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Issue 149 November 2014

From Dezan Shira & Associates

China Investment Roadmap:


The Medical Device Industry
p.

Market Overview:
Medical Devices in
China

p.

Investing in
Chinas Medical
Device Industry

p.

11

Case Study:
Choosing a Distribution
Model for the Chinese
Market
www.china-briefing.com

November 2014 | CHINA BRIEFING - 1

Market Overview:
Medical Devices in China

- By Steven Elsinga, Dezan Shira & Associates

China is currently one of the worlds most promising markets for

This discrepency between foreign and Chinese producers of medical

medical devices. Sales of medical devices in the country reached

devices is commonly attributed to the high entry barriers for the

RMB 200 million in 2013, making it the second largest market in the

higher-end medical device market: producing more technologically

world, according to the U.S. Commercial Service. Even compared

advanced equipment is capital-intensive, requires a great deal of

to other sectors of the Chinese economy, the market in medical

technical knowledge and generally has a longer time to market.

devices is one of the fastest growing market sectors in the country.


Faced with a lack of financing, many firms are unable or unwilling to
Due to the One-child policy, which only recently was made slightly

make the investments necessary for moving into the higher ranges

more lenient, a growing share of Chinas population will soon be over

of the market. Often it is simply easier for domestic firms to copy

the age of 60, closely aligning its demographic dynamics with those

foreign products, which has led to an upsurge in patent litigation

of many developed countries. Alongside these changes, rising living

in recent years.

standards have given rise to rapid growth in the demand for medical
products and services. The Chinese government has made a priority

Since 2009, however, there has been somewhat of a consolidation

of developing the health care sector as well, especially investing in

in the medical devices sector. Several companies have merged and

the central and western parts of the country, where the quality of

gone on to take larger shares of the market, including the Wei Gao

health care is lagging behind the rest of China.

Group, Mindray, Yuwell, Microport, Le Pu Medical and Fosun Pharma.


Some domestic companies have found success producing more

Despite a 20 percent increase in public spending on health care in

mid-range products like monitors and cardiac stands, which they

recent years, China currently makes up only two to three percent of

are often able to sell at lower prices than their foreign competitors.

the global market for medical devices. Internationally, the respective


markets for medicines and medical devices are of roughly equal size;

According to the China Medical Pharmaceutical Material Association,

however in China, the market for medical devices is only 14 percent

imported medical devices tend to sell in China at prices 50-100

of that for medicines.

percent higher than in the countries where they are produced,


making China an attractive market for foreign producers of

Observers explain these extremely lopsided dynamics by pointing to

medical devices. Foreign manufacturers also benefit from a general

the practice in Chinese health care of favoring treatment with drugs

perception among Chinese consumers that foreign products are

over medical devices, and a focus on treatment over prevention.

of better quality and worth paying a premium for. Lastly, imported

These conditions have left a large part of the market underserved,

devices typically enjoy higher brand recognition, with even public

which many believe may change in the near future, spurring even

hospitals often deciding to purchase them despite the higher costs.

higher demand for medical devices.


This trend has recently led the China National Health and Family
China relies heavily on foreign imports for its medical supplies

Planning Commission to announce the launch of a policy favoring

and devices. This is especially true for high-tech, high-price items,

local producers of medical devices, as a means of bringing down

for which the U.S., Germany and Japan serve as major exporters.

rising health care costs. The policy includes a list of locally produced

Additionally, there are several thousand local manufacturers of

medical devices that are specifically recommended by the

medical devices - mostly small companies with low revenues -

Commission and are to be given preferential treatment by public

roughly 90 percent of whom are makers of low-tech products such

hospitals.

as syringes and thermometers.


The new policy is especially focused on getting the larger Tier-3
In contrast, the majority of high-tech equipment is imported into

hospitals to strengthen their procurement of locally produced

the country; for example, 80 percent of CT scanners, 90 percent

products. Notably, these larger hospitals also frequently handle

of ultrasound equipment and 90 percent of MRI equipment is

purchasing for smaller hospitals. In this light, the latest trends in

manufactured abroad. Imports of mid-to-high end products have

Chinese state policy for the medical device industry may dissuade

decreased in recent years, but this has largely been due to foreign

foreign investors from a purely distribution-based approach to the

companies moving their production plants to China.

Chinese market.

4 - CHINA BRIEFING | November 2014

Chinas Medical Device Industry at a Glance

Percentage of Population over Age 65

7%

Ratio of Imported Medical Devices

9.7%

Tier-3 Hospitals

Nearly 100%

of medical devices imported


Year 2000

People
88 Million

Year 2013

People
131 Million

Tier-2 Hospitals

Public Healthcare Spending

66%

of medical devices imported

843

Billion
RMB

Year 2012

954

Billion
RMB

Year 2013

Growth in Medical Devices per Sector (2013)

27%

38%

Other

Medical Device Manufacturers

90%

of local manufacturers
focus on low tech/
price products.

Syringes
Thermometers
Surgical gloves
Bandages

11%

Imaging

2%
Dental

13%

20%

Orthopedics
& Implants

Medical Supplies

2013 Public Healthcare Spending as Percentage of GDP

Canada

5.6%
China

18%

United States

9%
Japan

12%
Germany

November 2014 | CHINA BRIEFING - 5

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