Population: 1.38 Billion
GDP: USD 11,964 Billion
Language: Mandarin Chinese
China’s healthcare market featured continuous, robust growth and dynamic regulatory change in 2017.
GDP (USD BN)
health expenditure (USD BN)
Pharmaceutical & Health products
Market size (USD bn)
% health expenditure
% supplied by imports
Per capita (USD)
Source: BMI Research; Ref. exchange rate: 6.7
The medical device market is one of the fastest growing market sectors in China, having maintained double-digit growth for over a decade. In 2017, the medical device market reached $64.49 billion, an increase of 20% compared to 2016. Over 70% of this growth is fueled by hospital procurements. However, China’s medical device density (MDD) remains among the lowest in the world, which stands at USD$6 per person, comparing to developed countries where MDD usually exceeds USD$100.
Local suppliers mainly compete in low-end consumables, artificial teeth, hearing aids, Mechano-therapy apparatus, wheelchairs, etc. Nevertheless, high-end consumables such as diagnostic imaging and endoscopy will maintain the need for imported products.
The import and export of pharmaceutical and dietary supplements products totaled USD 26.6 billion in 2017, with exports accounting for about USD 4.3 billion and imports approximately USD 22.3 billion.
Medical reform on market entry requirements and payment systems combined with regulatory changes on pharmaceutical prices together will continuously and decisively shape commercial opportunities. The generic drugs business confronts increasing competition from local manufacturers. Nevertheless, as 10% of the global market and an increasingly prioritized sector in national strategy, China’s healthcare market remains at our ‘recommended’ level.
The global market for dietary supplements is expected to grow at a significant rate owing to raising global awareness towards well-being and preventative care. China’s health supplements market, fueled by an aging population and increasing dispensable incomes, is forecasted to be worth USD 26.5 billion by 2020. China may soon overtake the U.S. as the largest nutritional products market in the world. Foreign supplements are appealing to the Chinese people, especially through cross-border e-commerce channels where foreign companies can bypass the lengthy and costly conventional registration process.
Healthcare Policy Issues
China is one of the most promising healthcare market for U.S. exports in the long-term given its size and growth potential. Rising per capita income, an aging population, greater access to healthcare and recent regulatory reforms are key drivers that will enhance the appeal of China's market to U.S. companies. There are, however, significant challenges for U.S. companies in this market. The Chinese government is focused on healthcare as one of its priority sectors to cultivate national champions and to promote indigenous innovation and R&D investment. Common market access barriers include regulatory approval delays, lack of meaningful IP protection and enforcement, pricing and reimbursement controls, and procurement preferences that increasingly advantage domestic companies over foreign multinationals. Encouragingly, last year the China Drug Administration (CDA) proposed significant reforms related to requirements for conducting multi-regional clinical trials, improving intellectual property protections, and accelerating the review and approval of new drug and medical device applications. If implemented, such reforms would meaningfully improve the regulatory environment for U.S. firms and promote access to innovative treatments for Chinese patients.
Companies should also be aware that China is in process of reorganizing state agencies overseeing drug regulations, including merging CDA with its enforcement agency, the State Administration for Industry and Commerce (SAIC), and its inspection agency, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) to become a new agency, the National Regulatory and Management Commission. The plans also include formation of a new Medical Reimbursement Agency (MRA) that will oversee medical insurance policy in China. The new MRA will control drug price regulation and reimbursement policy, as well as centralized procurement for drugs and medical devices. Meanwhile, China’s National Health and Family Planning Commission (NHFPC) will be merged into the National Health Commission, a new agency that will oversee healthcare policy and reforms.
China’s rapidly changing regulatory environment will likely have a short-term negative impact on the overall market. In March 2018, China restructured its government organizations. The newly established China National Drug Administration (CNDA) (slightly different from the former China Food and Drug Administration or CFDA) is the government body responsible for regulating medical devices and drugs by testing, evaluating, and giving administrative approval for medical devices and drugs to be sold in the Chinese market. The registration requirements and procedures currently remain unchanged, except for more simplified processes to expedite the certification of innovative drugs and medical devices being adopted.
In March 2015, the CFDA introduced new fee requirements for drugs (new and generics) and medical devices (Class II and Class III).
