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Healthcare Resource Guide: China

 

China Statistics

Summary
Market Entry

Current Market Demands & Trends

Main Competitors

Barriers
Registration Process

Trade Events

CS Contact

FAQ

Capital: Beijing

Population: 1.67 billion
GDP*:
USD 10.3 trillion

Currency: Renminbi
Language:
Mandarin Chinese

Summary

China has been one of the fastest growing economies in the world with a GDP of 7.4% in 2014. Medical device market is one of the fastest growing market sectors in China, which has an average growth rate of 20% within the last decade. That leads to the fact that, in 2013, China surpassed Japan to become the second largest medical device market in the world.

China offers significant potential for U.S. companies interested in entering and expanding into the Chinese medical device market. In 2014, the market scale of the medical device market reached Rmb255.6 billion, an increase of 20.5% when compared to 2013. Among it, more than 76 percent of market demands come from hospitals. Based on the target policy set by China’s Health and Family Planning Commission, 70 to 75% of the medical devices in Tier-3 hospitals and 66% of that in Tier-2 hospitals will be imported from foreign countries. With an increasingly aging population and increasing health awareness, there is a great potential for the medical device industry on the mainland.

China’s medical device market is dominated by domestic suppliers, the majority of which generally lack the expertise and experience deemed appropriate by Western standards. While only a few Chinese medical device companies are upgrading to provide some mid- to high-range technology and products, the high-tech large medical equipment is dominated by foreign suppliers. Compared with domestic products, imported products are better accepted by the Chinese hospitals and the Chinese view foreign medical device companies as more credible than their Chinese counterparts. Therefore, the Chinese healthcare market is poised to be explored by those foreign enterprises that have interest.

The new regulation (Order 650) was implemented on June 1, 2014. There are some modifications in the new regulation, all imported medical devices and products must be registered with the China Food and Drug Administration (CFDA). Barriers still exist for U.S. companies looking to do business in China, thus the medical device market should be approached systematically. The strategy should be part of a company’s long-term goals, and possibly initiated by way of strategic alliance.

Market Entry

China’s rapidly changing regulatory environment will likely have a short-term negative impact on the overall market. China Food and Drug Administration (CFDA) is the government body responsible for regulating medical devices by testing, evaluating, and giving administrative approval for medical devices to be sold in the Chinese market. Before entry into the Chinese market, U.S. companies should pay attention to:

Regulations and Standards

Recently, China’s State Council promulgated the Regulation for Supervision and Administration of Medical Devices (Order 650) which went into implementation on June 1, 2014. It is the revision of the old regulation Order 276 which was implemented in 2000 by the former CFDA, (SFDA). Based on this new regulation, all import medical products must be registered or notified with the CFDA through the foreign manufacturer’s authorized distributor, or through its representative office or subsidiary in China. Modifications concerning product registration, including extending existing registration certificates from four years to five and Class I products require notification with CFDA. Class II & III products are required to be registered with CFDA. Additionally, all medical devices must have product description and labeling in Chinese to meet the regulation and related compulsory standards. The product manual must also state the country of origin and the detailed contact information of the distributor.

Set up representative office

A great number of foreign companies have selected to set up a representative office to manage product registration, promotion, marketing, training and support while appointing regional or local distributors for sales, actual operation, logistics and receivables with hospitals.

Set up your own trading company

Models for establishing your own trading company do exist. For example, if you establish a FICE (short for a foreign invested commercial enterprise), it is not necessary to use a local partner. A FICE has the right to distribute in China as well as to export to foreign markets.

Designate distributors

China is a big market, varying greatly from one region to another. China is normally divided into three major regions: north China, south China, and east China. However, it can be further divided into northeast China and mid-west China. Depending on the type of products, US companies can enter the Chinese market through regional distributors that can broadly cover secondary markets but usually rely on local Tier II or Tier III distributors for sales in each locality. Direct contact with the right local distributors may give foreign companies greater control and better representation. These local distributors are also highly product or department-oriented. Selecting the “right” distributor can be an important key success factor.

