China’s health system is under massive pressure to reform and expand. There is huge demand for new hospitals, which require foreign know-how and private investors to provide the latest in design and management as well as medical engineering equipment. According to government stipulations, the foreign share in medical joint ventures and partnerships is not allowed to exceed 70%. However, the sector’s openness to foreign capital is constantly in flux, reports Germany Trade and Invest (gtai, Berlin / Germany; www.gtai.de).

Depending on which data is taken into account, the Chinese health segment occupies rank two or three in the world, gtai reports, adding that in the coming years, the country’s medical engineering sector is expected to grow at a rate exceeding that of the global market. Regardless of this, the market experts predict that foreign imports will have an increasingly tough time penetrating the local market. Aside from initial signs of saturation in the high-end medical engineering segment, the "buy local" requirements stipulated by state-owned hospitals, higher and more expensive registration requirements as well as a rapidly growing local competition could slow the segment’s dynamic development this year.

While several different researchers have estimated that the global medical engineering market will grow by anywhere between 3-5% over the next three to five years, China's market is estimated to rise by more than 10% per year in the near future. This would propel the country to rank two of the world’s leading medical engineering markets, behind the US. It remains unclear, however, in how far foreign suppliers will be able to partake in this growth. The market in China is in a state of constant flux – whether with regard to hospital ownership, sales structures, registration criteria or calls for bids. These changing framework conditions have led many international players to proceed with extreme caution, and to date the importance of the Chinese market remains quite low from a revenue point of view for international players, despite the country’s importance and size.

Imports of medical technology into China grew by less than 6% in 2014, gtai says. German industry association Spectaris (Berlin; www.spectaris.de) reports that German imports in fact only rose by 0.4%. In Q1 this year, German deliveries to China fell quite dramatically year-on-year – even if the decline is partially the result of rising local production using German technology. German orthopaedic imports into the country reached a value of USD 60.5 bn in Q1, translating into a year-on-year rise of 22.8%.

For some time now the Chinese government has been targeting the high-end segment consisting of machines for magnetic resonance techniques including computer, X-Ray and imaging. Up to 90% of these – depending on the product type – are sourced from abroad, with the market dominated by General Electric, Phillips and Siemens. In China itself, this type of equipment is only used at about 1,500-2,000 top-notch hospitals, most of which are located in cities along the country’s eastern coastline. The remaining roughly 20,000 hospitals either do not have such type of equipment or have to rely on local suppliers and a standardised offering.

The import share of high-quality disposable medical goods lies at about 70%, the China Association for Medical Device Industry (CAMDI) estimates. Foreign deliveries account for about 65% of in-vitro diagnostic devices, and for 40% of local demand for medium- and high-quality medical engineering equipment. Players eager to exploit the growth in the country should therefore also be able to cater to the medium and lower segment, and would be well advised to have a local production plant, gtai says.

Collaborations with local players are quite popular in this particular field, and their number has risen rapidly in the past few years. Rather than being joint ventures, these types of co-operations usually consist of licensed manufacturing, buyouts or shareholding. This illustrates that the Chinese market, too – albeit at some delay – has become an example for growing consolidation carried out by multinational groups. This trend is also becoming evident on the export front. CAMDI reports that multinationals operating in China account for about 80% of the country’s exports of both medium- and high-quality goods.

By contrast, the going is getting increasingly tough for small and medium-sized suppliers of medical engineering components. Since May 2014, both domestic and foreign producers have to carry out clinical studies in order to receive permits for both risk class II and III, gtai reports. Even the smallest changes in product and material and design also require renewed permits. Only about 570 products are exempt from the requirement of carrying out clinical studies, and market insiders assert that decisions on whether a permit is required are increasingly made on a case-by-case basis. Uncertainty about the time it takes for a permit to be issued and the related costs is making life particularly hard for medium-sized foreign companies. To make matters even more complicated, they also need to have a local business presence in order to have their product registered.

Adding even more confusion to the already murky situation is the fact that permits for innovative products can sometimes be issued without clinical trials. By April 2015, about 23 products had registered for this “fast track approval channel”, three of which had passed. To qualify for this process, the core technology used needs to be registered as a patent at the State Intellectual Property Office. The reason behind this is that the government wants to see more innovation in the sector, and has already indicated its willingness to offer more support. Medical technology is one of the 10 strategic segments identified by the “Made in China 2025” development programme launched in March this year. Domestic players like Mindray (2014 sales of USD 1.3 bn) and Yuwell (USD 271m) have already carved out a role for themselves in the standard segment, although the local competition is also getting fiercer. Other leading device producers include Andon (USD 70m) and Lepu (USD 270m), gtai says, while also pointing out that Wego is an important producer of medical one-way materials, with sales of about USD 850m.

Rising decentralisation in sourcing decisions – a result of bidding being carried out at both the local and the regional level – is adding to the market’s complexity. In some product segments, suppliers are forced to work through numerous bids and have to supply comprehensive documentation for participation in each of them. Foreign players report that in cases where a strong local competitor is bidding for the same contract, their own chances of success are slim to none. The country’s sales system for many products is thus not only fragmented but also intransparent. The current practice is to sell products directly to the hospitals, using a network of regional and local distributors. This makes it near impossible for product developers and physicians to be in touch about the material’s proper use or exchange information on new developments. Decisions on which products are purchased are, however, made by the hospital’s physicians together with the relevant hospital administration.

Contrary to the established practice in the west, Chinese hospital administrators are not very well paid, and the government’s recent anti-corruption drive has also been extended to the country’s health sector. In late April, for instance, a local economic magazine reported that eight hospital administrators had been arrested in Shaanxi and Yunnan provinces for embezzlement and the acceptance of bribes.

The role of plastics in medicine was discussed at a high-level conference organised by Plasteurope.com and Adsale at this year’s “Chinaplas” industry fair, where both international and local players spoke about innovations, the market situation and legal requirements. Due to overwhelming interest, the conference will be held again at next year’s “Chinaplas”. Interested parties should contact leonie.schultens@pieweb.com for further details.