Is the medical devices market China’s “next big thing?”
With the publication of the 12th Five Year Plan, a lot of favorable details for scientific development are now visible. The government put much emphasis on the subject of “important strategic emerging industries”. Advanced equipment is one of the seven domains in which China hopes to build long-term strategic, industrial policy. One representative of “advanced equipment”, the medical device industry, is expected to display huge growth.
Growth expectation supported by favorable macro-environment in China
According to McKinsey (2012), spending on China’s health-care sector is estimated to grow from $357 billion in 2011 to $1 trillion in 2020. China is a most attractive market for medical device companies. The earlier medical device manufacturers enter the market, the larger the possibility of profitability. This is true for several reasons. First, new health care reform, which the Chinese government is pushing strongly, requires village hospitals and small town hospitals to increase the amount of high-quality medical equipment. Devices for disease detection and diagnostic imaging are two examples of in-demand items.
Second, the Chinese government has been making efforts to improve legal regulation and a better environment for medical businesses to develop. Policies have been revised regarding registration of the import of overseas medical devices, gaining production permits in China, and regulation of clinical tests for equipment. The government now largely encourages domestic companies to pursue technological innovation and to attract foreign direct investment.
Third, the increase of per capita incomes along with rapid GDP growth makes it possible for Chinese people to care more about their health and beauty. More and more Chinese people will prefer to visit hospitals and beauty parlors that employ high-end medical equipment. Moreover, because of the aging population (about 15% of people in China are over 65), there will be more elderly people who need health care. With the rise of mid- to high-end nursing homes, more good-quality medical products will be required to meet the demand from the nursery home industry. In addition, people with strong health awareness may elect to keep some medical care equipment at home, such as small blood detection tools. Considering China’s large population and the increasing number of well-educated people who care about their health, the market potential of home medical care equipment is hard to overestimate.
In addition to new investment, China‘s own medical device industry will also benefit from the upgrade and improvement of existing equipment. About 15% of medical devices currently used in China were made in the 1970s and should be replaced. The government has already announced its intention to replace these obsolete devices in order to leverage health care quality.
In China, diagnostic imaging (38%), medical suppliers (20%), orthopedics and implanted medical devices (13%) accounts for the largest market share of medical devices. They have the largest consumer base and will provide stable growth in the future. The dental sector is expected to witness tripled or even quadrupled growth in a few years. The booming awareness of dental health, from well-educated white-collar professionals down to the rural poor, is the main engine of a revolutionary habit change in personal dental care.
Overview of foreign medical devices in China
China‘s medical device market relies largely on imports. The United States is the major supplier, followed by Japan and Germany. The most in-demand imported products are those that utilize the most advanced technology. 90% of high-tech devices, which account for 70% of China‘s medical device market, are foreign-made. Many Tier-III, first class hospitals specifically require imports to serve wealthier clients. These clients are often willing to pay large sums to be treated with the best medical equipment, especially for cancer, cerebrovascular disease and cardiovascular disease.
Most large medical-device MNCs have already established their offices in China. In fact, of the industry‘s top ten manufacturers in China`s high-end medical device market, seven are foreign invested firms or joint ventures. These companies have established a dominant presence in many of the leading high-end product lines, currently constituting more than 80% of China‘s high-end medical device market. Foreign companies control 80% or more of the medical device market, including ultrasonic equipment, NMR, ECG, physiological recorder, testing equipment, CT, and monitors.
It is crucial for enterprises to understand the specific demands created by China‘s healthcare reform and to identify the unique strengths of their own products. A clear understanding of the ongoing evolution of China‘s healthcare regulatory environment, coupled with robust relationships with key institutions and other relevant stakeholders, will enable foreign firms to better perform.
Thibaud Andre, Daxue Consulting,