Medical Device Market in China: Opportunities and Challenges

Medical Device Market China WILDDESIGN The stress related to unexpected sickness or hospitalization is always high. It’s even worse if you don’t have any insurance or the nearest medical facilities are located hours or days walking away.

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 2014 there was almost 1 million medical and health institutions in China and many new being constructed or upgrading.

Opportunities

Healthcare Reform Started it All

The value of Chinese medical device market in 2015 has been estimated at about $11 billion which is still comparatively low taking into account American ($160 billion) and European ones ($115 billion). One must keep in mind that it is still very, very underserved and according to BMI Espicom 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 government aims to bridge the healthcare quality gap and stimulate domestic market.

The most important factor allowing not only faster development of healthcare sector, but first of all better access to medical care, was the major Healthcare Reform introduced in 2008. The reform program was a sine qua non of the Chinese healthcare’s progress. Without going too deep into the details, let’s just enlist the main goals of this extensive improvement 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 programs offered by Chinese government rather limited and subjected to many conditions the 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 is growing number of senior citizens (people who are 65+ years old) expected to account for nearly 25% of Chinese population in 2050 from current 10% which will be posing more and more serious burden in terms of healthcare services and pension 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 like diabetes, asthma, high blood pressure or obesity resulting from unhealthy lifestyle and environmental pollution.

Middle class which is now accounting for about 1/3 of the total population is growing and will be driving demand for more and more advanced 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 in China. With Chinese government encouraging development of medical IT services by creating institutional frames (e.g. last year the National Health and Family Planning Commission of the People’s Republic of China published interpretations and associated guidelines regarding telemedicine services in China), many manufactures already have noted the potential lying in this sector. Major online shopping player Alibaba has recently launched an app allowing scanning prescriptions and looking for best deals in the neighboring pharmacies. Further steps into development of the telemedicine like enabling online medical consultations would fill the gaps of medical treatment on Chinese market. Most importantly the wider implementation of digital medicine would relieve crowded hospitals and doctors, shorten the waiting lists and deliver healthcare services to the most remote areas. Digital Medicine in China includes also plans to set a comprehensive electronic medical record system facilitating patients’ data sharing.

High-end products still to be imported

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

Challenges

…Buy China approach

Chinese hospitals are encouraged to purchase cheaper versions of pricy Western products unless an expert panel attests that there is no suitable national alternative. In view of increasing healthcare costs Chinese government is looking to reduce its healthcare expenses and to stimulate domestic market. The upcoming changes were noticeable especially when few years ago the former President Hu Jintao spoke of the need to “develop advanced medical device R&D and industry” as the first Chinese leader mentioning specifically this sector. Government announced 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 many manufacturers are investing a lot in R&D and are standing out with high quality products meeting best international standards at the most important global medical fairs like upcoming CMEF in Shanghai or Medica in Dusseldorf. Markus Wild, WILDDESIGN Founder and Director, admits that the Chinese market is changing fast and Chinese manufacturers are catching up quickly.

Highly competitive, fragmentized market

Market entry barriers to Chinese medical market are comparable to those existing in other countries with China’s State Food and Drug Administration (SFDA) acting as equivalent of FDA in the US. The products already having FDA or CE approval shouldn’t face difficulties when applying for SFDA approbation but the process itself is still said to have too many steps and to take too long.

Fierce competition among local manufacturers lowers the price and profit margins often balancing on borderline profitability for the envisaged investment for foreign companies. Pricing pressure created by the Chinese government by imposing price ceilings for tenders and defining the sum hospitals can pay for certain types of devices tend not to consider R&D costs. Consequently, if a foreign product is not much different from Chinese equivalents or the advantages offered by this product might not be so appealing for the Chinese medical customers (see: very important research phase), it might be reasonable to rethink entering 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

Although during the last few years the Intellectual Property protection in China has made significant improvements, the concern of being copied still remains one of the main concerns when entering the Chinese market because law enforcement leaves a lot to be desired. What can be definitely perceived as a positive signal is rising number of patents (in 2014 they topped the patent application list with whooping 928 thousand submissions) and declining share of foreign companies involved in IP court cases.

Thank you for reading our article on Chinese medical device market. Feel free to leave a comment or come to upcoming CMEF Medical Fair in Shanghai to discuss with WILDDESIGN Director Markus Wild and General Manager Quan Shan.

Stay tuned for the 2^nd article in this series in two weeks!