The Medical Device Market in China – New Challenges for International Companies

China is currently one of the most encouraging medical device markets in the world, ranking second and still growing according to the U.S. Commercial Service. The sheer size of the market alone, provides significant opportunities for medical device firms both domestic and international.
Recent trends in the market have seen a slight decrease in MedTech imports, but this is largely attributed to some of the international companies opening up manufacturing facilities locally.

Despite all the vast opportunities in the Medical Device Industry, international players may find market entry to be quite a challenging endeavor.

In May of 2014, the Chinese “Planning and Information Division”, announced government plans to proceed in a direction that would favor the use of locally manufactured products over international ones. This will be accomplished through health ministries which will encourage the use of local products in China’s larger Tier III hospitals (other hospital categories might also participate).

This type of action can be quite severe since the increasing trend is for the bigger hospitals to set the product standard for some of the smaller hospitals (i.e. purchase for them), with the possibility of ending up with a market fed by mostly local devices.

Another important factor is that, similar to “Tier III” hospitals; some provinces tend to act as a standard that is imitated by neighboring provinces. So if, for example a particular region becomes a user of mostly domestic products, this could have a “domino effect” in terms of usage on other provinces as well.

The main reasoning behind this policy is related to cost savings and reducing the burden of care for Chinese patients, which is understandable but can be a good cause for concern to some of the international firms, particularly the newer entrants.

According to a recent article by Forbes, such policy changes are very likely to boost the already existing trend happening where international market leaders negotiate joint ventures with local companies or move there manufacturing facilities to China all together. Such strategies would enable international firms to play the market as a local vendor and avoid some of the challenges posed by the recent policy changes.

As described in the TforG Deep Dive report for China:

Product registration, reimbursement, tendering, pricing and distribution in China is expected to become more fragmented. Access conditions tend to vary at the provincial, the city, and even at the hospital level.

The government on the other hand, faced with fast-growing healthcare costs, will have an impact on pricing and is aiming for 15 to 25 percent price reductions on high-value consumables and surgical devices.

China’s system of service charges and reimbursements makes everything even more complex.

Policies in these areas, formulated and applied at the local level, will probably remain in force for years to come.

There is no doubt that the Chinese medical industry is one that is rich in opportunities for collaboration, joint ventures and of course a high potential for profitability. Despite the recent policy changes and the relatively fragmented system, the basic market elements needed for success remain strong with significant opportunities for private investment.

For further quantitative information on the Chinese healthcare system and the macroeconomic climate, please look into our Business intelligence platform or order the TforG Deep Dive report for China containing volumes of 600 surgical procedures across 10 specialisms.