The Peoples Republic of China

Market for Medical Devices.

Opportunities & Challenges for Swiss Companies.

The Peoples Republic of China Market for Medical Devices. 1

Publisher:
Medtech Switzerland
Wankdorffeldstr. 102
P.O. Box 261
3000 Bern 22
+41 31 335 62 41
contact@medtech-switzerland.com
www.medtech-switzerland.com

Authors:
Dr. Urs MATTES
Senior Advisor China, Medtech Switzerland
urs.mattes@medtech-switzerland.com

Dr. Jingjing CAO, LL.M.

Associate, Taylor Wessing, Beijing
+86 10 8587 5886, j.cao@taylorwessing.com

Stanley CHANG
Partner, Ernst & Young Advisory, Beijing
+86 10 5815 3628, stan.chang@cn.ey.com

Liv MINDER
Investment Promotion Director, Swiss Business Hub China
+86 10 8532 7537, liv.minder@eda.admin.ch

Project Management:
Sarah Moyle (Medtech Switzerland)
Dr. Patrick Dmmler (Medtech Switzerland)

While this report is intended to provide an overview of this specific market and its opportunities at the time
of its edition, each individual manufacturer, exporter or company may have to conduct their own analysis
to get a better understanding of the possibilities and opportunities available to them. You are encouraged to
explore and develop your opportunities based on research and in-depth analysis.

Readers should take note that Medtech Switzerland does not guarantee the accuracy of any of the
information contained in this report, nor does it necessarily endorse the organizations, associations,
companies and individuals listed herein. Readers of this report should verify the accuracy and reliability of
the information contained herein before making a business decision.

Medtech Switzerland 2012

Table of Contents

1. Executive summary 4

2. Introduction 5

2.1. Medtech Switzerland 5

2.2. Objective of report 5

2.3. Development, facts and figures about China 6

3. Cultural aspects: East versus West 7

4. Healthcare system in China 9

4.1. Size and growth 9

4.2. The role of doctors 10

4.3. Patients and hospitals services 11

4.4. The Government 12

4.5. Hospital tier system 12

4.6. Hospital financing and equipment 13

4.7. Basic medical insurance 14

4.8. Medical tourism 14

4.9. Demographics 14

4.10 Future challenges 15

5. Medical device & equipment market 16

5.1. Size and growth potential 16

5.2. Role of foreign and domestic companies 17

5.3. Example of the orthopedic market in China 20

5.4. Regulatory bodies 21

5.5. Bidding / Tender process 22

5.6. Logistics and distribution services 23

6. Intellectual property rights 23

7. What to do when entering the Chinese market as an SME? 25

8. China as manufacturing base 26

9. Chinese medtech companies to go abroad 31

10. References 31
1. Executive Summary
Any company intending to start a business in China
must know that a different clock ticks there. One can
simply not copy what works in the West and transfer
it to China with the belief it will be successful. It
is possible for a manufacturing base to transfer
technical know-how from headquarters elsewhere to
China, but procedures for stepping into the Chinese
market with the intention to market and sell require
a different strategy. It is of paramount importance
to understand the micro-environment of business
practices in China. In the following report, use of
the word `China will refer to mainland China, not
Hong Kong and Macao which have more developed
healthcare systems.
One of the most disturbing practices in China
which is rarely discussed openly both in China
and internationally is the rampant corruption in
healthcare. Due to low salaries, doctors demand
additional incomes through kick-backs paid by
distributors. This is the primary reason why almost all
medical device companies need to have distributors.
The loss in the value chain is huge because
distributors demand a big share of the pie under the
pretense they are pressured into bribes which could
ultimately lead to their imprisonment.
Healthcare expenditure in China is only 4.5 per cent
of GDP as compared to 9 per cent for the European
Union and 16 per cent for the USA.
Healthcare in China is primarily financed through
urban health insurance, rural health insurance,
general taxes and out-of-pocket contributions.
Patients saddle the majority of healthcare
expenditures themselves which in turn contributes
to lower costs for most individuals not using health
services. About 80 per cent of the medical resources
are clustered in urban areas where only about 20
per cent of the population resides. In urban areas,
tertiary care hospitals are caring for patients across a
wide spectrum of illnesses and injuries (even minor
illnesses) due to the fact that they house the best
doctors and maintain the best facilities. Contrary
to this, primary and secondary care facilities are
underutilized and need government subsidies to stay
afloat. The current crisis in the Chinese healthcare
system can best be illustrated through a common
Chinese household phrase: It is too difficult and too
expensive to see a doctor!
The SARS epidemic of 2003 provided a wake-
up call for citizens, the healthcare sector and the
government in that the current healthcare system is
unprepared to deal with medical crises management.
The reforms which were implemented as a result
of the SARS crises provide a great opportunity for
medical device companies selling medical equipment
4 The Peoples Republic of China Market for Medical Devices.
such as imaging, ophthalmic, laparoscopic and
endoscopic devices. Currently, the major focus is to
upgrade the hospital network with better equipment.
China has a diverse and large population with a
growing need for new medical technologies. The
diabetes and obesity epidemics in China have risen
in tandem with the wealthier middle class and
provide opportunities for medical device companies
with products in these segments. The rapidly
aging population additionally offers opportunities
for orthopedic and cardiovascular medical device
companies, while lifestyle changes have lead to a
sharp rise of cardiovascular diseases.
It is inaccurate and misinformed to believe that a
gold mine awaits foreign medical device companies
ready to enter the Chinese market. There are several
roadblocks for foreign companies, particularly SMEs
with limited financial resources, which must be
strategically addressed. Entering the Chinese market
10 to 20 years ago was easier and more lucrative
than todays shifting and tenuous landscape. Todays
roadblocks for new entrants into the Chinese medical
device market are: 1) a registration process which is
not transparent; 2) a bidding / tender process which
takes years to finalize access to the market and 3) the
looming danger of IP infringement.
Chinas small market base combined with a healthy
growth rate however, continues to make this market
interesting for the future. For the time being, suppliers
of instruments and apparatuses will fare better than
suppliers of implants and consumables. The high-
end market in China is in the hands of foreigners
while the low-end, economic market is dominated
by domestic companies. Foreign companies which
are able to adjust their product portfolio to mid-tier
hospitals will enjoy a lucrative business in China
and be in a position to export these mid-segment
products to other countries both in the region and
elsewhere. For instance temporarily downgrading
high-end Western products (usually imported) in a
local market is a promising strategy for market entry
that should be in the mind of all foreign medical
device companies in China. The market for such
mid-segment products is large when taking the high
number of mid-tier hospitals into consideration.
The future challenge for the Chinese healthcare
system is to find a gatekeeper which channels patients
into lower-ranked hospitals rather than allowing most
patients to seek treatment at top hospitals which are
overcrowded. In other words, the entire healthcare
system should be inverted to make it more efficient.
2. Introduction
2.1. Medtech Switzerland Medtech
Switzerland is the export platform for the Swiss
medical technology sector and was developed by
Osec on behalf of the Federal Government in 2010.
It provides support and services for export activities
to all businesses throughout the industry. Osec also
incorporates various participants, including Swiss
Business Hubs at Swiss embassies and consulates,
related associations and federal offices, multinational
corporations, small and medium-sized enterprises
(SMEs), internationally active consultants and bilateral
chambers of commerce.
The export platform for the medical technology sector
was established within the framework of the third
stabilization package approved by the Federal Council
and is intended to support the concerns of Swiss
businesses in their export activities. In many market
areas, regulatory and administrative structures are
strongly politically influenced, and the resulting trade
barriers make market entry for SMEs very difficult. In
addition, on behalf of the Federal Government, the
export platform is promoting a sector that has built
up an excellent technological base thanks to clinical
research and first-class engineering and scientific
performance. Some businesses have already succeeded
in reaching a significant global market position,
but for many SMEs with comparable technological
conditions, market access has become increasingly
complex due to ever more dense regulations. In order
to boost export sales, a number of different hurdles
must be overcome. Medtech Switzerland has been
charged with helping SMEs overcome those hurdles.
Medtech Switzerland has been devised as an open
platform for the Swiss medical technology industry.
All participant businesses can use its services. The
association is led by the general assembly of its
members. The board of directors, in which industrial
partners as well as Osec are represented, is responsible
for the strategic leadership and supervision. Erwin
Locher (former President, CEO Synthes / Mathys
Medical) is President of the Board of Directors. The
board has established its operative organization with
offices in Bern together with the Medical Cluster,
Bern. This association, founded in 1997, is a network
organization of medical technology businesses along
the entire value added chain, including manufacturers,
suppliers, service providers, and research and
development companies. The Managing Director
of Medtech Switzerland is Dr. Patrick Dmmler.
To provide local support to export-oriented Swiss
businesses in their target markets, the export platform
is based on business partners that can meet the
highly specific requests concerning seniority, specialist
knowledge and experience in medical technology, and
quality of services.
The Peoples Republic of China Market for Medical Devices.
Medtech Switzerland provides relevant information
on major medical technology markets, services and
contacts to SMEs in the Swiss medtech industry
and thus promotes and facilitates entry into the
relevant export markets worldwide. The focus is
to establish effective relationships with public and
private customers in healthcare services, government
agencies and foreign medical technology companies,
with the purpose of building lasting business
relationships and generating export orders for Swiss
medical technology businesses. The marketing
activities contain a broad range of services including
the participation in relevant trade shows and
conferences in major markets, the formation of
work groups to exchange relevant export know how
or the organization of buyers events. In addition,
expert consultants in different countries (senior
advisors) will identify business opportunities in the
target countries, and bring them to the attention of
Swiss businesses. After an initial funding of about
CHF 4 million by the Federal Government, Medtech
Switzerland will be financed increasingly by the
private sector.
2.2. Objective of Report The purpose
of this report is to frame a picture of the medical
device market in the Peoples Republic of China by
outlining its strengths, weaknesses, opportunities, and
threats. The reader should recognize that a different
clock ticks in China which requires special attention
to cultural and business practices. It is not the
objective of this report to go into operational details
as a company who wishes to commence an operation
in China will need the consulting and expert advice
of an advisor in law, tax, and Intellectual Property
Rights (IPR). It is the goal of this report to convey to
the reader that success in China is not simply a copy-
paste function of procedures in Europe or the US.
Many companies seeking to enter China have failed
due to a lack of willingness and understanding, often
from company headquarters, concerning the business
functions in China. Short-term views and aggressive
expectations are prone to failure; patience and long-
term thinking usually lead to success.
Assuming that a company can change the Chinese
system of doing business is a wide-s pread flaw
in thinking. For example, Google knew when it
stepped into the Chinese market that the Chinese
government controls internet content. Several years
after market entry Google withdrew its servers from
Beijing to Hong Kong due to unsolvable differences
in the view of web content. As a result Google lost
substantial market share to mainland domestic
competitors, though has since shifted its strategy
and has added investments for a data centre hub in
Hong Kong. It is of note that Hong Kong, though a
5
part of the Peoples Republic of China is a unique
and very small market as compared to mainland
China. Also often overlooked are the differences in
time and cost for China versus Europe. A good rule
of thumb is to assume that most business plans for
China need twice as long and cost twice as much
to execute. Caution must be exercised with market
research as the Chinese market is so fragmented by
region that market research should be viewed from
the perspective of where it was performed. Many
companies prefer to pilot and learn from trial and error
though thorough market research and understanding of
differences in cultural and business practices is essential
before launching a market entry strategy.
China has more people than any other country in
the world. Despite these numbers however, only
a fraction of these individuals are able to afford
imported goods. This fraction is growing rapidly and
offers potential for small to medium sized enterprises
(SMEs) entering the Chinese market. Imported
products often need to be adjusted to the demands
of the local market in order to satisfy the needs of
Chinese customers. Despite these short-comings,
foreign interest and activity in China remain high.
Many of the Fortune 500 companies have stepped
into this challenging market, some with great success,
some with less success, and a few with bad results.
The challenges in entering the Chinese market even
for the financial giants of the global market are
demanding. The challenges for small to medium
sized enterprises (SMEs) with limited financial
resources can be significantly greater.
Early in the development of the Chinese market
foreign companies did not face many regulatory
hurdles; there was no bidding / tender process in
place and more room for foreign competition. New
comers to the market on the other hand now require
much more time to gain entry. Modern demands
from foreign companies in China range from tedious
regulatory paperwork to payouts at the level of
the hospital. In almost all segments of the medical
device business, hospital equipment departments
and doctors using medical devices earn additional
income by corrupt practices.1 Surprisingly it is
rare to hear discussions and information distribution
concerning these practices at international seminars
focused on the Chinese market. In China however,
information on corruption is widely understood
both at the level of the government and by citizens,
and is openly targeted in the Chinese media. The
government tries hard to stop these practices but
has been unable to overcome them. This reality
prevents foreign companies from going through
direct channels and forces them to rely on Chinese
distributors who have the know-how to manage this
side of the business practice. Most of these Chinese
distributors are small, privately held companies with
a flexible approach to business. It is recommended
that recruiting several distributors might be a better
option than relying on one. If one distributor is
selected, it usually engages sub-distributors which
will eat away some of the margin. Moreover, it
6 The Peoples Republic of China Market for Medical Devices.
is beneficial to force healthy competition among
distributors and compare their performances.
2.3. Development, facts and
figures about China Since the late 1970s
China has moved from a closed, centrally planned
system to a more market-oriented economy that
plays a major global role. In 2010 China became
the worlds largest exporter. Reforms began with
the phasing out of collectivized agriculture, and
expanded to include the gradual liberalization of
prices, fiscal decentralization, increased autonomy
for state enterprises, creation of a diversified banking
system, development of stock markets, rapid growth
of the private sector, and opening to foreign trade
and investment. China has implemented reforms in
a gradual way. In recent years, China has renewed
its support for state-owned enterprises in sectors
it considers important to its economic security,
explicitly looking to establish globally competitive
national champions.
From mid-2005 to late 2008 cumulative appreciation
of the Renminbi (Yuan) against the US dollar
was more than 20 per cent, but the exchange rate
remained virtually pegged to the dollar from the onset
of the global financial crisis until June 2010, when
Beijing allowed resumption of a gradual appreciation.
The restructuring of the economy and resulting
efficiency gains have contributed to a more than
tenfold increase in GDP since 1978. Measured on a
purchasing power parity (PPP) basis that adjusts for
price differences, China in 2010 stood as the second-
largest economy in the world after the US, having
surpassed Japan. Still, per capita income on PPP
basis is only 7,600 US$.
The Chinese government faces numerous economic
challenges, including: (a) reducing its high domestic
savings rate and low domestic demand; (b) sustaining
adequate job growth for tens of millions of migrants
and new entrants to the work force; (c) reducing
corruption and other economic crimes; and (d)
containing environmental damage and social strife
related to the economys rapid transformation.
Economic development has progressed further
in coastal provinces than in the interior, and
approximately 200 million rural laborers and their
dependents have relocated to urban areas to find work.
The Chinese government is seeking to add energy
production capacity from sources other than
coal and oil, focusing on nuclear and alternative
energy development. In 2009, the global economic
downturn reduced foreign demand for Chinese
exports for the first time in many years, but China
rebounded quickly, outperforming all other major
economies in 2010 with GDP growth around 10 per
cent. The economy appears set to remain on a strong
growth trajectory in 2011, lending credibility to the
stimulus policies the government rolled out during
the global financial crisis. The government vowed in
the 12th Five-Year Plan adopted in March 2011 to
continue reforming the economy and emphasizes the need to increase domestic consumption in order to make
the economy less dependent on exports.