The fees for imported drugs are as follows: USD 58,150 (CNY 376, 000) for imported new drug registration related to clinical trial approval, USD 91,383 (CNY 593,900) for imported new drug registration related to production/marketing approval; USD 56,562 (CNY 367,600) for imported generic drug registration related to production/marketing without the need to conduct clinical trials, USD 77,242 (CNY 502,000) for imported generic drug registration related to production/marketing approval with the need to conduct clinical trials; and USD 34,959 (CNY 227,200) for drug registration renewals (every five years).
The fees for imported medical devices are as follows: USD 32,446 (CNY 210, 900) for initial registration of a Class II medical device, USD 47,508 (CNY 308,800) for initial registration of a Class III medical device, and USD 6,277 (CNY 40,800) for registration renewals (every five years). These fees do not include costs for clinical trials, in-country representation, and translation. The CFDA issued a number of rules first in 2015 and then at the beginning of 2016, including “Rules for the Classification of Medical Devices,” “Measures for the Supervision and Administration of Use Quality of Medical Devices,” “Naming Rules for the Generic Names of Medical Devices,” and “Good Clinical Practices for Medical Devices.”
From May 11-12, 2017, China’s Food and Drug Administration issued four draft circulars aimed at expediting reviews of drugs and devices, expanding the infrastructure for clinical trials, improving enforcement actions, and establishing a patent-linkage system with improved intellectual property protections. Covington & Burling, a law firm, notes that the new circulars will shorten the gap between China and Western countries regarding regulatory oversight of drugs and medical devices. According to Bloomberg BNA, the proposed policies will “substantially speed up the marketing approvals of imported and domestic drugs or medical devices, and provide some meaningful IP and data protection from a regulatory perspective”.
A great number of foreign companies have elected to set up a representative office to manage product registration, promotion, marketing, training, and support while at the same time appointing regional or local distributors for sales, actual operations, logistics, and receivables with hospitals.
Models for establishing your own trading company do exist. For example, if you establish a FICE (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.
China is a big market, varying greatly from one region to another. China is normally divided into three major markets: north, south, and east. However, they can be further divided into the northeast and mid-west markets. Depending on the types of products, U.S. companies can enter the Chinese market through regional distributors that can broadly cover secondary markets. However, U.S. firms 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. Brand owners and manufacturers are advised to support distributors on training and marketing etc. in order to maintain competitiveness in the market.
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.
Healthcare products such as nutritional supplements can still come into the Chinese market through cross-border e-commerce without registration and clinical trials. However, policy stability is uncertain, and companies are advised to register their products with CFDA as needed.
Current Market Trends
China remains one of the world’s largest and most dynamic markets for the health industry. The strength of the Chinese health market is a result of sustained demographic change, increasing urbanization, and lifestyle change. According to an EIU study, by 2020, China’s aging population is expected to count 176 million over the age of 65. This will be compounded by increased concentration in urban areas, putting an even bigger strain on healthcare resources. Also undeniable is the effect of pollution and poor dietary habits on the increase in chronic illnesses – China, with its 100 million diabetics, is sometimes referred to as the “diabetes capital of the world.”
In order to combat the deteriorating health of its citizens, the Chinese government announced a new 5-year plan in 2015, with the goal of “Healthy China 2020”. This plan called for an increase in medical infrastructure, specifically private hospitals, with the goal of a 30% increase in beds at public hospitals and a 100% increase in beds in private hospitals. “Healthy China 2020” also vastly expanded insurance coverage.
Consequently, fiscal spending on healthcare surged by 10% in 2016 to 1.24 trillion yuan, about USD $185 billion, according to the Ministry of Finance. Likewise, the total number of hospitals rose to 28,471 in 2016 with 2,059 new private hospitals added between September 2015-2016. Notably, 95% of Chinese are now insured. It is projected that China’s healthcare spending will reach $1 trillion in 2020.
Although there are caveats, foreign healthcare companies will likely benefit from a larger insurance net, better infrastructure, and new government-supported innovation. Additionally, companies will have a better regulatory picture.
Of China’s USD $663 billion total spent on healthcare in 2016 (BMI 2017), $18.8 billion was spent on medical devices. Even though China is the world’s second largest medical device market, there is still huge room for improvement, as the trends discussed earlier (urbanization, rise in chronic disease, etc.) continue to drive insatiable demand. Recently, many foreign companies have moved to China in order to qualify for new government incentives for domestically produced devices.
