Cover Story: China’s Once-Booming Online Healthcare Sector Sees Its Vital Signs Sink

China's internet medical service sector, after nearly a decade of highs and lows, is facing critical challenges that will shape its future. Initially driven by technological advances and increased healthcare demand, the industry exploded into a nearly 380-billion-yuan ($52.2 billion) market serving over 360 million people through various services like web-based health consulting, disease management, and pharmacy offerings [para. 1][para. 2]. Despite this growth, most companies struggle to find sustainable business models, particularly amid China's slowing economy and sluggish capital markets, leading to job cuts and market exits for smaller competitors [para. 3][para. 4].

HaoDF, Chunyu Yisheng, and Ping An Good Doctor are among those affected, with many investors wary of further investing in this sector. The debut of Fangzhou Inc. on the Hong Kong Stock Exchange, which saw a 45% drop on its first trading day, underscores this caution [para. 5][para. 6]. Initially considered transformative, internet healthcare remains peripheral with primary medical resources controlled by public hospitals, limiting its reach [para. 7]. Entrepreneurs face the challenge of adapting to regulatory and economic changes while leveraging new technologies and consumer trends [para. 8].

HaoDF, a pioneering platform founded in 2006, expanded its services with the rise of mobile internet but struggled post-2014 due to capital market downturns. The Covid-19 pandemic temporarily boosted online medical services, with the number of online consultations at 44 public hospitals multiplying 17-fold in 2020 [para. 12][para. 13]. Despite this, sustainable gains eluded providers as demand declined post-pandemic [para. 14][para. 15]. By the end of 2022, many platforms grappled with funding shortages and unsustainable business modes, leading to significant workforce reductions [para. 20][para. 21].

Profit generation remains a critical issue. HaoDF's Wang Hang insists on profitability through platform service fees and corporate membership services, though market responses have been tepid. Most platforms focus on low-value services like basic health consultations and prescription refills, which do not drive significant revenue [para. 24][para. 25]. Some have piloted membership systems, but consumer interest remains low, and selling medicines remains the only profitable venture. In 2022, online pharmaceutical sales reached 235.8 billion yuan, growing 32.6% from 2020, driven by health supplements and OTC treatments [para. 32][para. 33].

Major players like JD Health and Alibaba Health dominate the online pharmacy market, leveraging extensive e-commerce networks. JD Health, the largest online medication provider by the end of 2023, saw a 14.5% revenue increase to 53.5 billion yuan and a 463% surge in net profits to 2.1 billion yuan [para. 36]. The market, however, is increasingly competitive with new players like Meituan and Ele.me entering, emphasizing rapid delivery services [para. 37].

The industry remains a focal point for investment but with reduced valuations and fewer "unicorns" than earlier years. Investment priorities have shifted towards securing funding and survival [para. 40]. While some investors have retreated, others still see potential in digital healthcare, emphasizing the need for patience and strategic utilization of public hospital physicians and medical insurance coverage [para. 45][para. 46]. The consensus is mixed, with some optimistic about future opportunities despite current struggles [para. 48].

### Contributing Reporters:

Han Wei, Zhou Xinda, Liu Denghui, Zhong Tengda contributed to this report. For further inquiries, contact Han Wei at weihan@caixin.com