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Medical Device Market in China: Opportunities and Challenges

Release date:2018-01-19

By Markus, 27. April 2017

For many years the Chinese people were deeply worried about falling ill as usually it has been associated with sharp impoverishment. As the majority of the Chinese society just until recently didn’t have any insurance, the medical expenses used to devour most of the funds. Most of the savings made by Chinese families were made in fear of sudden disease – that’s exactly why the level of savings in China is so high compared with almost any other country.

Many believe that Chinese GDP growth has already reached its maximum and depict rather pessimistic forecasts of Chinese economy. However it’s not the case when it comes to medical devices market. Chinese public healthcare sector, long time neglected and suffering from underdevelopment and highly unequal resources distribution, is undergoing massive positive changes. The gap between urban and rural healthcare system, as well as between different types of hospitals is still deep, leading to patients’ frustration and flooding into urban, well-equipped, renowned medical centers. By the end of 2017 there was almost 1 million medical and health institutions in China and many new being constructed or upgrading.


   Healthcare Reform Started it All

   The value of Chinese medical device market in 2017 hasbeen estimated at about $11 billion which is still comparatively     low takinginto account American ($160 billion) and European ones ($115 billion). One mustkeep in mind that it is still very, very underserved and according to BMIEspicom for the 2013-2018 period the year market growth projection stands at 15.7%. The government healthcare expenses still account for only 5.2% of GDP and that number will rise for sure in next couple of years as Chinese governmentaims to bridge the healthcare quality gap and stimulate domestic market.

The most important factor allowing not only fasterdevelopment of healthcare sector, but first of all better access to medicalcare, was the major Healthcare Reform introduced in 2008. The reform programwas a sine qua non of the Chinese healthcare’s progress. Without going too deepinto the details, let’s just enlist the main goals of this extensiveimprovement program which was worth roughly $124 billion:

>Expand basic insurance coverage

>Establish a national essential drug system

>Develop infrastructure for grassroots medical networks

>Provide equal access to basic healthcare services

>Introduce reform of public hospital

   Even though many still find the insurance programsoffered by Chinese government rather limited and subjected to many conditionsthe insurance coverage in China skyrocketed from only 30% in 2003 to 95% today.

Society Demanding Better and More Sophisticated Healthcare

   One of the main challenges for the Chinese healthcare isgrowing number of senior citizens (people who are 65+ years old) expected toaccount for nearly 25% of Chinese population in 2050 from current 10% whichwill be posing more and more serious burden in terms of healthcare services andpension system. Taking care of elderly will require investments in hospitals,medical centers and nursing homes equipment.

   Chinese society isn’t free of diseases of affluence likediabetes, asthma, high blood pressure or obesity resulting from unhealthylifestyle and environmental pollution.

   Middle class which is now accounting for about 1/3 of thetotal population is growing and will be driving demand for more and moreadvanced and high quality medical technology and level of healthcare akin to Western standards.

Digital Medicine soon?

   Digital Medicine is the next big thing when it comes to the medical device market inChina. With Chinese government encouraging development of medical IT servicesby creating institutional frames (e.g. last year the National Health and Family Planning Commission of the People’s Republic of China published interpretationsand associated guidelines regarding telemedicine services in China), manymanufactures already have noted the potential lying in this sector. Majoronline shopping player Alibaba has recently launched an app allowing scanningprescriptions and looking for best deals in the neighboring pharmacies. Furthersteps into development of the telemedicine like enabling online medicalconsultations would fill the gaps of medical treatment on Chinese market. Mostimportantly the wider implementation of digital medicine would relieve crowdedhospitals and doctors, shorten the waiting lists and deliver healthcareservices to the most remote areas. Digital Medicine in China includes alsoplans to set a comprehensive electronic medical record system facilitating patients’ data sharing.

High-end products still to be imported

   Expertssay that currently 70% of advanced medical devices used in China (like classIII devices) are still imported. European, American and Japanese brands arehighly appreciated especially in the first class and private hospitals. Demandfor imported products will rise as lower levels hospitals (grade II and III)will be looking to improve their equipment.      Actually seven out of ten mainmedical manufacturers in China are foreign or joint ventures companies. SomeChinese manufactures are even eager to move their production abroad, apply forCE approvals and therefore significantly raise production costs in order to usehighly acknowledged “made in Germany” tag on the final product. However thisopportunity is no longer so obvious because…



…BuyChina approach

   Chinese hospitals are encouraged to purchase cheaper versions of pricy Western productsunless an expert panel attests that there is no suitable national alternative.In view of increasing healthcare costs Chinese government is looking to reduceits healthcare expenses and to stimulate domestic market. The upcoming changeswere noticeable especially when few years ago the former President Hu Jintaospoke of the need to “develop advanced medical device R&D and industry” asthe first Chinese leader mentioning specifically this sector. Governmentannounced plans to invest $1.7 million in sector of medical devices by 2020.

   The quality of domestic production has increased over the past few years and manymanufacturers are investing a lot in R&D and are standing out with highquality products meeting best international standards at the most importantglobal medical fairs like upcoming CMEF in Shanghai or Medica in Dusseldorf.Markus Wild, WILDDESIGN Founder and Director, admits that the Chinese market ischanging fast and Chinese manufacturers are catching up quickly.

Highly competitive, fragmentized market

   Marketentry barriers to Chinese medical market are comparable to those existing inother countries with China’s State Food and Drug Administration (SFDA) actingas equivalent of FDA in the US. The products already having FDA or CE approvalshouldn’t face difficulties when applying for SFDA approbation but the processitself is still said to have too many steps and to take too long.

   Fiercecompetition among local manufacturers lowers the price and profit margins oftenbalancing on borderline profitability for the envisaged investment for foreigncompanies. Pricing pressure created by the Chinese government by imposing priceceilings for tenders and defining the sum hospitals can pay for certain typesof devices tend not to consider R&D costs. Consequently, if a foreignproduct is not much different from Chinese equivalents or the advantagesoffered by this product might not be so appealing for the Chinese medical customers(see: very important research phase), it might be reasonable to rethinkentering this market.

  Another thing is to build a reliable distribution infrastructure as conditions,requirements and demand might be extremely different depending on the province.

Intellectual Property Protection Issues

   Althoughduring the last few years the Intellectual Property protection in China hasmade significant improvements, the concern of being copied still remains one ofthe main concerns when entering the Chinese market because law enforcementleaves a lot to be desired. What can be definitely perceived as a positivesignal is rising number of patents (in 2014 they topped the patent applicationlist with whooping 928 thousand submissions) and declining share of foreigncompanies involved in IP court cases.