The Chinese

Medical Device
Market: A Market
Overview and
Regulatory Guide

Shahin Firoozmand
UC, SAN DIEGO

Introduction
The medical device industry in China has grown at a tremendous pace over the past 5 to 10 years;
foreign firms capitalized on this market expansion by exporting existing medical devices at
breakneck speed and adapting products to local demand. Until recently, foreign firms had a
stranglehold on the most technologically sophisticated medical devices, which are consequently also
the most profitable devices. In recent years Chinese firms have caught up in technology and
business acumen through innovation, acquisition of foreign firms and investment partnerships from
abroad. This new source of competition, as well as shifting demand and regulation, is a serious
hurdle for exporters to China. Yet these changes also open up new possibilities for expansion and
consolidation for foreign firms within niches of the Chinese market.
The objective of this report is to provide a comprehensive overview of the Chinese medical device
market and its regulations to help exporters gauge current business climate and forecast short to
medium term changes. The first section is an overview of the medical device export market and
consumption of devices in China. The second section gives an in-depth view of the regulatory
process for registering and distributing medical devices in China as a foreign manufacturer. This
also includes a guide to the departments and important government bodies that hold influence over
this area as well as recent policies enacted by relevant ministries and bureaus. The third and last
section is a focused view of the endoscope market in China. This section pays particular attention to
the shift of many medical devices toward low cost consumables and how such innovation may
rearrange the configuration of market leaders and industry concentration in the future.

Market Overview
In 2013 the total market value for medical device in China was valued at 16.1 billion USD1 with
many predictions that a bull market will follow for the short to medium outlook. The 2008-2013
period CGR was 21.2%. Per capita spending on medical devices leapt from 4.6 USD in 2008 to 11.6
USD in 2013. This makes China the worlds fourth largest market for medical devices and second in
Asia (behind Japan). According to Ministry of Industry and Information Technology (MIIT) the
total revenue for medical device firms totaled 53.51 billion USD at the end of the 2013.2
Diagnostic imaging devices command
the largest market share in China but
might be headed for a slowdown as
observed by the steady slowing of
growth from 16.3% in 2009 to 10.1%
in 2013 and also due to the upswing in
Chinas domestic technological
capacities. Some subcategories of
medical devices are more highly
1

BMI, Annual Medical Device Report China 2013

Yang, Kristine. Medical Device Daily. Protectionist policy being pursued: China to promote domestic devices
among its top hospital facilities, August 20, 2014. Read
2

concentrated, such as diagnostic imaging, and possess high

barriers to entry while other subcategories like consumables
are more highly fragmented among a variety of small
distributors. This high industrial concentration in advanced
diagnostic tools reflects the relative prominence of foreign
firms and manufacturers. Over 90% of the diagnostic
imaging equipment sales in China are based in imports
making this medical device category the most highly
dependent on foreign sources. Closer to half of
consumables are imported and Chinas strongest positive
trade balance is in this category. This is primarily due to
Chinas competitive advantage in the manufacture of low
cost consumable devices such as needles and bandages.
Despite this growing status as an importer, China still runs
a trade balance surplus in the medical device market, demonstrating that Chinas overall export
intensity within this area is relatively large. It is uncertain this is a trend that will continue; a positive
trade balance depends largely on global demand and Chinas ability to export more, oftentimes
through unique and technically innovative products that capture greater value through high cost
exports. Given that Chinas middle class is growing and the economic focus is beginning to shift
away from low cost manufacturing and basic consumable devices like syringes and bandages, the
balance of trade could eventually become negative as China seeks to import from abroad. The
decline of the balance of trade since its peak in 2008 may reflect the growing purchasing power of
Chinese consumers and a slackening of global demand for the low-cost manufacturing exports
China specializes in. However, it is also likely that China will begin to innovate and produce more
advanced devices domestically.
Medical devices are separated into six categories: (1) consumables (2) diagnostic imaging (3) dental
products (4) orthopedics & prosthetics (5) patient aids (6) other medical devices. The
import/export habits and the relative proportion of the total market for each of these categories
varies. Growth in established market leaders such as oncological diagnostic equipment may in fact
be slower than in smaller markets such as dental products. Additionally, export/import intensity
varies greatly between these categories.
Low cost consumables such as syringes and bandages make up the greatest portion of Chinas
export capacity in medical devices. Diagnostic imaging occupies the opposite end of the spectrum
due to its high-tech and expensive production. It should be noted that it is in this sector that
Chinas local companies have the least competitive edge, but this may be quickly shifting as market
leaders and R&D centers emerge in China. The following section considers the trade identity

(export vs. import) for each of these six categories and analyzes their growth in both aggregate USD
terms and relative market share within China.

