Medical Equipment in China

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With the economic and social development, China has become the world's third largest medical device market following United States and Japan and will be the world's second largest market in 3-6 years. It’s projected to grow from USD 10 billion in 2007 to USD 15.5 billion in 2012.

 


Medical equipment and medical drugs are the two major means of health care, the ratio of sales of medical equipment and drug in developed countries is about 1:1, while in China it is only 1:10, so we can see that Chinese medical equipment market has great potential.

During 2004 - 2007, the annual growth rate of China’s medical equipment was 23%, and the imports rose from USD 3.1 billion to USD 4.3 billion with annual increase of 12%. Over 80% of high-tech medical equipment relies on imports. The major overseas players are the United States, European countries, and Japan. There are significant market opportunities for foreign companies, notably those in the mid-price segment.

With its growing and ageing population, coupled with its need for affordable technology that local companies cannot yet deliver, China is an attractive market for overseas suppliers.

The major buyers of the medical equipment are 19,852 hospitals, 80,500 urban and rural health centers, and 3,585 Centers of Disease Control (CDCs). The key customers of imported equipment are large hospitals, the vast majority of which are state-run. While there are 19,852 hospitals in China, only the most advanced ones (less than 1,000 Grade III and possibly some of the 5,000 Grade II) are able to afford foreign technology.

Averages of 322 new hospitals were built each year during 1990 - 2007. This number is expected to go up to 400 annually in the next 10 years. About 30% of total investment in these new hospitals is used for purchasing of medical equipment.

While Shanghai and Beijing are established markets, significant opportunities exist in rapidly growing second-tier cities. 14 of China’s rapidly growing second-tier cities together account for just 8% of China’s population, but 53% of China’s total volume of imports.

Top regional markets for medical devices are Tianjin, Nanjing, Shenzhen, and Chongqing - the first three ranking among the wealthiest second-tier cities in China. Hospitals in these cities have better financial resources, increased purchasing power and are more receptive to foreign products. To be specific, Shenzhen is a key market with its high GDP/capita and receptiveness to new technologies and foreign brands. Chongqing offers good mid-term potential for its large population and relatively low penetration of high-tech products at present.

By 2025, the number of people in China aged 65 or over is expected to top 198 million - the demand for medical devices such as pacemakers will soar.

The vast majority of Chinese, 88% in 2007, still lack health insurance. In addition to this, less than 2% can afford standard Western medical care. Ongoing medical reforms are designed to expand the number of the insured.

Meanwhile, the new Healthcare Reform Plan is expected to result in a growing demand for new hospitals and CDCs. More than 400 new hospitals are expected to be built annually in the coming years, and even more are expected to be built, rebuilt, or expand at the country level in the next ten years. Of 3,585 CDCs nationwide at and above the country level, majority of them need to be rebuilt, relocated, or expended. Township health centers will also receive more attention to upgrade their facilities and equipment.

Starting from 2003, foreign companies need to deal with only one agency, the State Drug and Food Administration (SFDA) which is responsible for import, manufacturing, and distribution of medical equipment & devices. While the overall sales process still lacks transparency with under-the-table dealing being not uncommon, starting from 2005/2006 the situation is improving with stricter enforcement of central procurement procedures and public biddings.

The Chinese method of marketing and selling, a commonly cited problem among foreign medical equipment manufacturers, is risen highly attention. There are over 140,000 registered medical device distributors, including retail stores, throughout China, but only about 5% of them have trans-regional distribution capability, so the quality may vary considerably. Select distributors carefully, based on solid track record, credit history, product specialization, and always conduct thorough due diligence before making a final selection.

Hospitals in China required using a tender process when purchasing new equipment. Lack of transparency and regional differences in interpretation are among the factors that continue to make China a challenging market in which to do business.

Overseas companies are all targeting a limited group of prospective buyers. As the increasing competition between foreign brands, it could not be more important for you to find ways to differentiate your product and offer clear competitive advantages such as price-quality ratio, service level, and user friendliness. To gain access to regional markets, you’d better first establish a solid brand awareness and track record in more developed markets like Shanghai and Beijing.

Besides successful differentiation and branding, strong marketing is demanded as well. This includes active participation in trade shows, advertising in industry trade magazines, and customization in approach to China’s unique characteristics. After-sales service is also an increasingly important factor for hospitals looking for end-user training, maintenance and repairs.

To maintain a long-term development, IP protection remains an important concern for exporters, as competition may come from domestically manufactured “copies” which are far lower in price. It’s enforced to have an IP strategy, register your trademark and patent to ensure rights. While China has a full set of IP laws weak enforcement has led to widespread concerns among all the foreign medical equipment companies. The government’s actions are undoubtedly moving the industry in the right direction, but for the near future at least IP infringement will remain a significant issue in China.

All in all, the domestic providers occupy the low-price end of the market, the multinationals the top tier. But it is the middle market, where the demand for quality goods - whose technology is perhaps two to three generations back down the line - at affordable prices will provide most opportunity for foreign entrants.

Still a developing country, China lags behind many Western nations in terms of its regulatory environment. However, great strides are being made - notably since China’s entry into the WTO - and longer term China looks set to pay dividends for early movers in this market.