Insights into medical device technology in China: Trends, risks and opportunities
Factors driving the rapid growth of medical device technology in China
The rapid growth of Chinese medical device companies has been driven by a number of factors, including strong domestic demand, technology diffusion and government support, as well as a boost from the pandemic.
1.Domestic market demand for medical devices is strong
Chinese medical device companies are emerging against the backdrop of the rapid growth of the Chinese medical device market. China’s medical device market is the second largest in the world, with a compound annual growth rate of 13.6%. According to Omdia’s forecasts, growth momentum is expected to continue at a compound annual growth rate of more than 10 percent through 2025. Demand for medical devices is strongly driven by an ageing population and rising healthcare spending.
- Accelerating the learning curve by diffusion of Technology
The huge potential of the Chinese market has attracted international medical technology companies to invest in China, including building production facilities, research and development centers and sales organizations. Their technology is widely used through the local practices of international medical technology companies. For example, in order to better access and serve the local market, Philips Healthcare set up a joint venture with its Chinese partner Neusoft Group in 2004 to produce and develop medical imaging equipment; The 10-year joint venture has helped Neusoft grow into a major healthcare provider. Neusoft Medical was the largest CT equipment supplier in China for more than a decade until it was overtaken by United Image in 2018.
The “Made in China” conditions required to participate in government procurement facilitate the localization strategy of international medical technology companies and further promote the technology diffusion of local companies through the flow of talent. It is common for executives in China’s medical technology industry to have backgrounds in international medical technology companies.
- Chinese government’s support for Chinese medical science and technology
China’s 14th Five-Year Plan (2021-25) has set the goal of having at least six Chinese companies among the world’s top 50 medical device companies. To achieve this goal, the government supports Chinese medical device companies in various forms, including leading and funding innovative projects, tax incentives, simplified administrative procedures, and subsidies for Chinese companies. The amount of support is sometimes huge for companies – Neusoft’s 2021 government subsidy, for example, is 50 per cent of its profits.
4.The pandemic has given China’s medical technology companies a boost
Surging demand for related medical equipment such as ventilators, respiratory care equipment and life monitoring equipment in overseas markets has driven the development of Chinese suppliers. For example, Fish Hop and Mindray saw revenue growth of 45 percent and 27 percent respectively in 2020. Most of the growth came from coronavirus-related demand in overseas markets.
In China, CT scans are the gold standard for diagnosing COVID-19. Demand for CT equipment for coronavirus management is concentrated in the lower end of the market. As a result, Chinese CT suppliers have benefited more from the surging demand in China’s CT equipment market than their international counterparts whose product portfolios focus on the middle and high-end market. China’s top four CT suppliers saw their revenue grow by 107 percent in 2020 and 29 percent in 2021.
Expanding new stages of upgrading
After decades of learning and catching up, Chinese medical device companies are seizing a significant market share in many medical device industries, especially in the mid-to-low end segment of the Chinese market. In the case of ultrasonic diagnostic equipment, the market share of Chinese manufacturers in China grew from around 20 percent in 2011 to nearly 35 percent in 2021.
Investing in research and development is one way to further enhance the competitiveness of Chinese medical technology companies. Investing in research and development is one way to further enhance the competitiveness of Chinese medical technology companies. Making low-end medical devices is usually a starting point for Chinese companies. Take the top two medical technology companies in China — United Film and Mindray — for example, their R&D spending increased by 23% and 30% respectively in 2021.
Investment in research and development has led to technological breakthroughs. Unlike its Chinese counterparts, United Film started producing key components, including X-ray tubes and high-voltage generators, rather than relying entirely on suppliers. Some Chinese medical technology companies are aiming to outdo their international rivals in technology development. For example, Shanghai Minimally Invasive Medical Robotics (Group), a startup founded in 2015, produces a wide variety of surgical robots. Its endoscopic surgery robot “Transpulse” is the first robot by a Chinese company to carry out complex laparoscopic surgery and has been registered for clinical trials. Minimally Invasive Medicine says Transitpulse has proven to be no worse than the Da Vinci Surgical System, the world leader in surgical robotics.
Mergers and acquisitions have also accelerated the growth of Chinese companies. Mindray, China’s largest maker of medical devices by sales, is now the world’s fourth-largest supplier of ultrasound. Mindray has grown in part through a series of acquisitions of overseas medical technology companies.
Insights from Omdia
Based on the rapidly growing Chinese medical device market and the support of the Chinese government, Omdia expects China’s medical technology companies to continue to grow at a high rate in the next 10 years. But they also have challenges to address. Low profitability is a common problem for Chinese suppliers compared with their international counterparts. High procurement costs for key components, low-end product mix and high distribution costs have squeezed profits. The removal of government subsidies will challenge the market viability of suppliers. Low profit margins, in turn, inhibit investment in research and development, which has a negative impact on technological innovation.
High revenue growth through overseas expansion is a good solution to the low profit margins of Chinese medical technology companies. However, they face high barriers to entry, including regulatory clearance, brand awareness and customer loyalty. In the case of the United States, the world’s largest market for medical devices, the turbulent relationship between China and the United States also means uncertainty about market access. Other geopolitical factors are also affecting the growth of Chinese medical technology companies.
China is also contending with the rise of its Indian rivals. India’s low production costs and huge market potential are attractive to international medical technology companies. For example, in April 2022, Wipro GE Healthcare (a joint venture between GE Healthcare and its Indian partner Wipro) launched a “Make in India” CT system to enhance access in India.
Chinese medical technology companies face both growth opportunities and challenges.
Therefore, the next 10 years is a critical period for the transformation and upgrading of Chinese medical technology enterprises to a new stage.
China is encouraging China end uses for more domestic products in latest years. Thus, more and more overseas manufacturers are planning localization in China. BradyKnows localization team has extensive experiences in facility establishment, audit, supplier evaluation, manufacturing, registration, and marketing in China. Pls feel free to let us know any questions on China entry via info@bradyknowsmedical.com
By Medworld
Translated & edited | Bradyknows