Chinas area is slightly smaller than the US; it is the worlds fourth largest country. 92 per cent of the population is
Han Chinese with the rest consisting of minorities. The majority of Chinese speak Mandarin (Putonghua) while
in the south of China Cantonese is spoken. China has the largest population of any country in the world with
approximately 1.3 billion people.

Despite Chinas long-standing struggle with poverty and overpopulation, a middle class is developing which
is estimated to be approximately 200 to 300 million people living mainly in urban areas. This middle class
generates a consumer group which is capable of buying imported goods. China is quickly becoming the
largest purchaser: It is number one in the world with 750 million mobile phones in use, 390 million internet
users and 13.9 million cars purchased in 2009. A new trend to buy luxury goods has shifted the efforts of
many top brands to focus on China and not only Japan. China is now also considered the biggest polluter in
the world. Since the 1970s more than 500 million people have moved out of poverty leaving 22 million people
in the rural population left with an income below 1 US$ per person and day. This is a huge achievement for
the Chinese government and one which is unprecedented in human history.

3. Cultural aspects: East versus West

There is a vast difference in thinking and behaviors between Western and Asian people. Below is a list which
demonstrates some of the difference between the two global cultures.2

Table 1: Difference between East and West with some examples

Issue East West

Academic performance Very important for Chinese parents Important, but there are other ways to
become successful and happy

Beauty Pale skin Tan skin

Management High influence on employees Low influence on employees

Cars Chinese like to buy big cars if they have Western people buy smaller cars to
the financial resources protect the environment

Children Raised by parents and grand-parents Mainly raised by parents

Construction The government decides if a project needs Individuals have the power to block
to be built or not a project which might be considered
damaging to the society at large

Contracts Chinese like to renegotiate a contract if the Western people like to write long contracts
situation changes and litigate if the contract is not adhered to

Education Education system awards obedience and Education system awards innovative
memorization thinking and focuses on individual skills

Elderly Seniors are taken care of in families Seniors are transferred to retirement
homes

Emotions Hidden and difficult to recognize Easy to recognize

Face Chinese do not blame anybody in front of Western managers openly discuss
others positive or negative performance in front
of the group

The Peoples Republic of China Market for Medical Devices. 7

 Individual Wants to be part of a group and not be Likes to express individuality and the role
considered special of ones own importance

Reporting Bad news is reported on Friday at 6pm Bad news is reported immediately after it
has happened

Negotiation Based on trust and friendship, lengthy Formal and based on contract, short and
discussions to the point

Network Solve problems with many people Solve problems with a few people

Opinion Flexible and not firm Strong and firm

Parenthood and performance A grade of A minus evokes panic and A grade A minus is considered good
additional lessons are arranged for the
child

Pollution Little awareness Big concern

Problem solutions Complex and indirect approach Direct approach

Punctuality Relaxed Focused and on time

Queuing Pressing and elbowing In an organized line

Society The society at large counts and not the Individuals have the power
individual

Travelling In groups with cameras Individual or family

Way of life Oriented towards the communities Independent and individualistic

A frequently asked question by companies is whether to employ a Chinese local or send a Western employee
from the companys headquarters. Doing successful business in China requires a unique solution for each
company. The advantage of inserting a Western expatriate is that the individual will bring the culture of
the company headquarters into the Chinese operation. If he or she is a fast learner, the results can be good.
Sending a Western employee for only 1 - 2 years to China however is inefficient and often results in failure as
it typically takes a minimum of several years to become accustomed to the culture and to learn what works
and what does not. An important task for the Western expatriate is to develop talents within the company
so that he or she has a replacement when the contract expires. If a Chinese talent is taken on board, it is
important to train him or her at company headquarters abroad. Over the past 10 years, many cities in China
have experienced significant change making life in China less difficult for Westerners. Shanghai, Beijing and
Guangzhou are cities with an acceptable living standard and good schooling for the children of foreigners.

8 The Peoples Republic of China Market for Medical Devices.

 4. Healthcare system in China
4.1. Size and growth The world-wide
healthcare market is estimated at 6 trillion US$. The
consumption of healthcare products and services in
China is relatively small however with approximately
195 billion US$ accounting for only 3 per cent of
world-wide consumption. For comparison, figures of
world-wide healthcare consumption are 42, 26 and 10
per cent for the US, Europe and Japan, respectively.
The low number for China however, indicates
that there is a seemingly huge potential for future
expansion in consumption of healthcare products
and services. The rate at which this expansion will
occur is pure speculation even though the growth
rates of above 10 per cent are encouraging. Health
expenditure is estimated to be approximately 4.5 per
cent of GDP in 2009 as compared to 16 per cent for
the US and on average 9 per cent for Europe. Half of
the 4.5 per cent healthcare expenditure is from private
sources.
The development of the healthcare sector today is
far behind the economic development of China.
There is a wide gap between the urban and the rural
population in terms of access to medical services
and products. A survey sponsored by WHO ranked
China the forth worst country in the world in its term
of fairness in the allocation of its medical resources.
The report concluded: Most of the medical needs
of society cannot be met because of economic
reasons. Poor people cannot even enjoy the most basic
healthcare. This problem is becoming an important
political issue in China with sharp criticism even
emanating from the government itself. Studies have
shown that medical costs are the primary reason
people fall into debt and poverty in China.
FIGURE 1. HEALTHCARE EXPENDITURES BY SOURCE OF PAYMENT
100
90
80 35.7
46.4
70 59.0
60
50
39.2
40
35.6
30
25.5
Percentage
20
25.0
10 18.0
16.0
0 Government
1990 1995 2000
Source: Chinese Health Statistics Summary 2005
The Peoples Republic of China Market for Medical Devices.
One of the fundamental cultural differences between
China and the West concerns household economics;
Chinese save money at much higher rates than
people in Western countries. While Americans
in particular are inclined to borrow money and
tend towards consumerism, Chinese save money
and keep consumption under control. It is deeply
engraved in the Chinese society to save for a crisis
situation which may occur throughout life. Chinese
people are additionally motivated to save money for
family members and often assume that educational
or medical costs will be a burden in their future.
The institutional social safety network in China is
underdeveloped with currently less than 25 per cent
of the population covered by basic insurance schemes.
The majority who do have coverage reside in urban
areas. Out-of-pocket payments for health can cause
households to incur catastrophic expenditures which
in turn can push them into poverty. The need to pay
out-of-pocket can also mean that households do not
seek care when it is needed; a frequent occurrence in
the rural areas of China. Many patients wait too long
for treatment and approach doctors when the disease
has progressed so far that treatment becomes difficult
and expensive.
Figure 1 below outlines the trend of a decline in
government subsidies for healthcare over more
than a decade while expenditures for out-of-pocket
expenses have increased to more than 50 per cent.
The healthcare system is lagging behind the economic
development of China and the government has begun
to recognize the problem, particularly following the
SARS epidemics of 2003.
55.5
60.0 58.3
27.3
24.1 26.5
Personal
Social
16.0 15.0 17.0
2001 2002 2003
9
In 2009 the central government announced a RMB 850 billion three-year healthcare reform package that includes:
Improve healthcare facilities (e.g. hospitals and clinics, especially in rural areas)
Universalize access to basic healthcare
Revamp the pharmaceutical supply system
A SWOT analysis of China and its healthcare market is outlined in the table below:
Table 2: SWOT analysis of Chinese healthcare market
Strength
Large population
High economic growth
Unmet needs in healthcare
Possible to get medically qualified employees
Opportunities
Growing middle class
Introduction of basic insurance
4.2. The role of doctors In China,
the role of doctor goes beyond diagnosing and
treating patients. An important function of the
Chinese doctor is to give advice to patients about
the costs of a medical treatment which is rarely the
case in the Western world in which government
reimbursement or insurance coverage take this role.
Doctors in China in cooperation with the patient
will decide what treatment will be applied, what
medicine will be administered or what medical
device will be implanted. This decision is heavily
dependent on the financial resources of the patient
and family as insurance coverage, if available,
is limited and covers only part of the treatment,
particularly if medical implants are needed. If a
patient in China has enough financial resources
a treatment which is comparable to a Western
patient will be administered; if not, the patient
will get no treatment which is often the case in
rural areas of China. As far as medical device
products are concerned, patients generally choose
an imported device if they have enough financial
resources followed by a domestic product when
fewer resources are available, and in the worst case
without financial back-up, the patient would be
left without a device. In short, it is vital to include
the doctors into the promotional and educational
efforts when trying to sell a medical device product
in China. Beside the doctor, it is important to also
address the purchasing & equipment department
of a hospital, which is usually managed by the
distributor. Including the patient as a target group in
mass media advertising of medical devices is heavily
restricted and needs local government approval.
Noteworthy are the salaries of Chinese doctors who
are government employees. Salaries are significantly
lower as compared to European and US physician
salaries, even though the workload is overwhelming in
China, particularly at top hospitals. It is normal that
10 The Peoples Republic of China Market for Medical Devices.
Weaknesses
Inefficient logistics
Low healthcare expenditure per person
Fragmented market
Complicated product registration
Lengthy access to market because of tenders
Threats
Corruption
Domestic competitors upgrade products
from low-end to medium-segment
Enforcement of patent protection
a well-known Chinese doctor will see more than 50 to
100 patients a day with less than five minutes per case.
Doctors hardly have any time to talk with patients
and establish their needs, and seldom give advice on
diet, physical activity and compliance, which is the
key to high-quality care for chronic diseases. When
the patient is a passive recipient, optimum outcomes
cannot be expected.
Due to poor salaries many doctors seek to raise their
income. Doctors will frequently engage in kick-
back practices (red envelop money) which are
given by distributors and added into the margin of
medical device products. Very often, the price of a
medical device product is higher in China than in
the Western world due to the red envelope money
rather than customs duties which are relatively
low. For many foreign companies operating in the
medical device industry in China, direct access to
the market is not possible because of these practices.
Segments of the medical device industry which are
heavily affected by kick-backs are cardiovascular
and orthopedic, as well as many others. Many
medical device companies will inadvertently
subsidize the salaries of doctors at hospitals through
their distributors. For medical device companies
operating in China, it is easy to employ medical
doctors because of the higher salary offered in the
private sector.
China is still a society coined by Confucian values. If
your products demand education and trainings, you
have the best and most willing audience to get your
message across. Chinese love education and it is a
privilege to teach in China. Many companies have
developed a great business by focusing on education
rather than promotion of their products. Education
is important in a Confucian society and is an essential
part of marketing and sales management.
Table 3: Doctors by specialty comparing China with the US