As for pharmaceuticals, China is second only to the U.S. with USD $116.7 billion worth of sales in 2016. The CEO of Novartis projects that this mark could stretch to USD $300 billion in 2020 (Bloomberg April 2017). However, it is important to note new drug regulations. China will limit the number of invoices between drug manufacturers and hospitals to two, eliminating thousands of local intermediaries. Although this will help foreign companies consolidate supply chains, there is still the risk of corruption, and several foreign companies have been fined for bribery. More importantly, China released a new list of reimbursable drugs for the first time in eight years, adding 339 new drugs to a list of 2,535 foreign and domestic medicines. Placement on this list allows a drug to be covered by state insurance, thereby making it crucially available to the mass market. This comes at a heavy cost, as drug companies are forced to slash prices in order to qualify for the list – an integral part of China’s reform is to make drugs more affordable. Finally, there is hope for future deregulation that will greatly hasten overseas drug approval in China and make launch times on par with that of most advanced economies.
In sum, healthcare system reform, an increasing urban and aging population, the epidemic of chronic illness, new regulation and more public investment in expanding healthcare coverage continue to drive excellent Chinese market growth.
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, Edan Instrument, and Shandong Shinva now create high-quality products and are beginning to compete against foreign suppliers in medium- to high-level technology niches.
China’s pharmaceutical market has maintained a constant two-digit CAGR over the past few years. In 2017, the market size reached USD 140bn, an increase of 30% compared to 2016. Prescription drugs accounted for over 80% of the total sales. According to BMI, the import value was USD 25.92bn, catching up the total market’s growth rate 30%. Oncology, infectious disease, digestive and metabolism disease drugs contributed nearly 50% of the prescription market according to a McKinsey survey of 1029 sample hospitals.
Retail sales of drugs gained a strong momentum (9.9% growth) thanks to more provinces allowing online sales of prescription drugs since 2016. Drugs for flu, cardiovascular, digestive and hypertension accounted for one quarter of drug retail sales. Oncology drug sales reported the fastest growth rate 33%, to RMB11bn, as found by Sino Health.
With an average growth rate over 20% in successive 3 years, China has one of the most dynamic markets for medical devices which valued USD68bn in 2017. In spite of that, local manufacturers develop and hawk the market share rapidly, import of medical devices still reported over 10% increase in 2017 and the value of USD3.2bn, according to an annual report from the China Association for Medical Devices Industry. While China Ministry of Industry and Information Technology data indicates that China medical devices industry slowed down in 2017, the fast-growing market expects more imports to fill in the gap, especially the high-end market, which can hardly be substituted by local products, like CTs, MRIs and high-end vitro diagnosis equipment.
“Internet-plus health” provided by the China government remains a hot topic and trend for the transformation of the traditional healthcare sector. Local IT service providers like Alibaba are actively shaping the framework by seeking partners overseas.
Investment capital continues to flood into private hospitals that provide specialized services like ENT, stomatology etc. These private hospitals are mostly designed to provide better services and attract high-end patients, and thus will play a significant role in importing and using high-end medical devices.
All imported drugs and medical devices require registration or notification filing process 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 the USFDA. According to Order 650, all Class II and III devices are required to be registered with the CFDA while Class I products are required to be notified with the CFDA. Clinical trials are required for Class III and 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 the submission of all necessary documents and respective samples for testing. U.S. companies are encouraged to register their products through their authorized distributors or registration agents (e.g. Contract Research Organizations or CROs) 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 an authorized Chinese lab. The company is also required to submit a product standard according to China’s “Product Regulation Standard,” for the CFDA’s record. In addition to the service fee charged by a local company for translation and product standard compilation, the cost varies for registering a product with the CFDA. This final cost also includes the prices of product testing in an authorized Chinese lab, the technical evaluation at the CFDA’s Medical Evaluation Center, and final administrative approval by the CFDA.
From April 1, 2017, the Ministry of Finance and National Development and Reform Commission (NDRC) has cleaned up and regulated 41 types of administrative and institutional fees that are set up by the central government. 23 types of fees will no longer be charged, such as the testing fee - including the drug testing fee and testing fee for medical devices and products.
In March 2017, China’s CFDA announced it would allow foreign companies to use multi-regional clinical trial data to support new drug applications in China as long as the trial design fits China’s technical guidelines. This means that companies will no longer need to conduct a second, local trial in China after running their global trials.
