China’s medical device market is ranked the second largest in the world behind the US, surpassing Japan and the EU, based on the global law and business firm Norton Rose Fulbright,with an approximate market size of RMB300 (over $48) billion by 2015. According to Emergo, a Global Medical Device Regulatory Consulting Firm, this market has been presenting an average 20% growth year-on-year since 2009. This growth rate is higher than the global medical device market expectations and higher than the 6.1% expected for the US Market between 2014 and 2017.
Taking into consideration that China has a population of 1.4 billion in 2015, the demand has been greater than the offer of medical devices also because of the increasing age of the population in China (by 2050, a third of the 1.4 billion Chinese will be at least 60); the increase in the middle-class population who are willing to pay more in order to have medical devices with a better quality; the urbanization of rural areas and the correlated emergence of lifestyle illnesses, such as lung cancer or heart diseases; and the lack of trust in Chinese manufacturers.
According to Reuters, Global medical device manufacturers dominate around three-quarters of the chinese medical device market. On 2014 China’s Import of Medical Devices from around the world reached USD 18.08 millions from which the USA ranks first with 33.5% of the share followed by Germany which represents 17.6% and Japan which ranks third with 12.79%, based on information from the Global Investment Center in the USA.The most imported products are those The Chinese Food and Drugs Association (CFDA) classifies as Class II and III, such as in-vitro diagnostic (IVD), medical imaging, patient monitoring or high value consumables. This classification goes from I to III according to the risk attached to using a device.
In addition to the encouraging imports numbers in the chinese market, the National Planning Guideline for the Healthcare Service System (2015–2020) targets to have for 2020 one clinic and one medical service centre for each community with a population of over 30,000; as well as 1.2 hospital beds for every 1,000 residents within the community. This is an important fact, considering that based on the USA Commercial Service, 76% of the demand comes from hospitals. As of today, there are over 16,000 hospitals, from which 85% are public having annual spendings greater than RMB 200 billion (USD 26.8 billion) purchasing low to mid-end medical devices from domestic manufacturers and importing mid to high-end products from foreign manufacturers.
However, on May 2015 China unveiled its “Made in China 2025” campaign which establishes a 10-year plan for improving manufacturing innovation, integrating technology and industry, strengthening the industrial base, fostering Chinese brands and enforcing green manufacturing. The plan reveals 10 key sector in which China will compete to attract international manufacturing and one of them is medicine and medical devices. Moreover, on the first semester of 2016 Li Beiguang, Deputy Director of the Planning Department of the Ministry of Industry and Information Technology, who was in charge of drafting the national plan ‘Made in China (2025)’ mentioned that at least 70% of the medical devices used by county level hospitals and clinics in China must be domestically manufactured by 2025. Also the Chinese National Health and Family Planning Commission (NHFPC) stated in 2015 they will use incentives to promote hospitals to use medical devices produced in China and creating a list of qualified products. This targets to stimulate the domestic market, reduce health cost and present a threat to the big multinational companies in the sector.
Considering this incentive program and the qualifications of the devices needed to be in it, many foreign companies are moving (or considering) to China for remaining as a competitive option in the market. It needs to be considered that this decision obligates an international company to make a big investment in a foreign country, therefore, an interesting option to look into is establishing strategic alliances with Chinese partners, this could include M&As. According to the global law and business firm Norton Rose Fulbright, foreign investment approvals take time as it needs to go through several governmental institutions and specifically for the medical device manufacturers who can only start operating their business after the product has been registered with the China Food and Drug Administration (CFDA) and a license has been sent to the foreign investment enterprise (FIE). The CFDA classifies its products in three categories based on the risk attached to using a device, therefore, it is easier and quicker to register Class I and II products than Class III (riskiest) products.
Conclutions of Chinese medical device market
In conclusion, China’s medical device market is a big cake growing double-digit for the last five years (and expected to keep this rate) which is mainly dominated by big international companies. Imports have been also growing during the last years, however, there is a big uncertainty on how is the market going to react after the latest local announcements of incentivizing the chinese market to buy domestic-made products presenting certain quality standards. These decisions are making foreign investors to manufacture their products in China or to search for chinese partners. Nevertheless, it also needs to be considered the long and complicated processes that an investor needs to go through before starting to manufacture products in this country.