Doctors China US
Anesthetists 7,897 30,304
Cardiologists 1,379 17,881
Dermatologists 856 10,670
Diabetologists 298 4,987
Endocrinologists 3,411 3,763
Gastroenterologists 4,173 9,342
Geriatricians 284 1,072
Hematologists 245 11,681
Hepatologists 334 160
Nephrologists 3,202 5,218
Neurologists 7,412 9,389
Gynecologists 6,581 34,805
Oncologists 772 19,356
Ophthalmologists 2,918 17,113
Pediatricians 7,226 46,313
Psychiatrists 16,104 27,376
Pulmonologists 1,194 4,480
Radiologists 17,006 23,363
Rheumatologists 2,013 1,775
Surgeons 5,881 26,850
Urologists 6,881 9,281
Source: Global Data 2007

The figure above shows that there is a lack of
specialists in many segments of medicine. Looking
at only cardiologists and surgeons for instance, the
disparity between China and the US is apparent.
This difference is also reflected in the orthopedic
and cardiovascular market in China whose sheer
patient numbers require a far larger availability of
specialists. As a result of this imbalance, bargaining
power shifts towards cardiologists and surgeons which
fuel the demand for kick-backs. The discrepancy is
even more prominent in the field of diabetes and
hematology. If one compares numbers of oncologists
the US has 25 times more specialists than China.
This figure does not take into consideration the
differences in population between China and the
US which makes these numbers even bleaker. In the
Chinese healthcare system, patients receive much less
attention that in the Western world.
4.3. Patients and hospital services
Due to the corrupt practices of doctors in China,
patients are scarred to enter a hospital and seek
treatment, particularly without insurance and in
rural areas. Many Chinese try to use or build a
relationship network with medical professionals to
have objective and transparent information about
diagnosis and treatment. Often, patients and their
families travel for days and queue for hours to
seek treatment at a top hospital in one of the large
cities to get professional and correct advice about
diagnosis and treatment.
The service level provided by Chinese hospitals is
a big concern for patients. The large number of
patients seeking treatments at top hospitals with
insufficient infrastructures makes it impossible to
provide good services. In the Western world it has
become evident that the size of a hospital is directly
related to the quality of services. In simple terms,
smaller hospitals provide better services than large
hospitals when the proficiency level of the doctors
is comparable. A simple example from the consumer
sector demonstrates this problem: In Europe when you
are purchasing contact lenses, the optician will check
your eye sight in a first visit, order tailor-made contact
lenses to be tested at the second visit and see you a
third time for checking the outcome. This process will
take you at least one to two weeks. The same process
will take you only one hour in China. Customization
and care is not always a top priority in China.
Official policy is slowly making it easier for hospitals
and investors to serve the growing wealthy middle
class and foreigners. In 1997, the government
approved the establishment of the Beijing United
Family Hospital, a joint venture between the
Chinese Academy of Medical Sciences and
Chindex International, a medical supply company
based in Bethesda, Maryland. The hospital
primarily serves foreign and wealthy Chinese
clients. The government will allow foreign-financed
hospitals to have more freedom in setting their
own fees which are sometimes as much as eight
times above governmental levels. Hospitals like the
Sino-Japanese Friendship Hospital and the Peking
University Medical College now have special wings
for wealthy and non-Chinese-speaking patients,
employing doctors who have been trained abroad
or have foreign language skills. In Shanghai the
situation is similar.

The Peoples Republic of China Market for Medical Devices. 11

4.4. The Government The medical
device industry generally is not as mature as the
pharmaceutical industry and less government
regulations are in place in China. In recent years,
the National Development & Reform Commission
(NDRC) has tried to curb the high prices of some
of the imported medical implants, particularly
cardiovascular and orthopedic devices. Different
models were proposed such as fixing a margin of
a medical device product from the import price to
the end-user. The enforcement of most proposals
was ineffective because many of the provincial
governments and municipalities did not follow the
lead of the NDRC. In several parts of China bidding
/ tender processes were introduced, sometimes on
provincial, sometimes on city and even on hospital
levels for all classes of medical devices. Additionally
the Peoples Liberation Army (PLA) also issues tenders
for the military hospitals. These bidding / tender
processes forced many medical device products to
suffer from price declines as margins were squeezed.
The bidding / tender process has created a new
administrative hurdle for medical device companies
entering the market, particularly SMEs which have a
weaker voice and fewer relationships with government
bodies. If a company wants to enter the market
with a new product, it needs to acquire approval by
these bidding / tender process before being able to
promote and sell products in hospitals. For any SME
entering the Chinese market it is important to realize
that government interventions in the healthcare
sector are common and can occur on short notice.
While in the Western business world the Government
sets the framework, it is common in China that the
Government intervenes into the market.
The SARS epidemic of 2003 provided a wake-
up call for citizens, the healthcare sector and the
government, sparking concern that the current
healthcare system is inadequate to manage similar
crises. The reforms which were implemented as
a result include upgrading hospital facilities and
services and restructuring insurance schemes. A lot
of the governmental resources channeled into the
healthcare system have been for basic needs and not
items in the high-end market which is dominated
by foreign companies. The near and medium
term future will be excellent for medical device
companies providing apparatus and equipment to
upgrade hospitals. What might become a lucrative
business in the healthcare sector in China is
development of products for the mid-segment of
the market which is now under attack by domestic
as well as foreign companies. Mid-tier hospitals
demand products from the mid-segment and less
from the high-end. A huge opportunity exists for
companies which adapt to the domestic market and
provide products that mid-tier hospitals require.
4.5. Hospital tier system The Chinese
healthcare system is highly fragmented with
different levels of government being responsible
for different parts of the network. China has
approximately 300,000 healthcare institutions. The
difference between the top hospitals and the base is
huge in terms of equipment, education and staff.
In 2006, the average consultation cost per stay for
outpatients was 130 Renminbi, while the average
consultation cost per stay for inpatients was 4,670
Renminbi.

Table 4: Healthcare infrastructure in China3 (2006)

Institution Description Number

Hospitals 19,246
General Hospitals 13,120
TCM Hospitals 2,665
Specialized Hospitals 3,022
Health Centers 40,791
Urban Health Centers 816
Township Health Centers 39,975
Sanatoriums 264
Out-patient Department & Clinics 212,243
Women & Children Health Centers 3,033
Centers for Disease Control & Prevention 3,548
Medical Research Institutes 248
Others 28,224

Chinas pyramidal healthcare system is structured around many small hospitals at the bottom (not graded
10,312 / Level 1 2,738), fewer midsize hospitals in the middle (Level 2 5,151) and a small number of very
large hospitals at the top (Level 3 1,045). Level 3 hospitals are the best in terms of equipment, education and
staff. The government grades allow hospitals to buy medical equipment based on their rankings. The higher the
grade, the more sophisticated medical equipment is allowed to be purchased.