The medical reimbursement system in China is also a very complicated one; yet, the relatively modest level of health insurance (aka Basic Medical Insurance or BMI) cover for most residents makes costly treatments unaffordable. The medical insurance program is included as a part of a social security insurance, often dubbed as “five insurances plus one house funding.” However, patients can only get partially or fully reimbursed if their prescriptions or procedures are pre-included in a “medical insurance catalog,” which often only covers basic needs. Each province gets to decide what the catalog looks like for its local patients, however, because public hospitals are under increasing financial pressures to control their expenditure, they will usually stock and prescript according to the list, in order to avoid creating a heavy burden on the social welfare net. So generally speaking, foreign products are often barred from getting into the medical insurance catalog due to local protectionism and having a higher price point. If a patient is in acute need of a high-quality antibiotic that is not included in the catalog, the patient needs to pay out of pocket. Consequently, the catalogue discourages physicians from using expensive imported drugs, especially on patients with chronic diseases who need long-term medication. Furthermore, it leads to many problems in hospitals, including bribery. Lastly, many provinces have halted the process of updating the catalog for years, resulting in fewer innovative drugs able to serve the increasing needs of the Chinese public.
Generally speaking, the healthcare sector is heavily regulated in China, both on national and local levels. Barriers exist in the forms of an uncertain regulatory environment and extensive delays in registration and re-registration of products. Additionally, price control, tender, and bar code systems also play a role in delaying a company’s entry into the Chinese medical market.
Although healthcare sector reform has created new opportunities, it has not completely opened the market to foreign companies. Despite the enormity of the Chinese market, U.S. companies thinking about entering face significant challenges. 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 U.S. companies trying to enter the healthcare market in China.
Meanwhile, the Chinese government has issued new policies giving more support to domestic suppliers by encouraging innovation inside China. Domestic manufacturers whose products are defined by the CFDA as innovative are expected to get expedited approval in product registration, allowing them more lead time to enter the market and to complete against foreign suppliers in China.
The CFDA’s drug registration process is complex and time-consuming because companies must navigate an intricate, multi-layered network of healthcare organizations, resulting in multiple disparities. Depending on the product class, it can take one to three years after submission of all necessary documents and respective samples for testing. For new drugs that have received clinical trials in its original country, the companies are required to conduct separate local clinical trials by approved laboratories in China. It is only after the completion of Phase 1 clinical trials that foreign innovative drugs can apply for Phase 1 clinical trial in China (please see new regulation update http://www.biopharmadive.com/news/china-drug-trials-manufacturing-generics-cfda/439487/). To a certain extent, making clinical trial institutions go through the approval system limits the effective use of clinical resources. Disparities in qualifications to conduct clinical trials between large hospitals result in doctors’ lack of motivation to take part in clinical trials. China is still at the research stage, whereas some developed countries have policies that encourage innovation such as clinical data protection, patent linkage, and patent compensation. On the medical device side, China has issued two batches of Class II Medical Device Clinical Trial Exemption Catalogues and Class III Medical Device Clinical Trial Exemption Catalogues.
Local protectionism is not news. The favoritism towards local companies is often demonstrated from the hospital procurement process. For instance, there is not much differentiation between the original brand name drug and the generic drug when it comes to bidding classification. When evaluating the adopting of a drug, there is an inclination to always go with the lowest-priced bidder, regardless of its effectiveness in patient studies.
Even for novel drugs or tests that have existed for a long time or have been adopted for several decades in foreign countries, there are many ways to be blocked in the Chinese market. Even with proper registration and licensing, drugs and procedures need charging codes in order to be adopted by doctors and performed in public hospitals. Without them, there is simply no way to start. The lack of clinical data and bedside experiences prevent doctors from adopting new drugs and procedures, therefore many new drugs are only used in certain hospitals.
An individual company needs to go through an approval application process through six different entities as follows:
1. hospital head of the department
2. hospital pricing chief
3. provincial pricing bureau
4. provincial health bureau
5. back to provincial pricing bureau
6. Provincial Development Reform Commission (DRC) to grant the charging code.
For medical devices on the national level, there is no new medical service procedures charging code that has been assigned since 2012. As a result, many companies have started to push products into hospitals by getting charging codes on the provincial level. Once a company gets a charging code from the provincial DRC, the charging code can be used in any public hospitals within that DRC’s jurisdiction.
