China’s healthcare sector is showing strong signs of recovery, driven by renewed investor confidence, supportive government policies, and a wave of innovation in diagnostics and therapies.

The Hang Seng Healthcare Index has risen 75.6% year-to-date, while the Hang Seng SCHK Innovative Drug Select Index surged 94.2% and the CSI Healthcare Index gained 16%, marking the sector’s most significant rebound since 2021.

A major catalyst for this resurgence has been Hong Kong's rebounding IPO market, particularly for biotech firms. In May 2025, two high-profile listings captured investor attention. Jiangsu Hengrui Pharmaceuticals, a leading innovator in oncology and drug development, raised HK$9.89 billion ( US$1.26 billion ) in its IPO, achieving a post-IPO market cap of HK$273.7 billion and a P/E ratio of approximately 49.9x. On the same day, Mirxes, a company focused on early cancer detection via liquid biopsy, raised HK$1.09 billion. Its IPO was oversubscribed more than 15 times, reflecting strong demand from both retail and institutional investors for precision medicine and diagnostic technologies.

The Hong Kong Stock Exchange ( HKEX ) remains a preferred destination for biotech IPOs, particularly under Chapter 18A of the Listing Rules, which allows pre-revenue companies to list if they meet specific clinical and investor criteria. Meanwhile, the STAR Market in Shanghai offers a similar pathway via its fifth listing standard, designed to accommodate high-potential but unprofitable technology and healthcare firms.

“For the most part in the past 10 years or so, there has always been promise coming out of Phase 1 trials from Chinese pharmaceutical firms, but R&D has oftentimes stalled due to heavy cash burn,” Kai Wang, Asia equity market strategist at Morningstar, tells The Asset.

Recently, the Hong Kong market has relaxed listing rules for healthcare companies, and there have been some positive results in drug trials, as well as an uptick in mergers and acquisitions in the sector. All this has been “encouraging more pharma and biotech firms to look for greater funding and eventual IPO,” Wang adds.

Policy support has further buoyed the sector. In April, Beijing introduced 32 new measures to accelerate pharmaceutical innovation, streamline regulatory approvals, and enhance funding support. Simultaneously, Shenzhen launched a comprehensive policy covering the entire pharmaceutical value chain – from R&D and manufacturing to commercialization and global expansion. Notably, Shenzhen now offers up to 30 million yuan ( US$4.2 million ) in rewards for Class 1 innovative drugs that complete clinical trials and enter the market. The city is also actively promoting emerging fields such as “AI + pharma” and veterinary health technologies.

In fact, Hong Kong-listed biotech and biopharma firms have outperformed the regional market, likely boosted by positive sentiment following the successful IPOs, according to Morningstar’s Asia Market Outlook Q3 2025. However, the landscape remains uneven, with companies trading across a wide range of valuations. In this context, active equity selection is more critical than broad sub-industry allocation, according to the Morningstar report.

The sector continues to face structural challenges. Global revenue uncertainties stemming from tariffs, supply chain realignments, China’s volume-based procurement policies, and potential US budget cuts may weigh on established multinational players such as Olympus, Celltrion, Daiichi Sankyo, and Chugai. Nonetheless, Morningstar remains optimistic about the medium- to long-term outlook, with therapeutic innovation serving as the sector’s core growth engine.