12 The Peoples Republic of China Market for Medical Devices.

Table 5: Hospital level and sub-level system in China3
Hospital Level Number
L3 1,045
L2 5,151
L1 2,738
Total 8,934
Moreover, the Chinese Peoples Liberation Army
(PLA) governs the largest centrally administered
hospital network in China, comprising nearly
200 institutions, including research hospitals and
medical colleges. Most foreign medical device
companies compete in level 3 hospitals and late
entrants in any medical device market feel that it
is hard to get into these hospitals without having
innovative product features.
Traditional Chinese Medicine (TCM) refers to a
broad range of medicine practices sharing common
theoretical concepts which have been developed in
China and are based on a tradition of more than
2,000 years, including various forms of herbal
medicine, acupuncture, massage, exercise, and
dietary therapy. These practices are a common
part of medical care throughout East Asia, but are
considered alternative medicine in the Western
world. The doctrines of Chinese medicine are rooted
in tradition and many of its assumptions, including
the model of the body, or concept of disease, are
not supported by modern evidence-based medicine.
TCMs view of the body places little emphasis on
anatomical structures, but is mainly concerned with
the identification of functional entities. While health
is perceived as harmonious interaction of these
entities and the outside world, disease is interpreted
as a disharmony. TCM diagnosis consists in tracing
symptoms to an underlying disharmony pattern,
mainly by palpating the pulse and inspecting the
tongue. By the late 1980s the proportion of doctors
of Western medicine had exceeded those of
traditional practices. Even in todays modern China,
many patients seek diagnosis and treatment at TCM
hospitals prior to visiting a hospital with Western
diagnosis and treatment concepts. Often, TCM
hospitals, about 2,650 in China, have units which
use Western style medicine. Among young Chinese,
Western style medicine is preferred while elderly folks
go to TCM hospitals. In rural areas, TCM plays still
a dominant role. Some of the TCM hospitals have
incorporated wards with Western-style medicine.
There are about 2,000 private hospitals, called
`for profit hospitals. Increasingly, clinics are
being set up in large cities to cater to the growing
number of wealthy Chinese that demand higher
quality medical care. These also include special
The Peoples Republic of China Market for Medical Devices.
Hospital Sub-level Number
A 647
B 364
C 34
A 3,104
B 1,929
C 118
A 2,005
B 551
C 182
Total 8,934
practices and Sino-foreign joint venture hospitals.
Interestingly, there is little available in terms of
rehabilitation. While patients are mobilized shortly
after a surgery in the West, they are kept bed-ridden
for days in China. Often, family members provide
food and give support at hospitals.
4.6. Hospital financing and
equipment Chinese hospitals are well equipped
with ultrasound imaging systems and CT apparatus
comparable to European hospital standards. Smaller
and lower graded hospitals are lacking basic surgical
and diagnostic equipment. Hospitals still operate
under soft budget constraints similar to those of
state-owned enterprises in the 1980s: those with
high operating deficits are given large subsidies,
while profitable hospitals receive no funds, thereby
locking inefficiencies into the system. Doctors and
hospitals survive from money collected from patients.
Drugs and expensive tests have become the cash
cows providing hospitals with revenues. Since drugs
and tests are the lifeblood of hospitals, doctors are
encouraged to overprescribe them. Today about
50 per cent of healthcare spending is on drugs
compared to around 10 to 15 per cent in most
developed nations. There is an urgent need in the
three-tier hospital system to develop and upgrade
level 2 and 1 hospitals in order to provide better
services for patients and release level 3 hospitals from
the large inflow of patients. While the suppliers of
the top hospitals are mainly foreign medical device
companies, the lower tiered hospitals are serviced
by domestic manufacturers with cheaper and
technologically less advanced products.
One of the biggest problems for healthcare in
China is that patients always go straight to the
top, even for colds or headaches. This creates a
bottleneck at city hospitals, while smaller hospitals
remain under-utilized. The way that Chinese
people view going to the hospital is what is causing
the problems in the healthcare system. It is why
the middle and lower tiers of hospitals have not
had a chance to develop. The Chinese healthcare
system is lacking a gatekeeper which is the General
Practitioner (GP) in many Western countries. The
introduction of general practice in parts of urban
China began in 1999. Acceptance of general
practice has been slow against the background
13
of a strong urban tradition of hospitals as primary
care providers, the widespread belief that specialists
are more skilled than generalists even for minor
complaints, and the perceived right of the individual
to use the provider of their choice. In several cities,
notably in Zhejiang, Jiangsu, and Guangdong
provinces, General Practitioners (GPs) are acquiring
a good local reputation and are attracting large
numbers of patients. While patient preferences are
part of the problem, doctor preferences also play a
role. Many medical students say they do not want to
work at smaller hospitals but would rather find work
at a top-tier hospital in a big city.
4.7. Basic medical insurance In 2003,
the Chinese government gave more money to rural
medical cooperatives and set up a system in which
farmers put in 3 US$ a year and the government
provided a 12 US$ subsidy for coverage of 25 per
cent to 30 per cent of hospital expenses but little for
outpatient care. The coverage does not sound that
great but 850 million enrolled in it. Between 2009 and
2012 the government plans to increase its contribution.
In 2007, the government extended coverage to
urban workers and families who had been without
coverage since the end of the 1994 collapse of the
work unit system. Children, elderly, migrant workers
and the unemployed all qualified for the same 12
US$ subsidy received by rural people but because
healthcare costs are higher in the cities than rural
areas, urban people have to contribute more than
30 US$ instead of 12 US$ a year. About 120
million people have signed up for this.
In 2009, government pledged to spend 123 billion
US$ over three years to deliver basic healthcare
and health insurance to 9 out of 10 Chinese. The
law calls for a revamping of hospitals and providing
better services at lower costs. One of the hopes of
the program is that it will help generate growth
by encouraging people to spend more money on
consumption by removing the need to save on
medical problems.
One of the aims of the healthcare program
approved in 2009 is to provide some form of
medical insurance for 90 per cent of the population
by 2011. Each person covered by the system would
receive an annual subsidy of more than 17 US$
starting in 2010. Medicine would also be covered
by the insurance, and the government would begin
a system of producing and distributing necessary
drugs this year.
The Chinese government appears to be running
pilots in the healthcare system to evaluate what
works and what does not work. Even though the
above schemes mention several insurance plans, it
can be assumed that less than 25 per cent of the
population is currently covered by insurance, and of
those covered, the majority is living in urban areas.
14 The Peoples Republic of China Market for Medical Devices.
4.8. Medical tourism Asia has become a
medical tourist destination for patients from the
Middle East, Europe and North America. Key
players in this business are top hospitals in India,
Thailand and Singapore. The treatment and service
experience at these top hospitals is equivalent
or better to Western standards with lower costs
incurred by overseas patients. Even though China
has tried to step into this market, the outcome has
been poor with the exception of medical tourism
in stem cell treatments due to restriction in most
Western countries.
4.9. Demographics The age structure of
the Chinese population is as follows: 17.6 per cent
between 0 to 14 years, 73.6 per cent between 15 to
64 years and 8.9 per cent 65 years and over. One
consequence of the one child policy is that China
is now one of the most rapidly aging countries in
the world. According to the New England Journal
of Medicine4, the rapid decrease in Chinas birth
rate, combined with stable or improving life
expectancy, has led to an increasing proportion of
elderly people and an increase in the ratio between
elderly parents and adult children. By 2020, over
23 per cent of Chinas citizens are expected to
be over age 65, resulting in a major challenge
to Chinas medical and social insurance system.
Finding answers to how China will pay for its
aging population and how it will compete once its
population ages are more and more urgent, though
this problem is not only limited to China but also
most nations. The beneficiaries of the aging trends
are medical device companies offering products for
elderly patients such as ophthalmic, cardiovascular
and orthopedic companies.
Even though at birth, the natural sex ratio is higher
for men than women (1.06 to 1), the figure in China
is 1.18 to 1, mainly due to abortion of females.
The government has stepped in by declaring sex
determination illegal in order to stop this trend
which is not good for men and society at large.
The life expectancy is 74.6 years (men 72.7 years
/ women 76.9 years). These figures are quite
astonishing when taking the under-developed
healthcare system for the majority of Chinese
people in rural areas into consideration and is most
likely linked to a healthy diet in that population.
The main cause of death amongst the Chinese
population is cancer, accounting for 26 per cent of
all deaths. Cerebrovascular and cardiac diseases
follow with shares of 19 per cent and 17 per cent,
respectively. The adoption of Western eating habits
and a sedentary lifestyle, particularly in urban
areas, has created a diabetes epidemic in China
with almost 1 in ten adults having the disease.
The figures suggest China has some 90 million
diabetics, far more than India a huge opportunity
for companies with products in this segment of the
medical device market.
About one fifth of the one billion overweight and obese people in the world are Chinese. China was once
considered to have one of the leanest populations, but it is fast catching up with the West in terms of the
prevalence of overweight and obesity. Disturbingly, this transition has occurred in a remarkably short
time. Data from the 2002 national nutrition and health survey showed that 14.7 per cent of Chinese were
overweight (Body Mass Index (BMI; kg/m2) 25) and another 2.6 per cent were obese (BMI 30), such
that there are 184 million overweight people, and a further 31 million obese people in China out of a total
population of 1.3 billion. Although the prevalence of obesity in China is relatively low compared with
Western countries such as the United States where over half of adults are either overweight or obese, it is
the rapid increase of the condition especially among children which is particularly alarming. Data from
the China national surveys on the constitution and health in school children showed that the prevalence
of overweight and obesity in children aged 7-18 years increased 28 times and obesity increased four times
between 1985 and 2000, a trend that was particularly marked in boys.5

4.10. Future challenges The future challenges are to encourage patients to seek help in level
1 instead of level 3 hospitals. In short, the currently existing pyramid of the healthcare system should be
inverted as illustrated below.

figure 5. a service provider ecosystem to resolve

inefficiencies in the current.

Current ecosystem Service provider ecosystem

Tertiary

Re
Treat all types of patients with all levels of severity. Tertiary

fe
ng
Large number of operations and outpatients Specialized

rra
ori
hospitals focus

l
ba
Disproportionate number of patients

nit
on treating difficult

se
mo
cases, research

do
Secondary

or

ns
ry
Include out and inpatients and Secondary

eri
emergency treatment ve Larger regional hospital,

ou
co
provide emergency and
r re

s
Not fully utilized

ne
general hospital services
r fo

ss
of
fe

Primary
ns

Primary

co
Emergency room,
Tra

nd
Provides community services,
mostly outpatients

itio
collaboration between doctors, private

n
Low utilization clinics and community healthcare centers,
treat mostly outpatients

Source: IBM Institute for Business Value Analysis

If the current service system can be inverted, efficiency can be brought into the Chinese healthcare system.
This progress will depend upon creating a gate-keeping function (i.e. GPs) to channel patients into the low
level hospitals and to upgrade them with the necessary equipment.

The Peoples Republic of China Market for Medical Devices. 15

5. Medical device &
equipment market
5.1. Size and growth potential
Medical device in China is defined as any instrument,
apparatus, appliance, material, or other article
whether used alone or in combination, including the
software necessary for its proper application. It does
not achieve its principal action in or on the human
body by means of pharmacology, immunology or
metabolism, but which may be assisted in its function
by such means; the use of which is to achieve the
following intended objectives:
Diagnosis, prevention, monitoring, treatment or and one child, an increasing middle class with growing
alleviation of disease;
Diagnosis, monitoring, treatment, alleviation of and more support by the government for healthcare.
or compensation for an injury or handicap
conditions;
Investigation, replacement or modification for export figures based on HS codes (reason: there
anatomy or a physiological process;
Control of conception.
The value of the Chinese medical device market is
estimated at 12.09 billion US$ in 2009, being the
second largest in Asia after Japan. The size of the
Chinese medical device market is 10 per cent of the
US market which is estimated at 121 billion US$.
The Chinese medical device market grew at more
than 10 per cent between 2000 and 2009 with a
slight decrease below 10 per cent to be expected
over the next couple of years. Segments with high
growth are: cardiovascular, dental, endoscopy and
laparoscopy, and ophthalmic devices. Medical
device companies offering testing and equipment
for diabetes patients might step into a large market
due to the diabetes epidemics.
The medical device market in China is very likely to
grow robustly for the next couple of years. Reasons
for this positive outlook are: an aging population, a
family structure with four grandparents, two parents
incomes, an increasing number of private hospitals,
The most reliable data in China are import and
are tax implications on import and export goods).
Below are two tables outlining the import and
export figures of some of the most important
medical device products in the year 2010.6
The Chinese medical device market is not
homogenous like the US market. It is a fragmented
market where a distributor from the south will have
troubles to establish itself in the north and vice
versa. Never believe a distributor which tells you
that he can manage the entire country, this is never
the case and should be assumed as impossible.

Table 6: Chinas import of some large-sized groups of

medical device products in 2010

Commodity Import value (million US$) Change over previous year (%)
Medical, surgical X-ray application instruments 612 22
Color ultrasound scanners 582 26
X-ray computed tomography (CT) apparatus 503 45
Medical, surgical, dental, veterinary instruments 501 28
Needles, catheters, cannulae 441 23
X-ray generators 436 26
Magnetic resonance imaging apparatus 430 54
Spectrometers 354 26
Endoscopes 222 31
Therapeutic devices, artificial respirators 177 35
X-ray tubes 172 18
Ophthalmic instruments and appliances 156 32
Orthopedic and fracture apparatus 149 18
Patient monitors 137 32
Dialysis apparatus 129 27
Syringes 112 10
Artificial joints 106 50
Hearing aids, excluding parts and accessories 47 -3

16 The Peoples Republic of China Market for Medical Devices.

Table 7: Chinas export of some large-sized groups of
medical device products in 2010

Commodity Import value (million US$) Change over previous year (%)
Massaging devices 1,090 18
Absorbent, cotton, gauze, bandages 659 10
Needles, catheters, cannulae 622 19
Medical, surgical, dental, veterinary instruments 541 26
Shygmomanometers 418 19
X-ray generators 396 33
Syringes, with or without needles 332 20
X-ray contrast medium, diagnostic reagents 285 3
X-ray computed tomography (CT) apparatus 269 15
Color ultrasound scanners 274 37
Patient monitors 263 41
Therapeutic devices, artificial respirators 247 27
Wheelchairs, not mechanically propelled 245 29
Hearing aids, excluding parts and accessories 244 -1
Other gloves of vulcanized rubber 222 20
Other wheelchairs 178 12
Orthopedic and fracture apparatus 91 50
Artificial joints 44 84

The imported products consist of high-end
medical apparatus and instruments, where
instruments dominate over consumables. Quite the
opposite is the case for exported products which
are overwhelmingly low-end consumables and
apparatuses. The exported instruments such as
X-ray generators, CT devices and patient monitors
are manufactured in wholly-owned companies
or joint ventures by General Electrics, Siemens
and Philips. This presence proves that a medical
device segment which has large imports into
China encourages foreign companies to start local
manufacturing for the domestic market, followed by
exports in a second step.
Leading countries providing high-end products are
the United States, Germany and Japan. Switzerland
is also a key player.
The domestic market players consist of a large
number of relatively small companies. It is assumed
that approximately 12,000 domestic manufacturers
hold less than 50 per cent of the market. They focus
on low-end, price sensitive products such as patient
aids, bandages, syringes and medical and surgical
instruments. The majority of these companies have
less than 20 million US$ in sales and consolidation
among the domestic manufacturers is to be
expected for the years to come.