Among imports to China in 2013 diagnostic equipment accounts for over 5 billion USD, nearly 45%

of all imports. The export intensity of diagnostic imaging tools was much lower, accounting for
roughly a quarter of all export value from China. In contrast, consumables compose the largest
section of exports at 3.4 billion USD, 28% of all exports; in contrast, consumables is third smallest
in import terms with 1.5 billion USD, 13% of total imported medical device market value.

Despite accounting for 4% of exports in 2013, the orthopedics & prosthetics sectors strong 5-year
export CAGR of 24.2% showed higher growth than in much larger sectors such as diagnostic tools,
which grew by 19.5%. The import of diagnostic tools was comparatively low while dental imports
grew at almost 35%. Demand for diagnostic tools has slackened in past years; China and the US

recently settled a bilateral trade agreements that the US hopes will quicken demand for one of the
US major medical device exports.3
In 2013 the medical device industry in China was valued around 16 billion USD. Imports accounted
for 11.7 billion of this. Chinas largest medical device trading partners are also the leaders in the
world market: (1) USA (2) Germany (3) Japan. The USA accounts for over 35% of Chinas medical
device imports, a value of roughly
4 billion USD. Of these three top importers to China only Japan showed a year-on-year decline
from 2012 by 6.6% to a 10.7% market share and about 1.25 billion USD worth of importers to
China. Japans fiveyear 2008-2013 CAGR
reflects this weakness
in Japans imports to
China while other
smaller supplying
nations such as
Switzerland and
Ireland have 30%+
CAGR growth rates.
Chinas top
destinations for its
own medical device
exports are roughly the
same as its import partners. The USA is Chinas largest importer, mostly of consumables, diagnostic
imaging and other medical devices such as attachments for machinery. Japans imports from China
are mostly comprised of consumables, diagnostic imaging and patients aids, which are third largest
in imports by volume; device
exports from Japan to China is
second largest at about 1.25
billion USD. Germany exports
more than 2.18 billion USD in
equipment to China and imports
about 815 million USD of
Chinese equipment, mostly
consumables and diagnostic
equipment.

Fox Business News. US and China trade deal could end tariffs on $1 trillion in global sales of high-tech items,
November 11, 2014. Read

Although China is running a trade balance surplus in total, it is running a deficit in medical devices
with all three of its main medical device trading partners. This is partially due to Chinas heavy
export of consumables, which are inexpensive and require little technical skill and innovation. These
gains are offset with major trading partners because China has been importing a great deal of
diagnostic tools such as MRI machines which are complex and expensive machines.
Consumables
Consumables account for 16.7% of the total medical device market.4 In 2013 the import of
consumables in China totaled 1.5 billion USD, an increase of 18% since 2012. Although accounting
for only 13% of imports, consumables lead Chinas export market at 27.6% of total medical device
exports (3.4 billion USD). Needles and syringes are the largest subsection for both imports and
exports. The strong growth registered in the importation of consumables also stems from increased
consumer demand for technically advanced versions of consumable products like dissolving stitches.
Generic bandages and dressing are not highly differentiated and therefore compete primary on price.
This uniformity paves the way for creating and marketing more advanced products. While 60% of
total consumables devices are imported in China this figure may drop foreign importers exhaust the
low hanging fruit and Chinas domestic firms become more competitive in this sector.
Diagnostic Imaging
Import of diagnostic imaging has been flagging for some years. At 9.5% growth in 2013, diagnostic
tools remains the slowest growing import sector. Despite slow growth, diagnostic tools maintains
44.3% (5.18 billion USD) of the total import of medical devices. The export growth of such devices
was about 11.2%, higher than imports of the same category yet diagnostics commands a smaller,
albeit still large, portion of the export market at 25.93% of exports (3.19 billion USD).
Electrodiagnostic tools such as MRI machines were the single largest subcategory for both import
and export.
In 2010 in China there were 8.6 CT scanners per million people5; in 2009 there were 3.2 MRI
machines per million, much lower than many other nations, both developed and developing. The
4
5

Data set used for all figures is from BMI Online (unless otherwise noted)
CT market analysis report released in Beijing. Read

