at Kangning. But they may get treatment at other private facilities as more companies follow its lead into a massive market.

Equally important, in a China that often equates price with quality, those high prices and the better-heeled clientele they attract serve to erode some of the social stigma attached to mental illness. And so, too, does the decision to seek out an IPO.

In 2015, the company listed successfully on the Hong Kong stock exchange. A mainland listing matters more, if only because investors will be asked to pay to build mental-health facilities in their own country. Even five years ago, few Chinese would have considered that an opportunity worth examining. Today, if Chinese investors see no shame in buying into the once-stigmatized industry, then it's likely that many patients won't, either. For China, that's a turning point that should improve the well-being of millions along with the portfolios of investors.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Adam Minter is a Bloomberg View columnist. He is the author of “Junkyard Planet: Travels in the Billion-Dollar Trash Trade.”

To contact the author of this story: Adam Minter at aminter@bloomberg.net.

To contact the editor responsible for this story: Jonathan Landman at jlandman4@bloomberg.net.

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