Increasingly, foreign enterprises bring their
manufacturing of medical device products to
China which can be observed for hearing aids and
orthopedic products. The exports of hearing aids is
244 million US$ versus imports of 47 million US$.
In chapter 5.3., details with the orthopedic market
in China will be explored as this is one example of a
sector which was developing at an early stage of the
medical device industry in China.
5.2. Role of foreign and domestic
companies Generally speaking, the high-
end market of medical devices is dominated by
foreign manufacturers including General Electrics,
Siemens, Philips and Toshiba; while the low-end
market is in the hands of smaller Chinese domestic
companies. More than 50 per cent of the Chinese
demand is met by imports worth 12.09 billion US$.
As outlined earlier, the Chinese hospital market is
like a pyramid with low-end hospitals at the base
and high-end hospitals at the tip. Foreign companies
compete mainly at the top hospitals while domestic
companies focus on low-level hospitals. Increasingly,
the competition at top hospitals is so crowded that
foreign players are forced to enter the mid- segment
of the tiered hospital market to enlarge their market
share. The complicated bidding / tender process
add pressure on the product margin at top hospitals.
Therefore, many foreign companies start to adjust
their products for mid-tier hospitals to open a new
market segment.
In the paragraphs below we outline some foreign
and domestic medical device companies in China
which have gained reputation.

The Peoples Republic of China Market for Medical Devices. 17

Table 8: Examples of foreign invested enterprises in the
medical device field in China
Foreign Invested Enterprises
Omron (Dalian)
Philips Neusoft Medical (Shenyang)
Microport Medical (Shanghai)
Resound Hearing Aids Technology (China)
Siemens Hearing Instruments (Suzhou)
Omron (Dalian) Omron is a Japanese
company with a large manufacturing plant in
Dalian producing blood pressure meters, clinical
thermometer, body fat meters, low-frequency
treatment equipment, aspirators, pedometers, and
other devices.
GE Healthcare China GE Healthcare is
one of the major businesses in the GE family. It
entered the Chinese market in 1991 by setting up
GE Hangwei Medical Systems, a joint venture with
China National Equipment & Supplies Import
& Export Corporation, a subordinate to Chinas
Ministry of Health. In 1996 GE Healthcare
established two more joint ventures, one was GE
Medical Systems with a state-owned company in
Wuxi, which later became GE Healthcares R&D
and production base in China; and the other
was GE Hualun Medical Systems with National
Medical Equipment Industry Corporation. GE
Healthcare China later made these two wholly
owned companies. GE Hangwei Medical Systems
remained a joint venture, in which GE Healthcare
owned more than 90 per cent stake. With its early
bird status, GE is the current market leader in the
medical equipment market in China.
Philips Neusoft Medical The joint
venture by Philips Electronics of the Netherlands
and China Neusoft Group is located in Shenyang,
Northeast China. The joint venture has a registered
capital of about US$ 30 million. Philips holds
51 per cent of that capital share and Neusoft
Digital Medical Company holds 49 per cent. By
joining forces with a local industry leader, Philips
is able to quickly deploy its strategy for the market
in China and gain a direct link to a long-term
supply of skilled workforce as well as R&D talent,
with the aim to build the new JV into a global
competence center of Philips for economy to
mid-range products. Philips and Neusoft Medical
Systems will begin developing and manufacturing
computed tomography (CT), magnetic resonance
imaging (MRI), ultrasound and X-ray equipment
based on Neusoft Digital Medical Systems previous
production capabilities and product designs from
both houses. Both parties will retain their own
brands, sales forces and service networks. Statistics
show that mid-segment and economy market
products hold 75 per cent of the Chinese medical
market and 45 per cent of the global medical
18 The Peoples Republic of China Market for Medical Devices.
Employees Annual revenue (million Rmb)
2, 710 1,434
6,000 1,105
1,200 727
N/A 562
700 507
market. Moreover, these products show an annual
growth rate of 15 per cent in China and 8 per cent
in the worldwide market. As the trend continues,
the mid-to-economy range products will soon
become the mainstream in the medical market.
Microport Medical (Shanghai)
Microport Medical in close cooperation with
recognized international physicians and scientists
worldwide develops and produces cardiovascular
and other vascular devices, as well as diabetes
devices and orthopedic products. The company
also produces other stents to treat vascular diseases
and disorders in other parts of the body, and also
offers intracranial stents which are extremely small,
flexible stents used to facilitate blood flow in blood
vessels in the brain, as well as stent grafts for use in
surgical operations.
Resound Hearing Aids Technology
(China) The GN ReSound Group, which is
headquartered in Copenhagen, Denmark, has
subsidiaries in 23 countries and distributors in 60
more. With approximately 3,000 employees, the
group ranks among the leaders in its industry. The
GN ReSound Group is a leading international
manufacturer of advanced hearing health care
solutions. The company offers a full range of
hearing aids and accessories under the ReSound,
Beltone and Interton brand names. Through GN
Otometrics, the GN ReSound Group also creates
innovative solutions for all types of ear-related
diagnostics and is the largest global supplier of
computerized audiology and hearing instrument
fitting equipment. GN ReSounds manufacturing
plant is located in Xiamen and the investment was
50 million Renminbi (Yuan). The plant assembles
some hearing aids for world-wide distribution and
domestic use. It is the most popular brand in China.
Siemens Hearing Instruments
(Suzhou) As the first foreign invested enterprise
at the Singapore Suzhou Industrial Park, Siemens
Hearing Instruments was founded in 1995 to
manufacture and sell Siemens Audiologische
Technik GmbH hearing aids in China. The
company is one of the key manufacturers of
hearing aids in the world. Currently it has more
than 700 employees and 6 branch offices around
China. More than 1,000 professional hearing aids
fitting centers have been set up to offer support for
patients suffering from hearing problems.
Unitron Hearing (Suzhou)
The Phonak Group established its manufacturing facility for hearing aids in Suzhou, China in 2003. The
Chinese plant is an important move at the Phonak Group to reduce product costs and improving margins.
The plant will also be providing a platform for the Group to expand its sales into the Chinese market where
its hearing aids are not yet known. This will be a challenge because several major competitors are present
since many years and have built solid market shares.
Table 9: Examples of domestic Chinese medical device companies
Domestic Enterprises
Mindray
Shandong Weigao
Shandong Zibo Shanchuan Medical
Beijing Lepu Technology
Trauson Holdings
Kanghui Holdings
Mindray Mindray is a leading developer,
manufacturer and marketer of medical devices
worldwide.The three primary business segments are
patient monitoring and life support products,
in-vitro diagnostic products and medical imaging
systems. The manufacturing and engineering
base is in Shenzhen, China and the company has
worldwide distribution networks. The company has
704 million US$ in revenues and employs 6,300
employees. Mindray is listed at the New York Stock
exchange since 2006 and has recently entered as
one of the first medical device companies from
China the US market. It seems that once a Chinese
company is internationally astute, they look at the
US and European market for expansion.
Shandong Weigao Group Shandong
Weigao Group is the largest domestic company
in the manufacturing and marketing of single-
use medical devices such as syringes, needles and
catheters. It has additionally entered the stent, blood
purification and orthopedic market. The Group
has also two joint ventures, one with Medtronic for
the distribution of their medical device products
and another one with Nikkiso in the field of dialysis
machines. They have a national sales network with
representation in more than 110 cities in China.
The Group went public at the Hong Kong stock
exchange in 2004.
Shandong Zibo Shanchuan Medical
Shandong Zibo Shanchuan Medical is located in
Zibo city. Founded in 1988, it covers over 666,000
square meters with GMP standard production
facilities and clean workshops of 300,000 square
meters with over 6,000 employees. The main
products are disposable infusion sets, syringe
sets, hypodermic needles, scalp vein sets, blood
transfusion sets, urine bags, vaginal specula,
umbilical cord clamps, as well as others.
Beijing Lepu Technology Established
in 1999, Beijing Lepu Technology is a leading
Chinese enterprise specialized in research &
development, production, sales and service of high-
Employees Annual revenue (million Rmb)
6,300 4,787
7,400 2,463
6,000 1,697
N/A 669
950 291
750 243
tech interventional cardiology products, anesthetic
products and occlusion devices. In October 2009,
Lepu successfully listed on the Shenzhen Stock
Exchange market.
Trauson Holdings Chinese orthopedic
device manufacturer Trauson (Jiangsu) Holdings
successfully listed on the Hong Kong stock exchange
on June 14th, 2010. Trauson, founded in 1986
and based in Changzhou, China, manufactures
more than 2,000 devices for trauma, spine, and
other orthopedic indications. As of December
31, 2009 the company provided products to over
2,500 hospitals in China. Their products are
distributed in 30 domestic cities. Trauson utilizes
its ties with various academic institutions and its
ability to organize various forms of trauma and
spine-related training classes all over China as a
marketing tool. The Chinese trauma orthopedic
products market grew at a CAGR of 20.7 per
cent, the spine orthopedic products market grew
at a CAGR of 24.1 per cent and the PRC joint
orthopedic products market grew at a CAGR
of 22.1 per cent all over a four year period from
2006 to 2009. Furthermore, Trauson believes
that the recently announced healthcare reform in
China and the resulting increase in investment in
the healthcare sector will benefit the markets and
producers such as Trauson. Management estimates
that the company is second in the PRC trauma
orthopedic products market with a market share
of 8.4 per cent. Synthes is the leading provider
with a market share of 13.8 per cent. Trauson is
sixth in the PRC spine orthopedic products market
with a market share of about 3 per cent. Trausons
revenues have grown steadily over the past few
years from 19.2 million US$ in 2007 to 30.9
million US$ in 2009 accounting for a CAGR of
26.8 per cent, respectively, indicating that they are
continuing to expand their share. In 2009 trauma
products accounted for 64 per cent of revenue,
spine products accounted for 14.8 per cent; OEM
products accounted for 14.9 per cent, and 6.3 per
cent of revenue came from other sources.
The Peoples Republic of China Market for Medical Devices. 19
Kanghui Holdings Kanghui Holdings listed on the Hong Kong stock exchange is a leading domestic
developer, manufacturer and marketer of orthopedic implants in China. Through the successful initial
public offering in 2010, Kanghui has obtained considerable resources to implement growth plans going
forward in the fast-growing Chinese market. According to Frost & Sullivan, the market for orthopedic
products in China was approximately Renminbi 6.1 billion in 2009 and is expected to reach RMB16.6
billion by 2015.

5.3. Example of the orthopedic market in China According to GlobalData, the

Chinese orthopedic market has a size of 880 million US$ (see figure above from Frost & Sullivan) which is
approximately 2.2 per cent of the world-wide market.