growth of this sector is contingent upon degree of subsidy and funding from the government not
only for the purchase and use of the device itself but also for general hospital expenses. A tapering
off of government support may create imperatives for hospitals to invest and thus create revenue
through fees for diagnostic services. This projection is reinforced by the relaxed government
regulation regarding quantity and size of large equipment at for-profit hospitals.
It should be noted that even within import-heavy subsectors there is a growth opportunity for
Chinas medical device industry. Although 90% of radiation equipment is imported, a great deal is
assembled locally. This assembly process contributes to domestic growth but also highlights the low
value-added trap from which China hopes to propel itself through high-tech innovation and foreign
acquisitions.6
Dental Products
Dental products occupies the smallest portion of the Chinese medical device market. Imports in
2013 accounted for 3.5% (413 million USD) of all imports and 4.67% (575 million USD) of device
export. This sector remains underdeveloped but has registered huge growth based on its five-year
2008-2013 CAGR in both imports and exports. The latter grew at 33.6% and the former at 20.3%.
Instruments and supplies comprised the majority of dental supply markets as opposed to capital
equipment, which was roughly 40% of all dental expenditures in 2013.
Orthopedics & Prosthetics
Orthopedics & prosthetics account for 7.4% of medical device imports and 4.24% of the export
market. This totals 863 million USD and 522.6 million USD respectively. Growth of imports in
2013 was 14.9% but its five-year CAGR revealed higher overall growth at 24.2%. Growth in
exports shot up to over 170% in 2013 followed by a huge crash and negative growth (-33%) in 2014.
This was in part due to re-import of fracture appliances which forced growth figures upward in
2012-13.
Import markets may fall in the short to medium run as local producers upgrade facilities and
enhance quality. Fixation devices, the largest import subsection, has increasingly shifted toward
local manufacturing but artificial joint imports still remain high.
Patient Aids
Patient aid imports accounted for 13.7% of medical device imports at 1.6 billion USD in 2013;
patient aids were 19.5% of medical device exports and totaled 2.4 billion USD. Patient aids is fairly
robust subsection of the medical device industry with CAGRs of over 20% for both imports and
exports. Demand for pacemakers and portables aids has surged but hearing aids have declined in
sales.
Miscellaneous Medical Devices
This category is composed of devices such as endoscopes and ophthalmic instruments and
equipment. This category is the second largest for import at 2.1 billion USD. Imports and exports

each grew at roughly 8.5% in 2013, slower than over the four preceding years. Exports totaled 2.2
billion USD, almost as much as was imported bringing the BOT in this category almost to zero.

Regulations
Recent regulatory changes have provided an atmosphere of growth for trade and manufacturing of
medical devices in China. While the regulations have improved quality control and licensing
procedures, this does not automatically favor foreign companies either importing to or operating in
mainland China. While regulatory updates encourage smoother registration and licensing
procedures, foreign companies should be aware that these benefits extend also to Chinas domestic
medical device producers, who will compete closely enough with existing market leaders as to
change the landscape of the medical device business and technology in China and farther afield.
In December 2013 the Chinese Food and Drug Administration (CFDA) issued draft revisions to the
existing Regulations for the Supervision and Administration of Medical Devices which had been in
effect since 2000. This original document had undergone changes in 2007 and 2010, showing that
the most recent move was another credible step forward on a path toward liberalized markets and
institutionalized regulations. Under the revised Medical Device Regulations (MDR) outlined in State
Council Order No. 650 released March 7, 2014 and effective June 1st of the same year, medical
device registration, manufacturing and distribution have become more codified and transparent.
The effects of revisions have impacted five key areas: (1) registration and filing (2) clinical trial
regulation (3) distribution (4) manufacturing (5) penalty and liability assessment.
Registration and Filing
Medical devices are categorized into three different classes based on risk to the patient: Class I for
medical devices for which safety is proven through routine administration. Clinical trials are not
mandatory for Class I devices and examples of such devices include bandages, gloves and some
surgical equipment (hand-held); Class II devices require further control such as clinical trials and
special labeling requirements. Some conventional examples are infusion pumps, wheelchairs and
needles; Class III devices are specifically those devices which are inserted or implanted into a human
body for purposes of life support or sustenance. For this reason, Class III devices pose the highest
risk to patients and premarket approval is mandatory. Examples include pacemakers and other
implants. Class I devices can enter the market by filing with the CFDA or local CFDA branch.
7

Import manufacturers must file for Class I devices or register Class II & III devices with the CFDA
rather than with provincial or municipal regulators. Note that at the time of this reports
composition in early 2015 the CFDA had not yet issued its updated list of medical devices as they fit
into the revised classification system.
Some important clarifications on ancillary equipment and multiple device kits: any product
containing or requiring multiple devices will be classed according to the highest class of any
individual component in the kit. Classification of any and all accessories is determined by their
impact on effectiveness and safety of medical device requiring such accessories. Any software is
classed according to the device it supports. Any change which may alter the risk level associated
with the device shall be re-classified.