Participate in technical seminars or exhibit in industrial trade shows in China

Participating in shows/events, ideally with an agent or distributor, offers new-to-market companies greater exposure. This provides networking opportunities with key contacts in their specialized field and provides direction for future market expansion.

Current Market Demand & Trends

Currently China’s medical device market has two distinct categories: 1) domestic manufacturers who supply low to mid-range products, over 80% of the domestic manufacturers belong to this category 2) foreign-sourced, high-end products supplied by large companies like GE, Philips, and Siemens. According to the 2014 China Medical Device Industry Development Bluebook issued by China Medical Pharmaceutical Material Association, by the end of 2014 there were a total of 15,700 domestic medical device manufacturers. China’s total sales volume was RMB 255.6 ($40.57) billion in 2014 representing a growth of over 20% since the close of fiscal year 2013.

The United States ranks #1 in the import medical device market, followed by Germany and Japan. These three countries represent the majority share of China’s imports.

Table I below shows an analysis of medical device imports during 2012-2014 based on HS codes under the medical device categories.

Table I: 2012-2014 China’s Import of Medical Device by HS code from the Top 3 Countries (USD millions)

 

 

 

 

Share

Change %

Change %

2012

2013

2014

2012

2013

2014

2012-2013

2013-2014

World

15,311

17,136

18,088

100%

100%

100%

11.92%

5.56%

U.S.

5,219

5,918

6,059

34.09%

34.54%

33.50%

13.39%

2.38%

Germany

2,713

3,132

3,183

17.72%

18.28%

17.60%

15.44%

1.63%

Japan

2,359

2,210

2,313

15.41%

12.90%

12.79%

4.66%

China offers significant market opportunity for U.S. companies interested in entry or expansion in the China market. Due to the growing demand for access to better health services and with the government’s support and investment in the establishment of a healthcare infrastructure meant to benefit every Chinese citizen.

China has about 25,509 hospitals, 52.3% are public hospitals. Compared with 2013, the number of public hospitals was decreased by 98 and that of private hospitals was increased by 1,137. In 2014, China announced to allow foreign investors to wholly own hospitals in seven cities and provinces (Beijing, Shanghai, Guangdong, Fujian, Hainan, Jiangsu and Tianjin), further opening up the country's fast-growing private hospital sector. Of the USD 41.3 billion medical devices sales market in 2014, 76.1% was taken by hospitals, and 23.9% were by retail markets.

The Chinese hospitals consider U.S. products to be of superior quality as well as the most technologically advanced and they particularly welcome medical equipment and products with high-technology content. U.S. firms garner nearly three-quarters of their local revenues from the tier 3 hospitals and the remainder from the tier 2 hospitals. In an effort to capitalize on China’s burgeoning medical device market, U.S. firms have expanded their local presence in China while also targeting the country’s rural population. At the same time, domestic medical device companies are consolidating, upgrading quality, and beginning to compete in medium- level technology niches. With the government policy to align to supporting and encouraging medical device innovations, some domestic manufacturers such as Shenzhen Mindray are growing stronger and are already competing with foreign suppliers.

Given the status of the Chinese medical device market, significant potential exists for U.S. companies interested in entry or expansion in the Chinese market. China continues its healthcare reform under the new Administration which has entered into the stage of deepening public hospital reform at all levels. Chinese government invested RMB1, 007 billion ($167 billion) in 2014 in healthcare sector, an increase of 9.6% year-on-year. The total healthcare expenditure is aiming to increase from 5.56% occupancy of its GDP in 2013 to 6.5 to 7% by 2020. While the newly released State Council’s guideline about pilot reform on urban public hospitals and the foreseeable cost increase after charging CFDA registration fee signal difficulties to U.S. companies, opportunities still exist for U.S. companies with high technology and quality products.

