China's Medical Device Industry: Growing Market,
New Regulations
Fuel Competition
by: China Market Research Group July 24, 2009
Looking to address shortfalls in its current health care system, the Chinese government is implementing large-scale health care reforms. In April, the State Council announced an allocation of 850 billion RMB (US$123 billion) as part of its New Medical Reform Plan to improve health care through 2011. The plan promises to cover 90% of China’s population under a universal health care system by 2010 as well as to significantly improve care facilities and expand health related infrastructure.
Within three years, the government aims to rebuild and restructure 3,700 existing urban community health centers and 11,000 community health clinics, and build 2,400 new urban health centers. The goal is to move away from an overreliance on large magnet hospitals towards smaller, more utilitarian clinics. These measures will address the overcrowding and lack of hospital beds in big cities, and foster the development of infrastructure needed to cope with China’s aging population.
Beijing has placed an even greater emphasis on improving medical services for the 800 million rural poor in China who have little or no access to basic health care facilities and poor health coverage. The China Rural Cooperative Medical System Plan entails bringing clinics to every village and a hospital to every county in the country by 2011. If the plan’s objectives are met, this adds up to at least 2,000 new county hospitals and 29,000 village clinics.
One potential beneficiary of these changes is China’s medical device industry. According to pharmaceutical market researcher Episcom, by 2014, the expected value of China’s medical device market will reach US$28 billion -- more than double the figure from 2006. According to experts, growth in the sector is largely due to the increasing portion of the population who can afford high-quality implants or home-use devices, new regulations regarding the purchase of equipment, and the government’s growing emphasis on health coverage in rural areas.
Impact of Recent Regulation
As Beijing works to improve health care capacity, it is also aiming to develop the level of care available at smaller clinics and Tier 1 and Tier 2 hospitals (hospitals with less than 500 beds) while reducing costs.
The Ministry of Health has tightened controls on purchases of high-priced "Group A" medical devices -- those costing more than 5 million RMB (about US$710,000) -- arguing that such equipment could contribute to rising medical expenses. However the government is still encouraging spending and has allocated 8.3 billion RMB (US$1.2 billion) until 2010 for the purchase of X-ray machines, patient monitoring devices and ultrasounds for rural areas. The government is also offering hospital equipment subsidies that favor domestically made, low-cost products -- part of its “buy China” stance when disbursing stimulus funds.
In addition to regulations related to the purchase of medical devices, Beijing is also funneling money towards research and development. Through the recent stimulus package, the Central Government plans to invest 62.8 billion RMB (US$9.2 billion) in technology R&D. Chinese firms have traditionally competed for the low-end of the market while foreign firms have occupied the high-end, but government support for research and development and an ambition by many Chinese firms to become global players is changing the playing field.
Meanwhile, new care facilities will need to be equipped and existing hospitals are demanding new devices, as 60% to 70% of current hardware is from the 1970s or 1980s.