According to older regulations, a material change in a registered device required new registration as a
new device. Under the 2013 changes (effective June 1, 2014) such a material changes requires only a
change in existing registration, often included as an addendum. The term material change
includes any modification where safety and efficacy may change through procedures affecting
design, raw material, and manufacturing procedures. The CFDA has discretionary power to
determine the scope of material change. Immaterial or similarly insignificant changes do not
require approval from the original registration authority but such changes should be filed with the
aforementioned authority. Technical requirements for devices will be determined through
coordination with manufacturers and registration agencies based on user manuals, test reports and
other technical aspects of devices.7 Period of registration validity has been extended from four to
five years. Registration is extended through renewal as opposed to re-registration under the old
regulations. The renewal process must begin at least six months prior to the expiration of the
current license.
Apart from an application, Chinas medical device registration agencies require comprehensive
documentation of a devices country of origin (CoO) authorizing device use. This requires a
certificate which authorizes manufacturers and distributors in China to create and/or sell target
medical devices. In the EU this is an EN/ISO 13485 certificate. Approval for device in CoO
includes the CE Certificate and Declaration on Conformity. Due to stricter FDA regulations in the

SGS SSC, Medical Device News September 2014, Issue 11

US, many companies based in the US establish European subsidiaries and from there export to
China under European credentials.
Other required documents are listed below:

License of the Registration Agency and Authorization Letter from the manufacturer
Comprehensive technical overview of device with manuals, test reports and other
specifications.
Test reports for Class II and Class III devices. These must be issued by the testing
laboratory approved by the CFDA
User Manuel and labelling using the Chinese language.
Clinical Evaluation report
Letter guaranteeing product quality from the manufacturer. Guarantees that each device is
approved in its CoO and that a quality management system is in place.
Acquisition of a business license by a licensing agency in Chin. The agency will bear legal
responsibility for quality, monitoring, recalls and communication between manufacturer and
CFDA if needed.
Manufacturers declaration of documents submitted which promises manufacturers legal
obligation to quality control of manufactured devices.
Medical Device Manufacturing Enterprise License (if manufacturing Class II or III devices)
Secure a contract with a medical device distributing enterprise approved by the provincial
FDA.

Clinical Trials
Clinical trials are necessary in both CoO and China. Class I devices require no trial within China but
must be filed according to standard procedures which includes certificate of validity from CoO.
Class II and Class III devices must be tested according to technical requirements outlined by the
CFDA, which will also oversee the testing trial. In some cases a device may be listed in the clinical
trial exemption database in which case the supplied CoO clinical evaluation report is enough. The
database is still in draft format and has not been released to the public.
Also to note is that in-vitro diagnostics and calibrators such as diagnostic reagents are now officially
recognized as medical devices in China but still carry their own registration policy still requires its
own registration process based on the document In Vitro Diagnostic Devices which was issued
April 19, 2007.
Distributor Regulations

Distributors are now able to file with a local/municipal CFDA rather than obtaining a permit as
under the old regulations. Distributors of Class II devices can file with the municipal CFDA rather
than acquiring a provincial permit as under the old regulations. Distributors of Class III devices
require a permit but from municipal CFDA agencies and not provincial level authorities.
Distributors must inspect quality of devices from manufacturers and providers as well as the
relevant certificates of devices they may purchase. Wholesalers of
Due to stricter FDA
Class II and Class III medical devices should keep precise sales
records as well.
regulations in the US,
Good Manufacturing Procedures affect distributors and
manufacturers in different but often interlocking ways. The GSP
rules (currently in draft format) outline ten steps for distribution:
(1) procurement (2) receipt (3) inspection and acceptance (4)
stock in (5) storage (6) periodic checks (7) sales (8) stock out (9)
transportation (10) after-sale system. These rules do not apply to
online sales.
Manufacturer Regulations

many companies
based in the US
establish European
subsidiaries and from
there export to China
under European
credentials.

Operating conditions and quality control must follow

manufacturing GMP which include meeting of control requirements, conformity to legal procedures
for termination of contracts involving warehouse, office and manufacturing space and finally
keeping a record of purchase and sales activities. Self-inspections are mandatory and must be
reported to the CFDAs municipal level. The CFDA reserves the right to make random inspections
of any manufacturing site. Any change in manufacturing facility site, change in indicators or
specifications of devices as well as structure and composition of devices must be registered. Note
that a change in the wording of manufacturing location which does not fundamentally alter the
location of manufacturing is not required for filing. In case of manufacturing relocation, there is no
need to re-submit product standards, testing reports or package inserts required with the reregistration process.
Procedural revision for licensing now allows manufacturers to register for the medical device license
before acquiring a manufacturing license. Under the old regulations these two procedures were
reversed, forcing manufacturers to obtain a manufacturing license first, which also required
establishing manufacturing facilities. Previously this led to huge expenditures maintaining facilities
while in the process of approving a medical device. The new regulations eliminate this potentially
cost by simply reversing the order of requirements, creating a faster and cheaper process. Foreign
manufacturers should strictly observe the requirements to attach Chinese language labels to devices
before importing them to China. A CoO certificate is also needed to authorize manufacturers to
distribute medical devices.
Penalty and Liability Assessment
The new regulations increase the penalties for manufacturers for any infractions upon the
regulations stipulated above. While fines under the old regulations ranged from 2-5 times the illegal
proceeds, new regulations allow for up to 20 times the value of device sales in fines. No
manufacturing, shipping or other costs will be recognized as deductions when assessing the fine.
10