The best-selling prospects in the medical device sector include:

  • Medical diagnostic and imaging equipment: Black & white and colored supersonic diagnostic units, sleeping monitor, digital X-ray system, MRI, CT, DR, and ultrasound equipment.
  • Surgical and emergency appliances: Anesthesia ventilation systems and components, high frequency surgical equipment, high frequency and voltage generators.
  • Implantable and intervention materials and artificial organs: Interventional materials, implantable artificial organs, contact artificial organs, stent, implantable materials, and artificial organ assisting equipment.
  • In vitro diagnostic equipment and reagents: Clinical and diagnostic analysis equipment, diagnostic reagents, medical test and basic equipment instruments, and point of care testing (POCT).
  • Therapeutic products: Tri-dimensional Ultrasonic-focused therapeutic systems, body rotary Gamma knife, simulator, linear accelerator, laser diagnostic and surgical equipment, nuclide treatment equipment, physical and rehabilitation equipment.
  • Healthcare Information Technology related equipment and products: Medical software, computer-aided diagnostic equipment, and hospital information systems (HIS, CIS, and HLT).
  • Medical equipment parts and accessories.


Main Competitors

Depending on specific product type, the main competitors include EU countries (specifically Germany) and Japan. Current government policy supports and encourages medical device innovation inside China. Some domestic manufacturers such as Shenzhen Mindray and Shandong Shinva etc. now create high-quality products and are beginning to compete against foreign suppliers in medium- to high-level technology niches.

Barriers

Barriers exist with an uncertain regulatory environment and extensive delays in registration and re-registration of products. Additionally, pricing control, tender, and bar code systems also play a role of delaying a company’s entry into the Chinese medical device market.

While reform of the healthcare sector is creating new opportunities, it has not completely opened the market to foreign companies. Despite the enormity of the market, U.S. companies face significant challenges when entering the Chinese healthcare market. Barriers include onerous pricing and reimbursement policies on pharmaceuticals and medical devices, inadequate intellectual property protection, and bureaucratic delays in registering products for sale. Numerous restrictions and an ever-changing regulatory environment add to the challenges faced by US companies trying to enter the healthcare market in China.

The Chinese government has issued new policy giving more support to domestic suppliers by encouraging innovative new products inside China. Domestic manufacturers whose products are defined, by CFDA, as innovative are expected to get an expedited approval in product registration, allowing them more lead time to enter the market and to complete against foreign suppliers in China.

Registration Process

All imported medical devices require registration or notify with the CFDA before being sold or distributed in the Chinese market. In China, medical devices are divided into three classes depending on levels of risks similar to but different and stricter than that of USFDA. According to Order 650, all Class II & III are required to be registered with CFDA while Class I products are required to be notified with CFDA. Clinical trials are required for Class III and some Class II medical devices unless they are on the CFDA’s exemption directory for clinical trials.

Generally speaking, the process is complex and time consuming. Depending on the product class, it can take one to three years after submission of all necessary documents and respective samples for testing. U.S. companies are encouraged to register their products through their authorized distributors if they do not have a representative office or subsidiary in China. The CFDA has a comprehensive system for medical device registration and inspection, including product testing and factory audits. A company is required to provide a testing report for the product conducted by a Chinese lab. The company is also required to submit a product standard according to China's “Product Regulation Standard”, for CFDA's record. In addition to the service fee charged by a local company for translation and product standard compiling, the cost varies for registering a product with CFDA, which includes product testing in an authorized Chinese lab, the technical evaluation at the CFDA’s Medical Evaluation Center, and final administrative approval by the CFDA.

Trade Events

MEDTEC China 2015

September 22-24, 2015

Shanghai

http://www.medtecchina.com/

The 74rd China

International Medical Equipment Fair (CMEF)

October 18-21, 2015

Wuhan

http://en.cmef.com.cn/

Dentech China 2015

October 21-24, 2015

Shanghai

http://www.dentech.com.cn/

Dental South China 2016

March 2-5, 2016

Pazhou, Guangdong

http://www.dentalsouthchina.com/En/

The 75th China

International Medical Equipment Fair (CMEF)

April 15-18, 2016

Shanghai

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