Table 10: Orthopedic device market in the Peoples Republic of China

Segment 2009 (million US$) 2010 (million US$) CAGR (%)

Arthroscopy 71.4 74.8 6.8
Cranio-maxillofacial 15.9 16.7 7.7
Joint reconstruction 234.3 251.1 9.3
Orthobiologics 78.3 85 10.6
Orthopedic accessories 27.7 30.3 11.6
Orthopedic braces and supports 43.6 47 9.9
Orthopedic prosthetics 13 14.2 11.8
Orthopedic reamers 0.1 0.1 4.7
Spinal surgery 128.2 145.9 13
Trauma Fixation 192.5 213.9 12.7
Source: GlobalData

In terms of procedures, there were 104,000 joint
replacements, 154,000 spinal procedures and
204,000 trauma fixations in 2010.7 This transforms
into a price of approximately 2,250 US$, 950 US$
and 830 US$ per case for a joint replacement, a
trauma fixation and a spinal surgery, respectively.
The domestic companies are coping well with
coping trauma and spine products and the foreign
suppliers are suffering from this trend. As far
as artificial joints are concerned, the domestic
players are struggling because these products are
more difficult to manufacture in terms of material
challenge and survival in the human body. While an
imported artificial hip survives 15 to 20 years after
implantation, a domestic hip joint is functional for
only 5 years. It remains to be seen how Trauson and
Kanghui can damage the established foreign players
Synthes and Medtronic. Undoubtedly, Chinese
companies navigate much smoother in Chinese
waters as compared to foreign manufacturers.
Besides this, most foreign companies are afraid of
the Foreign Corrupt Practices Act (FCPA) which
prohibits briberies to Chinese officials done by their
distributors on a daily basis with the knowledge
of the senior management in China and at
headquarters.
The leading company in trauma fixation is
Synthes, in spine surgery Medtronic, and in joint
reconstruction DePuy. All foreign companies
have set-up wholly foreign owned enterprises
or representative offices and use Chinese
intermediaries, distributors, to access the market
indirectly. The reason for doing so is that the
orthopedic device market is corrupt because doctors
need additional incomes due to their low salaries
paid by the government. The mark-up in this
business is mind-boggling, reaching 2.5 to 3.5 times
the import price of the implant, whereby artificial
joint products are the lowest and orthopedic trauma
products the highest. The reason is not customs
duty, which is only 4 per cent of the imported value,
but the high commission paid to doctors. It can
happen that operations are performed in patients
who can afford the procedure even though there
is no indication for the surgery, while in cases with
little resources but a clear indication, the surgery
is not performed. The mark-ups result in higher
prices to patients in China as compared to prices
paid in Europe which is strange for a developing
country. The government has recognized that prices
for orthopedic and cardiovascular products are
too high and have implemented a tender process
for many medical device products. This bidding /
tender process is described in more detail in chapter
5.5. and has resulted in lower prices, particularly for
joint reconstruction products.8
Synthes has built a large distribution network on
its own with coverage of major parts of China.
Medtronic signed a joint venture with Shandong
Weigao Group to distribute their spine products in
China. In 2010, due to the Department of Justice
Investigation in the USA, DePuy tried to change
the business model by using logistics platforms
providing the logistics services of instruments
and implants to hospitals and engaging agents for
operation room support and paying commissions.
This model, however, was not liked by the existing
distributors, doctors, hospitals and equipment
departments and seems to falter.

20 The Peoples Republic of China Market for Medical Devices.

Many of the foreign large players have also started
to manufacture in China, be it instruments, cases,
or implants for the domestic and neighboring
markets. For the time being it will be hard for the
major orthopedic companies to have Western
patients accept implants coming from China. Most
foreign companies have invested large amounts to
educate Chinese orthopedic surgeons, particularly
the AO Foundation, which has trained thousands of
surgeons in trauma and spine fixation.
There are many small-sized domestic companies
which have entered the market by copying products
from the foreign players. At exhibition, foreign
players often discover that a product which is
undergoing product registration has been already
copied and is sold by a domestic company. Two
domestic companies, Trauson and Kanghui,
based in east China have successfully listed on the
Hong Kong stock exchange and are the current
successful domestic players. Most of their revenues
are from the mainland market and it remains to be
seen if they can expand internationally with little
innovation and little support by reputed surgeons.
In the field of artificial joint replacement there are
large differences between Western surgeons and
Chinese surgeons. In the West, most orthopedic
surgeons do careful pre-operative planning while
in China this is not done. Preoperative planning
is usually avoided due to the time requirements
which become the limiting factor when doctors
and hospital staff are overwhelmed by patient
demand. Similarly, post-operative care is also poor.
Rehabilitation is an integral part of the treatment
after a joint replacement with the intention to bring
the patient quickly back to a normal lifestyle. In
China, such patients are kept after the operation
for several days in bed and there is no rehabilitation
service available to teach the patient what to do and
what not to do after the operation.
The dental market, which is established in most
Western countries, is just about to take off in China.
It is expected to grow substantially in the next
couple of years.
5.4. Regulatory bodies There are two
bodies involved in the registration process of
medical devices, one being the State Food and Drug
Administration (SFDA) and the other being the
Administration of Quality Supervision, Inspection,
and Quarantine (AQSIQ).
The SDFA is responsible for formulating and
revising laws and regulations on the administration
of medicines and supervising their implementation.
The organization also takes care for the
formulation, revision and promulgation of legal
standards for medical equipment, the issuance of
registration certificates and production permits and
the certification of quality systems and product
safety for medical equipment. Manufacturers
are required to submit technical documents and
product samples for testing at a Chinese laboratory
and to accept factory inspection by the CQC.
AQSIQ is in charge of guidelines, inspection
and supervision of certain devices, mainly
electrocardiographs, hemodialysis equipment,
extracorporeal blood circuits for blood purification
equipment, hollow fiber dialyzers, implantable
cardiac pacemakers, medical X-ray diagnostic
equipment and artificial heart-lung machines.
AQSIQ distributes the China Compulsory
Certification (CCC) mark. The CCC-mark
applications are processed by the China Quality
Certification Center (CQC).
Medical devices are classified into three categories
depending on their risk level. The SFDA issued
the Regulation for Medical Device Classification,
a document that provides general guidelines on
determining product classification. Even though the
SFDA has streamlined the regulatory framework,
it is still not yet in tune with international practices
and is undoubtedly a roadblock for foreign
companies trying to enter the Chinese market.

Table 11: Classification of medical devices

Class Risk Example Authority Special requirements

I Low Bandage Province None
II Medium Syringes Province Laboratory
III High Orthopedic implants, SFDA Laboratory, clinical
cardiovascular stents data or trial

The SFDA has established national standards which define the minimal hurdle for domestic and foreign
companies to get their products approved. Foreign companies, particularly SMEs are advised that it is
worthwhile to engage a regulatory agent for the registration process. Foreign companies wishing to import
or manufacture medical devices in China need to have approval of the device in their home country before
submitting to register in China. The flow chart of the registration process is outlined below:

Appoint legal agent & after-sales service agent in China (10 days)
Determine the medical device classification (class I to III) (5 days)
Original registration document, translation and preview (10 20 days)
Prepare legal and technical documents to be submitted to SFDA (20 40 days)
Prepare testing product samples and testing by Medical Device Testing Centre (3 6 months)
Clinical trial (All class III and some class II medical devices need to do clinical trials except those where
The Peoples Republic of China Market for Medical Devices. 21
similar products have been registered by the SFDA)
(3 9 months)
Technical evaluation by Center of Medical Device
Evaluation of SFDA (4 6 months)
Final approval by SFDA and issuance of
certification (1 2 months)
The registration process is not transparent
and depends largely on local authorities. The
requirements are stricter than most international
standards and constitute a trade barrier since
similar domestic devices are not under the same
scrutiny. On the one side, the SFDA vigorously
checks well-tested foreign medical device products
imported into China, while on the other hand
domestic companies achieve approval for medicines
and technologies which result in serious health
problems and even deaths, a double standard
which does not make sense to many foreigners and
Chinese alike. In the field of orthopedics, well-
established foreign artificial joint products which
last for 15 to 20 years are challenged by the SFDA
while domestic companies are allowed to sell joint
products which survive five years in a patient.
Usually it takes 2 years to get a class III product
registered in China. First time registration requires
testing by a Chinese laboratory and for certain
high risk products, local clinical trials with clinical
data have to be performed. Testing has become an
expensive part of the registration process because
test samples have to be supplied and the tests at
the laboratories are increasingly more expensive.
Upon approval, the SFDA issues the registration
certificate which is valid for four years. This means
that the registration process has to be renewed every
four years. Waiting until a certificates expires can
result in significant problems thus renewal should
be submitted at least one year prior to that date.
The registration certificate is issued in the name
of the device manufacturer and not in the name
of the agent or distributor which is appropriate.
The renewal application differs only marginally
from the initial registration process and is a thorn
in the side of all companies and not consistent with
international standards.
In 2004, the SFDA has given specific instructions
about the information on inserts, labels and
packages. Medical Devices imported into China
must be labeled in Chinese, and include the
registration certificate number, product features,
and the scope of usage for the product. The
regulation also indicates that the consumers should
be informed of possible related symptoms, key
usage information and other needed warnings. It
has also mandated that Chinese inserts, labeling
and packaging must be present on all medical
equipment. The labeling regulations are a challenge
for most medical device companies importing
their products from abroad because the contents
of the labels is different from the one used in US
and European markets. Most SMEs have adopted
a policy to prepare Chinese labels and insert them
22 The Peoples Republic of China Market for Medical Devices.
locally. It appears that the Chinese government has
no desire to harmonize with systems and protocols
already available from the experience in the West.
Post-marketing surveillance guidelines were drafted
in 2005 but it seems that the implementation is
difficult because neither hospitals nor doctors are
inclined to report adverse events of medical devices
to the authorities due to fears of retaliation.
In 2007, the SFDA issued Provisions Governing
the Registration of in-vitro diagnostic reagents.
According to these regulations all reagents, except
those used for blood selection and those that use
radioisotope markers, are classified as medical
devices.
In order to upgrade the standards in manufacturing,
the SFDA has increased the supervision of local
manufacturers in terms of quality control. This will
lead to a consolidation and only the fittest of the
domestic companies with enough financial resources
will survive in upgrading their quality management
system.
5.5. Bidding / Tender process Based
on the initiative of the NDRC, bidding / tender
processes for medical device products were
introduced throughout China. Several government-
appointed agencies were in charge of evaluating
the prices of medical devices as submitted by
domestic and foreign manufacturers. The bidding
/ tender process has resulted for some medical
device products in price declines and lower margins.
Medical device companies traditionally are able
to maintain attractive margins, but in China
the industry struggles to keep margins intact.
Sometimes, bidding / tender processes are issued
on provincial, city and even hospital level and create
a huge administrative workload for all companies
competing in tenders. If a company is not listed on
a tender, it is very hard to sell its products. For new
entrants, the bidding / tender process can take years
to get access into the market. Often, the tender
committee is not transparent. Importantly, the
tenders are only valid for 1 to 2 years and need to
be repeated again. This means that each company
has to submit bidding documents on a regular basis.
There is no guarantee that if a company is included
in a tender that the renewal will be guaranteed.
Undoubtedly, the bidding / tender process is
a roadblock in entering the Chinese medical
device market, particularly for foreign companies.
Domestic companies seem to adjust better in this
administrative jungle.
Legislation and programs have been introduced
to help improve this process such as the Eight City
Centralized Tendering program introduced in
2005. Intention was to reduce medical equipment
prices by 30 to 50 per cent. This tender focused
on orthopedic and cardiovascular implants for the
leading hospitals in eight cities (Beijing, Shanghai,
Tianjin, Chongqing, Guangdong, Hubei, Zhejiang
and Liaoning) and aimed at favoring companies
operating without distributors. To date however
the program appears to have failed as, no medical
device company in orthopedic and cardiovascular
operates without distributors.
The bidding / tender process has become a source
of income for provinces, cities and hospitals.
Hundreds of medical device companies compete
to get their products listed in tenders. Once listed,
the distributor starts price negotiations with the
equipment department after the doctors have
agreed to use the companys products. There are
literally speaking bidding / tender processes on a
daily basis in different parts of China and the job
title of tender manager has become an integral
part of most medical device companies. The
administrative paperwork is huge and the process
inefficient and costly.
6. Protecting Your Intellectual
Property in China
China remains an attractive investment location for
European companies. According to the European
Chamber Business Confidence Survey 2010,
optimism about sector growth is high. There is
also uncertainty however about the future of the
business. The infringement of intellectual property
has been identified as one of the major barriers for
conducting business in China.
6.1 Filings Enacted in 1984, the Chinese Patent
Act has been amended three times so far. After the
second amendment in 2000, the number of patent
applications filed with the Patent Office increased
dramatically. Chinese companies are not only filing
for national patents but also increasingly filing
international patent applications. According to
the annual report of World Intellectual Property
Organization (WIPO), the Chinese based company
HuaWei raised to worldwide 1st position of Patent
Corporation Treaty (PCT) applications in 2008.
In 2009 the number of PCT applications in China
grew by almost 30 per cent and had therefore
the highest annual growth worldwide. It is widely
believed that the significant changes of Chinas
economy since its entry into the World Trade
Organization (WTO) in December 2001 have led to
the sharp increase in patent filings.
The Chinese medical device industry is also
increasingly filing applications to protect its
intellectual property. The Shenzhen based Mindray,
a major manufacturer of patient monitoring and life
support products, chemistry analyzer and reagents
as well as medical imaging systems, claims that it
owns 380 Chinese (CN) patents and 241 US patents
The Peoples Republic of China Market for Medical Devices.
5.6. Logistics and distribution
services The Western world has well-
established logistics services which can provide
all kinds of services and can cater to all kind of
products from medical devices to perishable goods.
In China, most logistics services are not developed
with the exception of the automobile industry.
Logistics services for medical devices remain entirely
absent from the medical technologies infrastructure.
Reverse logistics services which demand that
products are moved in and out of a hospital on a
daily basis (as is the case for orthopedic products),
are few and far between. As a solution to this
problem distributors provide this type of logistics
services on an improvised basis with little economies
of scale. The problem of logistics should be well
researched and understood before a company
commences business activity in China.
as of January 2011. Shandong Weigao which
is focusing on manufacturing and selling of i.a.
single-use medical devices and materials, orthopedic
materials, etc., has also indicated on its homepage
that it has 150 CN patents including 15 invention
patents as of the end of 2009 and 106 registered
trademarks in China. Microport, a vascular devices
manufacturer based in Shanghai, also claims to
have 57 CN patents and patent applications, 13
European (EP) patent patent and applications, 4
US patents and 23 PCT applications. Microport
also registered 62 trademarks in China. Another
Chinese stents maker, Lepu and its subsidiaries,
announces on its homepage that it has 50 uitility
model patents, 45 patent applications. Lepu has
also filed 2 EP patent applications, 2 US patent
applications, 5 PCT applications and 35 registered
trademarks as of August 2010.
Generally, there are three kinds of patents, namely
invention patent, utility model patent and design
patent. The proceeding of an invention patent takes
around three years and the invention patent can
only be granted after two stages of examinations,
i.e. a preliminary examination on the formalities
and a substantial examination of the novelty,
inventiveness and the industrial applicability of
the invention. Utility model patents and design
patents will be granted within approximately 6-8
months and only a preliminary examination but no
substantial examination will be conducted. Once
granted, an invention patent will be protected
for 20 years whereas the protection periods for
utility model patents and design patents are only
ten years. Unlike trademark registration, the
23
protection periods of patents are not renewable. An
application for an invention patent can usually only
be granted several months after the publication of
the application. In case that a third party used the
inventions during this period, the applicant will have
the right to claim for reasonable fees for the use of
the invention after the patent has been granted.
Foreign applicants have to entrust a Chinese patent
attorney for filling. The Chinese subsidiaries of
foreign applicants may also take the advantage of the
PCT system and file applications for PCT patents
with the Chinese patent office. The applications
for Chinese national patents have to be drafted in
Chinese whereas the applications for PCT patents
may be drafted either in Chinese or English.
It must be noted that when filing a patent
application for a national patent in China or when
entering into the Chinese national phase of a
PCT patent, the largest problems occur around
translation of the claims and specifications from
the original language into Chinese. We recommend
foreign applicants to have at least the Chinese
claims translated back into English or other original
language to check whether the wording of the
Chinese claims are identical with the wording of the
original claims.
6.2. Administrative Enforcement
against Intellectual Property
Infringement A special feature of the Chinese
intellectual property enforcement system is that the
courts and the local administrative authorities each
have a parallel responsibility for the enforcement
of intellectual property rights. There is no general
answer to which is the better option to target as
each route of enforcement has its advantages and
disadvantages.
The advantages of the administrative enforcement
are: It can be done rapidly; it is relatively
inexpensive; the requirements of burden of
proof are lower. However, the disadvantage of
administrative enforcement is that no damages but
only administrative penalties are available.
The administrative authorities may be able to deal
with rather simple cases. In contrast, complicated
technical questions are normally more suitable for
judicial enforcement.
To initiate an administrative enforcement
proceeding or a judicial litigation, the patent owner
must submit sufficient evidence on the ownership
of the Intellectual Property (IP) rights and the
infringing act. In addition, in court proceedings
foreign right owners have to appoint Chinese
lawyers as their representatives.
6.3. Litigation Litigation is becoming more
and more popular between domestic companies.
Approximately 90 per cent of the cases are
infringement disputes. About 85 per cent of the
cases are concentrated in the six best developed
regions of China, namely Beijing, Shanghai,
Guangdong, Jiangsu, Shandong, Zhejiang.
24 The Peoples Republic of China Market for Medical Devices.
However, the number of foreign related cases is still
relatively small. For example, in 2009 there were
more than 30,000 new IP cases in the first instance
court. The number of foreign related IP cases was
1361.
About 25 years ago, China established its IP
law system. The patent judicial system has been
largely adopted from Germany. As in Germany,
infringement proceedings and invalidity proceedings
are separated.
On the one side, the peoples courts have
jurisdiction over infringement cases. Generally,
there are four levels of the peoples court - the basic
courts, the intermediate courts, the high courts and
the Supreme Court. In patent cases most travel first
through the intermediate peoples courts which
have established specialised IP divisions, where the
appeals are heard by the high courts. Sometimes if
the amount of damages in dispute is particularly
high, the case will be put before the high court in
the first instance. In this case, the 2nd instance court
is the Supreme Court.
The peoples courts do not have jurisdiction to
decide on the validity of patents. On the other
side of the structure, you can see that invalidity
challenges are put before the patent re-examination
board of the SIPO. If the parties are not satisfied
with the decision of the re-examination board, they
may initiate court proceedings.
In the first instance of the infringement proceeding,
the basic duration of the proceeding is theoretically
6 months. In practice, proceedings take much
longer. The court may extend the proceeding by
6 months if necessary and upon the approval of
the court at a higher level the proceeding can be
extended again. According to the Supreme Peoples
Court, the first instance proceedings in intellectual
property cases take 18 to24 months on average.
As the requirements of evidence in court
proceedings are rather high, all evidence collected
abroad including the power of attorney issued by
foreign companies has to be notarized and legalized
in the original country.
The preparation for litigation against patent
enforcement is one of the most challenging and
time consuming tasks. Patent owners always have
to conduct test purchases of the infringing products
with help of the local notaries to secure the
evidence on the infringement in a form which can
be accepted as evidence by the court. In the patent
infringement court proceedings, the plaintiff has
claims for injunction, destruction of the infringing
goods and tools, damages and public apologies.
6.4. Preliminary Measures Under
Chinese law, three kinds of preliminary measures
are available in patent infringement cases, namely
the interim injunction, the preliminary seizure of
evidence and the preliminary seizure of assets.
To get an interim injunction, the right owner has
to prove there is a high likelihood of infringement
of his IP right. Once the application for interim
injunction has been accepted by the court, the judge
must render a decision with 48 hours. It is rare that
an interim injunction has been granted in patent
infringement cases, as judges believe that disputes
on complicated technical problems cannot be
determined within the time limit of 48 hours.
Much more popular are the measures of evidence
preservation and preservation of assets. The
Intellectual Property Rights (IPR) owner can
request the court to conduct an official investigation
and seizure of evidence even on site of the
defendants location, if he can prove that there is a
high likelihood of infringement but it is difficult for
him to collect evidence.
Assets preservation can be granted if the plaintiff
can prove that there is a high likelihood of
infringement and the defendant might not be in the
position to pay damages once if the case is lost.
In addition, the plaintiff shall pay a deposit for all
three types of preliminary measures.
6.5. Execution of Court Decision
The local intermediate peoples court has the
responsibility to execute the decisions. The plaintiff
should take it into consideration when choosing
the court to file a suit. If a company simply wants
to receive a favorable decision and does not care
whether the decision can be executed effectively, it
can choose the court which has most experiences
with IP cases and is less influenced by the local
government. However, if a company is deeply
concerned in the execution of the decision, i.e. the
destruction of the infringing goods, it may choose
the court at the place where the infringing act is
conducted and choose a lawyer who has good
connection with the local authorities.
The time limit for application for a court execution
is two years. Once the time limit is expired, the
plaintiff has to initiate a new proceeding to get a
new decision rendered.
6.6. Summary Many European companies
have invested a lot and have been significantly
involved in China. However, infringement of
intellectual property rights has been identified
as one of the biggest challenges they encounter.
Statistic shows that IP litigations are becoming more
and more popular between Chinese companies
whereas foreign IPR owners in China are still
relatively reluctant to litigate in China. The author
highly recommends European companies to seek
intellectual property protection, file applications
and consistently act against intellectual property
infringement in China.

7. What to do when entering the

Chinese market as an SME?
Every SME which enters the Chinese market must plan it well. There are important questions which need
to be addressed prior to the market entry. Such questions are:

Do you want to enter the Chinese domestic market?

Or do you want to use China as a manufacturing hub?

What legal entity best fits with your current and future plans for the Chinese market?

Do you want to enter the market through direct or indirect channels (i.e. distributors)?

If you come with an innovative product, is the window of opportunity open in the Chinese market?

Do your products demand sophisticated logistics and distribution services?

Do your products require education and trainings?

Are you ready to adjust your products to the market in China?

Is your product registered in China or not? If not start immediately, it takes 2 years for a class III product!

Do you know that there are tender biddings necessary for most medical device products?

Do you want to employ an expatriate or a local talent?

The Peoples Republic of China Market for Medical Devices. 25
 Do you have enough financial resources to survive if you are behind the business plan?

Or do you have an exit strategy if the worst case scenario strikes?

Do you accept that there is a lot of bribery in the market?

Are you ready to have your headquarters values challenged by the China manager?

And please be aware that China is a high tax country!

Conquering the domestic market requires presence at an early stage of the particular market or the selling
of an innovative product. A late entrant with a me-too product portfolio is facing an uphill battle, not only
against foreign competitors but also domestic companies. There is a Chinese proverb which says that the
early bird eats the worms. Successful innovative products in Western markets may not do well in the Chinese
market. With the increased difficulty in establishing a presence in the high-end market, an increasingly
interesting strategy for many companies is to develop products in the mid-segment (i.e. products which are
neither low nor high-end, but affordable for a larger segment of the Chinese market and also an option for
export to other parts of Asia, Latin America and Africa). In general, the trend is such that the Western world
must downscale healthcare due to high costs while China needs to upgrade its healthcare system.

With Chinas growth the legal structures have become more transparent and easier to register. A company
has the option to begin business as an independent foreigner in a Foreign Invested Commercial Enterprise
(FICE) or engage in a Joint Venture (JV) with a Chinese partner. Companies may also register as a
Representative Office which allows for market research without performing any commercial activities such
as invoicing. Before beginning business in China it is important to seek out a good law firm and tax expert
as China is a high tax country, not only for enterprises but also employees, including expatriates.