The scope of compliance has also been widened in qualitative terms to penalize more heavily
deceptive advertising, forgery, alteration and illegal redistribution of medical device certificates.
Choosing Agents and Distributors
While device registration in China is comparatively inexpensive, any importer requires three agents: a
legal agent, service agent and regulatory agent. These agents should be chosen carefully but also at
the beginning of a process. There are 10,000+ distributors in China but only a Chinese national
acting as a legal agent can authorize change for a companys distributor in China. Some importers
have made the mistake of assigning legal agency to a distributor. Assigning both roles to one entity
can cause a huge conflict of interests since the distributor/legal agent could essentially preserve its
own autonomy over distribution rights and a foreign importer would have no legal recourse.
Distribution partners and legal agents should always be separate.
Some companies choose to open a Wholly Owned Foreign Enterprise (WOFE) to bypass the need
for an agent. This will accomplish the goal but incurs its own bureaucratic and financial obligations
such as an office, minimum number of employees, SFDA license, business license and more.

11

Approval Process for Medical Devices in China

12

Government Regulatory Bodies and Ministries

State Council Headed by Li Keqiang (), Premier of the State

Council of the PRC, since March 15, 2013.
The State Council is the chief administrative authority in the PRC. It
is one of the three major branches of the Chinese government, the other
two being the Communist Party of China and the Peoples Liberation
Army.
Controls over 50 ministries, news sources, organizations and offices.
Develops economic and social goals for China and creates official
laws and regulations.
In April 2009 the State Council launched a 850 billion CNY
healthcare reform plan to provide health care for all Chinese citizens by 2020.
National Health and Family Planning Commission (NHFPC)
Headed by Li Bin (), First Chairperson, since March 16, 2013.
Ensures health services to its population including education, family
planning and healthcare related policies. Creates standards for medical
science and technology
NHFPC is the result of a merger of the Ministry of Health and the
National Population and Family Planning Commission. The change was
announced during the 2013 National People's Congress
Li Bin advocates a move to produce and buy medical devices
domestically and to cut down imports of medical devices.
National Development and Reform Commission (NDRC) -Headed
by Xu Shaoshi (), Chairman, since March 15, 2013.
Heads 26 functional departments and has broad administrative and
policy making control of Chinas macroeconomic development
The NDRC creates macroeconomic policies, monitors economic
growth, approves industrial, agricultural and energy development
Manages drug innovation and enacts price controls
Xu Shaoshi has also focused on breaking up monopolies during his
time as Chairman of the NDRC.

13

China Food and Drug Administration (CFDA) Headed by Yong

Zhang (), Minister, since March 2013.
The CFDA replaced the now defunct State Food and Drug
Administration in March 2013.
Regulates food and drug safety by drafting laws and policies
regarding the supervision of food and drug quality. Forms food and
drug inspection standards as well.
Responsible for registration and classification of medical devices.
The CFDA recently formed more streamlined registration and
distribution process for medical devices, promoting innovation and open
markets.
Ministry of Human Resources and Social Security (MHRSS)
Headed by
Yin Weimin(), Minister, since March 17, 2008.
Formed from the Ministry of Personnel and the Ministry of Labor
and Social Security under the administrative reform scheme of the State
Council in 2008.
Responsible for labor policies and regulations.
Recently formed a policy toward staff reduction in many companies.
Provides assistance to labor intensive industries to create
employment.
Forms public insurance policies for access to medical devices and
medicine
Ministry of Commerce (MOFCOM) Headed by Gao Hucheng (
), Minister, since March 2013.
Formerly Ministry of Foreign Trade and Economic Cooperation
Formulates trade policy, export and import regulation, FDI,
consumer protection and maintaining competitive markets.
Has recently lowered prices and investigate price dumping in some
medical device industries
Investigate monopolies and promote competition in markets
Foster closer ties between mainland China and the Special
Administrative Regions of Hong Kong and Macau.

14

Ministry of Industry and Information Technology (MIIT)

Headed by Miao Wei (), Minister, since December 2010.
Leads regulation and development of electronic and information
goods including internet, broadcasting, wireless, communications as
well as physical parcel shipment through the postal service.
Note: MIIT does not oversee regulation of content for the
media. This is done by the State Administration of Radio,
Film and Television.
MIIT has recently supported the use of locally produced medical
devices over foreign imports.
Ministry of Finance (MOF) Headed by Lou Jiwei (),
Minister, since March 16, 2013.
Handles macroeconomic policies and national budget including fiscal
policy, economic regulation and expenditure from the government.
Comparatively small department and shares economic responsibility
with NDRC and State owned Assets Supervision and Administration
Commission (SASAC)
Has allocated large budgets for development of local healthcare.
Supplemented 20.9 billion USD central government plan in 2009-11
with an additional 1.8 billlion USD in November 2010 for local
healthcare.
In 2013, spending on medical and health care amounted to 42 billion
USD, 99.4% of the budgeted figure and a 26.4% increase from 2012.
Supply Side Dynamics and Dominant Medical Device Companies
China contains roughly 10,000 distributors and over 180,000 companies operating in the medical
device field. Nevertheless, this market remains highly concentrated among a few dominant players.
Even more importantly, these few dominant players are foreign firms. Johnson & Johnson, GE,
Siemens and Philips hold over 90% market share in Chinas high-tech and value added medical
devices.8