In July 2018, China announced retaliatory tariffs on USD$34 billion worth of U.S. goods including medical device products. These items are indicated as below. For more information on tariffs, please review USTR’s website here: https://ustr.gov/.
Tariff Nomenclature Heading Number
Magnetic Resonance Imaging (Complete equipment)
Ophthalmology apparatus and instruments
Heading 90.18 Unlisted medical, surgical or veterinary instruments and apparatus
X-ray equipment for other medical, surgical or veterinary applications
Other equipment and parts and accessories listed in heading 90.22
MEDTEC China 2018
Date: September 26-28, 2018
Venue: Shanghai World Expo Exhibition & Convention Center
Sponsored by: UBM
The 80th China International Medical Equipment Fair (CMEF)
Date: October 29-November 1, 2018
Venue: Shenzhen Convention & Exhibition Center
DenTech China 2018
Date: October 31-November 3, 2018
56th China National Pharmaceutical Machinery Exposition
2018 (Autumn) China International Pharmaceutical Machinery Exposition
Date: November 4–7, 2018
Venue: Wuhan International Exposition Center (WIEC), Wuhan, China
Dental Show Central China
Date: November 12-14, 2018
2019 Dental South China
Date: March 3-6, 2019
Venue: Pazhou Exhibition Center
The 81st China International Medical Equipment Fair (CMEF)
The 28th International Component Manufacturing & Design Show
Date: May 14-17, 2019
Venue: Shanghai National Exhibition and Convention Center
Generally speaking, China’s trademark registration is fairly inexpensive and straightforward. To show its commitment to WTO pledges, local judges are encouraged to promote rule of law and act against infringements on behalf of the foreign litigants. But, remember that China’s system is ‘first to register’ rather than ‘first to market’. So, if you are seriously looking at this market, registering BEFORE you enter China can save a lot of time, money and frustration should you face infringement at a later stage. The worst case scenario is to have a competitor or other local firms register your brand name in the early stages of your market entry, forcing you to fight an uphill battle for your name. To learn more about protecting your trademark in China, please visit: https://china.usembassy-china.org.cn/tag/ipr/
All imported drugs, including nutritional supplements and medical devices require registration or notification filing process of 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 the USFDA. According to Order 650, all Class II and III devices are required to be registered with the CFDA while Class I products are required to be notified with the CFDA.
Imported Health Food (including nutritional supplements, dietary supplements, and health food) is only allowed to be sold in China after obtaining the CFDA Imported Health Food Approval Certificate.
It is recommended that the exporting company find a reputable and legally registered Chinese agent if it does not have its own Permanent Representative in China. The registration process for drugs, health food, and medical devices differ from each other, but share some similarities as well.
The exporting company need to prepare all required documentation and send samples of the product to CFDA-designated testing institutions for product safety testing and obtain the testing report from the testing institutions before submitting the registration application to CFDA. For drugs and medical devices, clinical trials may be required. If the products pass the clinical trials, the company can submit the application package to CFDA. CFDA will conduct administrative and technical reviews of the application. Upon evaluation, if qualified, CFDA will issue a “Certificate” with which the company can legally sell its products in China. The company can find distributors who are authorized to sell the products in China (Authorization shall be listed in their business license scope, e.g. health food, drug or/and medical devices).
U.S. companies are advised to do thorough due diligence on its potential partner in China, by internet research, conference calls, and especially in person visits etc., in order to ensure the potential partner is a reputable and legally registered entity in China. In addition, U.S. companies can request references of other companies that are doing or have done businesses with the potential Chinese partner as reference checks. The U.S. Commercial Service offers matchmaking services (GKS) to help U.S. companies look for local distributors. Other services like the International Company Profile will assist U.S. companies to do detailed background check such as financial status, and assist U.S. companies in their decision making process.
U.S. Commercial Service Contact Information
Contacts – Beijing
Contact – Guangzhou
Contact – Shenyang
Senior Commercial Specialist
Contacts – Shanghai
Contact – Chengdu
Contact – Wuhan
Catherine Le Commercial Specialist
Sources: Bloomberg, Economist Intelligence Unit, PR Newswire, Towers Watson, BMO Financial Group, Norton Rose, Linkedin, Emergo Group, Financial Times, BMI, McKinsey, SinoHealth
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