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In this issue: Market Overview: Medical Devices in China Investing in China’s Medical Device Industry Case Study: Choosing a Distribution Model for the Chinese Market Today’s opportunities for foreign investment in the medical device industry in China are the product of a near perfect storm of factors in the country: social, technological, economic and regulatory. In the social realm, China’s greying and increasingly wealthy population has created an unprecedented demand for medical products, services and institutions. Here, the capital, technology and expertise of foreign firms hold an indispensable value. Meanwhile, the long-standing pattern of China as a low-tech manufacturer and high-tech importer of medical devices is slowly giving way to more China-side manufacturing of mid-to-high tech devices by foreign-invested enterprises. Economically, the currently fractured and immature market in low-tech devices will likely see consolidation over the coming years, as trade barriers are
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November 2014 | CHINA BRIEFING - 1
China Investment Roadmap: The Medical Device Industry
Market Overview: Medical Devices in China
Case Study: Choosing a Distribution Model for the Chinese Market
p.4 p.11
Issue 149 • November 2014
From Dezan Shira & Associates
www.china-briefing.com
Investing in China’s Medical Device Industry
p.8
4 - CHINA BRIEFING | November 2014
Market Overview: Medical Devices in China - By Steven Elsinga, Dezan Shira & Associates
China is currently one of the world’s most promising markets for
medical devices. Sales of medical devices in the country reached
RMB 200 million in 2013, making it the second largest market in the
world, according to the U.S. Commercial Service. Even compared
to other sectors of the Chinese economy, the market in medical
devices is one of the fastest growing market sectors in the country.
Due to the One-child policy, which only recently was made slightly
more lenient, a growing share of China’s population will soon be over
the age of 60, closely aligning its demographic dynamics with those
of many developed countries. Alongside these changes, rising living
standards have given rise to rapid growth in the demand for medical
products and services. The Chinese government has made a priority
of developing the health care sector as well, especially investing in
the central and western parts of the country, where the quality of
health care is lagging behind the rest of China.
Despite a 20 percent increase in public spending on health care in
recent years, China currently makes up only two to three percent of
the global market for medical devices. Internationally, the respective
markets for medicines and medical devices are of roughly equal size;
however in China, the market for medical devices is only 14 percent
of that for medicines.
Observers explain these extremely lopsided dynamics by pointing to
the practice in Chinese health care of favoring treatment with drugs
over medical devices, and a focus on treatment over prevention.
These conditions have left a large part of the market underserved,
which many believe may change in the near future, spurring even
higher demand for medical devices.
China relies heavily on foreign imports for its medical supplies
and devices. This is especially true for high-tech, high-price items,
for which the U.S., Germany and Japan serve as major exporters.
Additionally, there are several thousand local manufacturers of
medical devices - mostly small companies with low revenues -
roughly 90 percent of whom are makers of low-tech products such
as syringes and thermometers.
In contrast, the majority of high-tech equipment is imported into
the country; for example, 80 percent of CT scanners, 90 percent
of ultrasound equipment and 90 percent of MRI equipment is
manufactured abroad. Imports of mid-to-high end products have
decreased in recent years, but this has largely been due to foreign
companies moving their production plants to China.
This discrepency between foreign and Chinese producers of medical
devices is commonly attributed to the high entry barriers for the
higher-end medical device market: producing more technologically
advanced equipment is capital-intensive, requires a great deal of
technical knowledge and generally has a longer time to market.
Faced with a lack of financing, many firms are unable or unwilling to
make the investments necessary for moving into the higher ranges
of the market. Often it is simply easier for domestic firms to copy
foreign products, which has led to an upsurge in patent litigation
in recent years.
Since 2009, however, there has been somewhat of a consolidation
in the medical devices sector. Several companies have merged and
gone on to take larger shares of the market, including the Wei Gao
Group, Mindray, Yuwell, Microport, Le Pu Medical and Fosun Pharma.
Some domestic companies have found success producing more
mid-range products like monitors and cardiac stands, which they
are often able to sell at lower prices than their foreign competitors.
According to the China Medical Pharmaceutical Material Association,
imported medical devices tend to sell in China at prices 50-100
percent higher than in the countries where they are produced,
making China an attractive market for foreign producers of
medical devices. Foreign manufacturers also benefit from a general
perception among Chinese consumers that foreign products are
of better quality and worth paying a premium for. Lastly, imported
devices typically enjoy higher brand recognition, with even public
hospitals often deciding to purchase them despite the higher costs.
This trend has recently led the China National Health and Family
Planning Commission to announce the launch of a policy favoring
local producers of medical devices, as a means of bringing down
rising health care costs. The policy includes a list of locally produced
medical devices that are specifically recommended by the
Commission and are to be given preferential treatment by public
hospitals.
The new policy is especially focused on getting the larger “Tier-3”
hospitals to strengthen their procurement of locally produced
products. Notably, these larger hospitals also frequently handle
purchasing for smaller hospitals. In this light, the latest trends in
Chinese state policy for the medical device industry may dissuade
foreign investors from a purely distribution-based approach to the
Chinese market.
November 2014 | CHINA BRIEFING - 5
SyringesThermometersSurgical glovesBandages
Percentage of Population over Age 65
Tier-2 Hospitals66%of medical devices imported
Tier-3 HospitalsNearly 100%of medical devices imported
Medical Device Manufacturers
Ratio of Imported Medical Devices
Public Healthcare Spending
Year 2013Year 2012
954 BillionRMB
BillionRMB
MillionPeople
843
90%of local manufacturersfocus on low tech/price products.
Growth in Medical Devices per Sector (2013)
38%Imaging
20%Medical Supplies
13%Orthopedics & Implants
2%Dental
27%Other
11%Canada
9%Japan
5.6%China
12%Germany
18%United States
2013 Public Healthcare Spending as Percentage of GDP
China’s Medical Device Industry at a Glance
88
7% 9.7%
Year 2000MillionPeople131
Year 2013
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