2014 . Read

15

Despite this apparent market hegemony, firms registering medical devices in China and firms
entering this competitive field have both grown steadily over the past few years. First-time
registration of devices in the three classes have all rose steadily, and in many cases shot up abruptly
in 2012. Repeat registration has leveled off in 2012-13. This suggests there is a market pool robust
in quantity from which local cost leaders and superior devices are emerging. 2011-13 saw the
percentage of repeat registrations break 50%, perhaps indicating a long-term trend toward local
market consolidation and local players as a greater share of the overall medical device market.
First-time registration in Class I decreased in 2013 from 4331 to 4252, the first time in the sevenyear time frame of data available. This is made up for by the surge in repeated registration in the
same class. A higher amount of repeated registration indicates that some products are sticking
and have maintained an adequate
market share or growth potential so
as to be worth re-registering. The
total number of companies
competing in Class I has gone from
a peak of 9.7% growth in 2009 to
3% in 2013, reinforcing the
suggestion that market
concentration is beginning to
appear from the disparate and
competitive low-end medical device
market.
Something of particular significance is the overall growth of the Class II device category. These
devices, including advanced patient aids (motorized wheelchairs, etc) and diagnostic equipment lie in
the middle of the price spectrum and are devices previously dominated by foreign firms. Many
Chinese firms have found a sustainable niche in innovation and R&D, but many others have
16

focused on improving sustaining

technologies through production
and cost efficiency. Total
companies operating in Class II
has fluctuated on a yearly basis
but appears to remain robust. As
medical devices manufactured in
China decline in price relative to
their foreign counterparts,
growth in medium-expense
goods, many in Class II, will
continue with an increasing
market share going to local
suppliers.

Class III is the smallest class of the three. The regulatory and investment barriers to such risky and
high-cost goods has kept the market fairly regulated. Despite suffering brief negative growth of
competing companies in 2010, Class III surged ahead in 2012 and maintains robust strength.
International imports skyrocketed in 2012 for both registering types before repeat registration fell in
2013. Despite this, international companies wield huge power through the quality and expense of
equipment and control a huge share of Chinas high-tech medical devices and diagnostic imaging
tools.
Diagnostic tools such as Patient and sleep monitoring equipment, electrocardiograms, MRI and
detection equipment are in worth over 6.2 billion USD of the total 16.1 billion USD medical device
market in China. This is roughly 38.5% of the total medical device market. Foreign companies such
as GE Healthcare, Siemens, Philips, and Johnson & Johnson wield over 90% market share of
diagnostic equipment, a total of 5.6 billion USD of the 6.2 billion USD total market.
Though this market oligopoly had been firmly entrenched until the present, the medical device
industry in China is changing
rapidly and the market
liberalization hailed by the
international community has
provided an arena in which
Chinas native firms have a
potent chance to compete.
Mindray Medical International
is Chinas leading medical
device manufacturer in three
categories: patient monitoring
& life support, In-Vitro
Diagnostic products and
medical imaging system, all
17

which are strong quality as well as cost competitors.9 Mindray not only spans some of the highest
growth sectors and greatest profit margin devices, it has also capitalized on the growing demand for
veterinary devices alongside human patient care. In 2013 Mindray posted revenue of over 1.2 billion
USD with a 27% CAGR and a Non-GAAP income of 237 million USD. While 46% of sales came
from China, another 21% was from developed markets and 33% from emerging ones,
demonstrating Mindrays international stature and ability to compete globally.
McKinsey & Company issued a report on Chinas high-tech medical device market and the dramatic
changes reforming the competitive landscape in China. The most noticeable change is the
ballooning of the mid-priced high-tech equipment demographic. In 2000, Mid-priced high-tech
devices occupied 10% of the market while high-end took 40% and the rest going to the low end. In
2010 mid-priced devices claimed 40% of the total available market with nearly 80% of that category
going to local leaders who compete on more tailored features and lower cost. High end and low end
each control 30% of the remaining market. Many previously high-end devices which were supplied
exclusively by foreign firms are now produced locally and for cheaper, eating away at high-end
market share. This trend directly reflects the prominence of companies such as Mindray that are
able to capitalize on cost effective innovation tailored to Chinese consumers. Even within the highend market where MNCs possess a >90% market share locals are emerging with reliable and
innovative devices. While the low-end market share has shrunk well over 95% of the market is still
claimed by local manufacturers.
Demand Side Dynamics: Hospitals and Consumers
The demographics of Chinas healthcare consumption have shifted toward more decentralized focus
on providing an opt-in scheme of universal healthcare, especially in rural areas, and through
increased numbers of private hospitals. The consequence is greater options for consumers and the
reestablishments of at least a minimal safety net through the Urban Resident Basic Medical
Insurance (URBMI) and the New Rural Cooperative Medical System (NRCMS), something which
has not existed comprehensively since 1979. In a nutshell, these schemes provide capped
copayment requirements and subsidized services through insurance administrators and collective
health funds variously comprised of local and central taxes, personal income and firms (in the case
of employment) which serve both inpatients and outpatients. Public healthcare spending increased
year on year to a peak of 954 billion RMB (152 billion USD) in 2013.10

Mindray Annual Report, 2013

China Statistical Yearbook 2013

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Changes in the hospital sector are

shifting the available options for
healthcare. This chance arises
both as an impetus and as a
response to government policy
and the ability to afford advanced
healthcare among more affluent
middle and upper class Chinese
citizens. As of September 2014
China has 11,963 private
hospitals and 13,341 public
hospitals. Public hospitals
accounted for 52.7% of hospitals,
reflecting a consistent trend of
private hospital proliferation: private hospitals accounted for 38% of hospitals in 2011, 42% in 2012
and 47% in 2013. An important distinction to draw is the number of establishments in either
category versus the number of beds, a frequently used variable to gauge hospital activity. China has
3.8 hospital beds per 1,000 patients, much higher than Indias 0.7 and, at first glance, surprisingly
higher than the US which has only 2.9 beds per 1,000 patients. However, Chinas public healthcare
institutions have historically struggled with providing adequate outpatient care through operational
efficiency and medical skill of practitioners. While the US has 550 doctors per 10,000 people, China
still has only 20 doctors per the same amount. Inpatient numbers have historically remained
abnormally high, a trend being reversed with the growth of the private hospital, small specialty clinic
and remote diagnosis such as tele-medicine.11
The mobile health care market is expanding rapidly; in August 2014, Chenyu Yisheng raised 50
million USD in Round C funding, the biggest sum for any Chinese healthcare start up. The phone
application allows users to consult one or more of 40,000 physicians online.12 With 30 million users
on this application alone, Chinese consumers have shown great interest in renewed accessibility of
professional health consultation. This trend is even more amplified by the notoriously inefficient
throughput time for a patient
in the average Chinese
hospital where patients barely
get a chance to visit with an
actual doctor.
High rates of pollution,
alcohol consumption and
tobacco smoking in China
have led to a slew of
cardiovascular and oncological
illnesses in both rural and
11
12

More original materials available on Chinas hospital system from Shahin Firoozmand upon request
BMI online

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urban China. There are 3.1 million cancer cases

each year in China. A higher proportion of these
are stomach, lung and liver related. Added to this
is the increasing proportion of society that is
ageing and will require greater medical treatment as
life expectancy rises.

Case Study: Endoscopes

In 2013 the endoscope market (class under Other) in China was worth over 400 million USD.13
This amounts to 2.5% of medical device sales. Exports from Japan were worth 205 million USD,
over 50% of the total monetary value of devices imported, followed by Germany with 138 million
USD of exports to China and the US coming in third with 36.5 million USD. Apart from these
three countries, no other countries accounts for an appreciable amount of imports to China in the
endoscope market with the exception of Switzerland, which exported 43,000 USD of devices to
China. While y-o-y growth has been declining from a high of 33.9% in 2007 to 9.9% in 2013, the
Chinese demand for endoscopes has remained strong with a 5-year CAGR of 25.4%. This is
reinforced by the continual negative growth of the endoscope balance of trade from -153 million in
2009 to -352 million in 2013.
Within the Other category of
medical devices, endoscopes
account for 13.5% of 3.48
billion USD worth of sales.
Endoscope y-o-y growth also
remains above the category
avergae of 8.4% in 2013. In
every previous year endoscopes
have commanded a higher
growth rate and margin than
the average device in a
comparable category.
Foreign endoscopes have long
been a commodity of interest
for the Chinese government
and whose import to China has been encouraged. In 1997, the Chinese government released a
catalogue detailing products and commodities in which FDI is either Encouraged, Restricted or
Prohibited. No medical device was listed as prohibited but some were restricted including lowmedium class ultrasound equipment, infusion products and blood collection products. Only three
categories were encouraged: X-ray apparatus, medical tubing and endoscopes.14 Since then foreign
endoscopes have dominated the Chinese market: Karl Storz Endoscopy Company is the worlds
13
14

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largest endoscope manufacturer and accounts for 30%-35% (121-141 million USD) of all imported
foreign endoscopes in China and capturing half the endoscope business in class-A and primary
hospitals across China. Local product leaders, most notably Mindray, have made huge gains in the
market through technology leaps spurred by original R&D or through M&A. In May 2012, Mindray
acquired Hangzhou Optcle Medical Instrument Co. Ltd., a Hangzhou-based endoscope provider. A
few months later in October of the same year, Mindray acquired Shanghai Medical Optical
Instruments Factory Co., Ltd. (SMOIF) which at the time was a subsidiary of Shanghai Medical
Instruments Co., Ltd. Optcla specializes in rigid endoscopes and related consumables while SMOIF
produces electronic, fibre, rigid and flexible endoscopes. The acquisitions cemented Mindrays place
as the indigenous leader of the endoscope market and its constituent variations in endoscope type.
In order to remain competitive, Karl Storz, along with many other medical device providers, has
established a lasting brick-and-mortar presence in China not only through manufacturing sites but
through offices, R&D centers and headquarters.
The Port of Shanghai is one of the worlds busiest ports and serves as a primary intake point for
many of Chinas imported endoscopes. The Shanghai Free Trade Zone (Shanghai FTZ) was
established in recent years to augment the incentive for foreign companies to bring products and
technology to China to foster long-term partnerships under increased autonomy for international
companies. The FTZ was met with praise and excitement and although there has still yet to be the
institutionalization and implementation of unique and concrete trade schemes within the FTZ.
Despite this, the Shanghai Port serves as an accurate gauge on the conditions of foreign trade and
domestic demand for high-tech products looking to establish themselves around the Shanghai delta
region.
In 2014, 2 billion USD out of the total 3.5 billion USD worth of medical devices entering China
through the Shanghai port entered through this FTZ.15 This is a 26.2% increase over 2013, a much
higher increase than in the normal port entry point, which decreased 16.1% in 2014 to 1.18 billion
USD. The US was responsible for the majority of device imports with 4.5 billion USD of inflows;
the EU contributed 1 billion USD and Japan brought in 518 million USD. Both the US and EU
sums decreased relative to 2013 (down 1.5% and 1.8% respectively) and only Japan increased by
14.8%. These three regions made up over 80% of all device imports. Mexico also became a notable
importer with 1.57 billion of inflows, an astounding 160% increase over last year. Of all devices the
single most valuable device was endoscopes with an increase of 31.5% over 2013 to a 2014 total of
370 million USD.
Endoscopes are useful devices in themselves for visual diagnosis and internal examination. More
advanced diagnostics utilize X-ray equipment and NMRs, both of which were also imported through
the FTZ. Despite the high value-added nature and cost of this equipment, both of these pieces of
equipment accounted for only a little over 1 billion USD (92.6 and 84.5 million USD, respectively)
of imports. X-rays fell by 40.5% from 2013 and NMRs by 16.7%. This scaling back of high tech
equipment suggests that either the market in China for such devices is oversaturated, which is
unlikely given the growth of hospitals over the past few years, or that demand is being filled

Medicalalso, 2014 February 3, 2015. Read

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elsewhere, primarily by local competitors. In either case it appears that demand for foreign
endoscopes has not been dampened by the lag in ancillary diagnostic equipment.
Patterns of trade provide a short and medium term guide to the trajectory of a commoditys value.
Maintaining an advantage in an extremely competitive world market galvanizes firms and individuals
to seek cost-effective ways to produce and ship existing commodities and improve devices through
novel technological innovation. This latter characteristic is particularly disruptive to the status quo
and it is a feature which can potentially reshape the consumption, production and trade of
endoscopes. Recent breakthroughs in Europe, most notably through Portuguese and German
researchers, has yielded an endoscope which is both super small, inexpensive and disposable. This
development is following on the heels of many other innovations in the medical device field to shift
toward low-cost disposable devices. If the disposable endoscope can successfully shift from a
prototype phase to become an industry standard then the large locally-dominated consumables
sector in China will grow to include a wider range of high tech devices. As of now, medical
dressings and some other consumable goods are increasing in technological quality. Disposable
endoscopes can serve as an entry point for foreign firms previously unable (or unwilling) to
penetrate the Chinese consumables market. Adding higher-technology goods to a previously cheap
goods category will also increase the overall market value of consumables. Firms have a dual
opportunity in accessing both market shares and increasing the overall available market. At the
same time, the disruptive power of disposable endoscopes can shift influence from the current
market leaders to competitors who make faster gains in producing this new technology. The power
of disruptive innovation is a double-edged sword that can make or break the current endoscope
market leaders. Chinas low-end manufacturing dominance is a unique circumstance for business
leaders in the device industry which underscores the importance of receptiveness and adaptability
both to local market conditions, global competition and the accessibility of innovation.

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