8. China as manufacturing base

8.1 Overview Considering the vast market
potential and low-cost labor in China, multinational
companies (MNCs) have been moving hundreds
of manufacturing plants to China since the 1980s.
The worlds top 20 big pharmaceutical companies
including Pfizer, Merck, Roche, Novartis and Bayer,
have already invested in China and achieved more
than 20 per cent sales growth in recent years.
For developing countries such as China, leveraging
cost advantages and technological upgrading is
helping constantly increasing market share. The
output value of Chinas medical device industry in
2010 reached 1,000 billion yuan, accounting for
about 4.0 per cent of the global market. The share
is expected to rise to 6 per cent in 2015.
Although the Chinese government has imposed
stricter regulations and incentive policies on the
medical device industry, recent healthcare reform
has had a positive impact on the growth of the
medical device industry development in China. Its
very important for medical device companies to be
familiar with the relative regulations in China to be
able to secure upcoming opportunities.
8.2 Using China as a manufacturing
base for eventual domestic sales
Setting up a manufacturing
site overview
New Entity In order to set up a business
engaged in medical device manufacturing in China,
a foreign investor must have a legal presence in
China, either as a wholly foreign-owned enterprise
or as part of a joint venture. In China, all foreign
investments are classified into one of three
categories according to the Guidance Catalogue
for Foreign Investment Industries (2007). These
categories are encouraged business, restricted
business and prohibited business. Except for the
production of non-self-destructive disposable
syringes, infusion instruments, blood transfusion
instruments or blood bags (such production is
within the restricted category), the production
and distribution of all other medical devices are
currently classified within the encouraged categories
for foreign investment.
manufacturing.

26 The Peoples Republic of China Market for Medical Devices.

The flow chart below illustrates the general
establishment process for a medical device
COMPANY NAME PRE-REGISTRATION
Administration of Industry and Commerce
MANUFACTURING LICENSE
SFDA or Local FDAs
APPROVAL FOR FOREIGN INVESTMENT
Ministry of Commerce
COMPANY REGISTRATION
Administration of Industry and Commerce
POST FORMALITIES
Tax, Customs, Finance, Administration
of Foreign Exchange
* Please find the details about the manufacturing
license obtaining procedure in the Government
regulations.
Mergers& Acquisitions (M&A)
Another way to enter the Chinese market for
medical devices is through a merger or acquisition.
There are two options under the M&A model,
namely equity acquisition and asset acquisition.
Either approach has its pros and cons. Apart from
its intellectual property rights, probably the most
vital assets of a medical device company are its
medical device manufacturing licenses and relevant
registration certificates. Under Chinese law, such
assets are nontransferable and remain proprietary
to the company that applied for such licenses and
certificates. Therefore, in conducting an asset
The Peoples Republic of China Market for Medical Devices.
acquisition of a medical device company, all but
the most vital assets of the target company can be
purchased and transferred, making the intended
acquisition of the target companys business
much less attractive. Meanwhile, under an equity
acquisition, such licenses and certificates remain
with the acquired target company and the purchaser
can take advantage of the licenses and certificates
through its control over the target company.
In addition, foreign investors definitely need to
consider various factors when selecting a location
for their manufacturing plant in China. These
factors may include availability and cost of land,
raw materials and resources, proximity to potential
clients, partners and suppliers, as well as tax rates
and investment incentives. Since the late 1970s,
China has established various priority investment
zones offering foreign investors favorable terms such
as tax concessions, tariff exemptions, administrative
support, and a modern infrastructure.
In terms of medical device industry, several clusters
have been formed at the Yangtze River Delta, Pearl
River Delta and Central Bohai Gulf Cities Group.
In 2008, the top 5 provinces with the highest
medical device sector revenues were Guangdong
, Jiangsu, Shanghai, Beijing and Shandong, their
combined revenue accounted for 66.7 per cent of
the whole market revenue.
Similarities of the three clusters:
Strong presence of supporting industries.
Electronics Industry, mechanical manufacturing
and chemical industry are well established in these
regions.
Convenient means of transportations. Major ports
help facilitate trading.
Cluster effect in the labor market. As an
increasing number of companies started up
in the clusters, technically skilled people will
tend to concentrate in these areas. Moreover, a
large number of top Chinese universities are in
these areas which bring a fresh supply of highly
trained employees to the companies operating in
the clusters.
Superior medical R&D compared with the rest
of the country. A majority of Chinas top hospitals
operate in the regions, which bring outstanding
facilities for clinical trials and evaluations.
Extensive sources of capital, including state-
owned, private and foreign capital.
Government regulations In China the
primary medical device regulation agencies are the
State Food and Drug Administration (SFDA) and
the Ministry of Commerce. SFDA is the medical
device regulation agency, which is responsible
for approval in manufacturing by issuing Good
27
Manufacturing Practice (GMP) certificates, market 2. File for medical device testing
access by mandatory registration, distribution approval The applicant must have a nationally
by issuing distribution license, and post market designated organization test the product
surveillance/recall rules by the recall regulation according to the standards formulated above. There
posted in July 2011. The Ministry of Commerce are 10 SFDA designated testing centers and formal
is responsible for the macroeconomic control and written testing clearance from one of these centers
implementation of the medical device industry is required.
policy.
3) CCC testing for specialized
Under the SFDA, there are 10 Divisions. Of those medical devices In China, certain medical
Divisions, two are related to medical devices: devices must be certified with China Compulsory
Medical Devices Division and Pharmaceutical Certification (CCC). There are seven medical
Market Oversight Division. The Medical Devices devices requiring CCC: electrocardiographs,
Division is responsible for medical device research, hemodialysis equipment, extracorporeal blood
premarket approvals, and regulating production circuits for blood purification equipment, hollow
processes. The Pharmaceutical Market Oversight fiber dialyzers, implantable cardiac pacemakers,
Division is responsible for regulation of medical medical X-ray diagnostic equipment and artificial
device operations and also includes investigating heart/lung machines.
and punishing manufacturing and selling
counterfeits and inferior medical devices. In practice, the CCC process is supervised by
the State General Administration of Quality and
Medical devices in China are classified into three Supervision (AQSIQ), which oversees the inspection
categories based on risks. Class III represents the and quarantine of goods and establishes the
highest level of risks when applying to patients. technical standards for their inspection. The seven
Specifically: aforementioned medical devices must successfully
complete the CCC procedure with the AQSIQ
Class I Medical Devices are those for which safety before obtaining product registration as a medical
and effectiveness can be ensured through routine device.
administration;
Class II Medical Devices are those for which 4) Apply for clinical trials
further control is required to ensure their safety approval Under Chinas medical device regime,
and effectiveness new medical devices falling within Class II and III
Class III Medical Devices are those which are require clinical trials before the submission of a
implanted into the human body, or used for life product registration to SFDA or Local FDAs. The
support or sustenance, or pose potential risk to the results of the clinical trials must demonstrate the
human body and thus must be strictly controlled in safety and efficacy of the medical device. New
respect to safety and effectiveness. medical devices are those that have not yet entered
Chinas market or whose safety, efficacy and
Each of the three categories has specific registration performance have not been recognized within the
requirements, so medical device manufacturers territory of China. The entities qualified to conduct
need to build a plan according to the specific SFDA clinical trials for medical devices are only those
regulations. More information can be found on this medical institutions jointly designated by the SFDA
in section 5.4. regulatory bodies. and the Ministry of Health (MOH).

5) Apply for medical device

A product registration system has been
implemented for medical devices manufacturing
company. To start an operation manufacturing
medical device/ equipment for the Chinese market,
a company needs to obtain a Medical Device
Manufacturing Enterprise License from SFDA.
Critical steps for medical device registration are
described below:
1. Formulate and submit formal
standards for medical device
According to Article 14 of the Medical Device
Standards Administration Method (the Method),
the applicant must formulate and submit standards
for the to-be- registered products when registering
a medical device. According to Article 15 of the
Method, standards formulated by the applicant
must be ratified, approved by seal and recorded by
the appropriate level of SFDA.
manufacturing quality control
evaluation report The applicant must
also apply for SFDA, or the applicable provincial
FDA, approval for a medical device quality control
evaluation report. In the application, the applicant
must clearly specify its manufacturing process
along with a blueprint of its manufacturing site.
The plan must be detailed and identify clear
critical quality control points. Testing for quality at
these points must be done according to statistical
requirements and be carefully recorded. In addition,
the manufacturer of the raw materials used in the
production of the medical device must often present
a formal quality document.
The approval process requires an on-site visit by
the SFDA or provincial FDA in which they evaluate
numerous criteria. This approval must be in writing
and provided under seal of the relevant authorities.

28 The Peoples Republic of China Market for Medical Devices.

From Jan 1st 2011, the Medical Device GMP
has been mandatory for the China medical
device/equipment manufacturers, starting from
medical device companies producing sterile and
implantable products. The GMP is very similar
to the pharmaceutical GMP with very detailed
management system, quality system, R&D system
and customer services system requirements.
The validity term of the Medical Device
Manufacturing Enterprise License is 5 years. Upon
expiration, re-inspection and license renewal shall
be conducted. Implementation details shall be
formulated by the regulatory authority under the
State Council.
Severance Payment: The LCL stipulates the
punishment of an illegal termination of labor
contract. Severance payment is also required to
be paid in situations where the employer does
not renew the fixed term labor contract, unless the
employee has rejected an extension despite being
offered the same or better terms, or the employer
proposes a termination and the parties agree.
Internal Company Rules: The LCL clarifies
that companies must negotiate with employees,
employee representatives and / or trade union
officials regarding the internal labor rules, and
publishes the agreed rules for all employees.

Labor law After the first comprehensive labor Trade Unions: Under the LCL the role of trade
law passed in 1994, new Chinese labor laws took unions in safeguarding the legitimate rights
effect on January 1st 2008. The laws seek to address and interests of employees has been strengthened
some of the poor working conditions found in by allowing them to assist in the formulation
China, particularly those of the average worker. of corporate rules, negotiate on collective
Prior to the new laws passage, most Chinese contracts, and provide opinions on mass layoffs
employees in small- and medium-sized firms lacked and the termination of labor contracts.
employment contracts or only had short-termed,
employer-dictated contracts. The intention of the Labor Service Companies: Representative offices
new Labor Contract Law (LCL) is to provide a and Limited Companies using the labor service
more effective protection of employees by offering companies must play their part in upholding
an employer-friendly environment which must be workers rights. Labor contracts between
accepted by all Foreign Invested Enterprises (FIEs) employees and labor service companies hiring on
and domestic companies in China. the behalf of the employer must have fixed-term
contracts with a minimum length of 2 years.
The major focus of new laws:
Impact on Foreign Companies
Written employment contract: The LCL
stipulates that employers are requested to enter Impact on General Management Policies
into written labor contracts within one month
of the commencement date of the employee. It is necessary for upper management personnel
Where the employer fails to sign a written labor to review cost implications for current and future
contract with the employee, the employer would employees, discuss appropriate accruals with
be required to pay a penalty. A well drafted labor auditors and calculate outsourcing options. One
contract in English and Chinese is a necessity to of the first essential steps should be the training of
avoid misunderstandings and misinterpretations. the Human Resource department as well as other
Senior and Executive personnel in terms of future
Duration of the Employment Contract: Starting employment and termination procedures.
from 1st January 2008, labor contract can agree
on either a fixed or open-ended contract. An open- Impact on Human Resource Policies
ended contract must be signed if the employee has
been working for the employer for a period of over Human resource departments have to structure
ten years or if he has already completed two fixed- their employment arrangements, sign all contracts
term contracts. Fixed-term contracts would then whether for full or part-time positions and create
no longer be permitted. new strategies for the future composition of their
workforce. Companies may consider outsourcing
Non-Competition Clauses: The new law requires solutions in order to lower their risks.
the parties to define the scope, territory and term
of a non-competition clause. The mandatory term All companies should create their company
cannot exceed 2 years. handbooks with all internal regulations based
on the new labor law. Subject to the size of the
Training Agreements: The LCL permits company it may be advisable to create supplemental
a training agreement clause stipulating a loyalty contracts for anti-corruption, non-competition, non-
period after training is provided with special disclosure, anti-harassment and business conduct
funding. In case of termination before the expiry which could protect the company should the actual
of this period, the employee must pay the agreed employment contract be terminated.
liquidated damages.
Although the impact of the labor reform varies
depending on the type and size of the company,

The Peoples Republic of China Market for Medical Devices. 29

generally foreign companies will lose some
competitive advantage. However, as is common in
China, the larger issue is government enforceability
and making the Chinese employees and workers
aware of the new working changes. As these
concerns about the practical implementation are
speculative, companies should still be familiar with
the new laws in order to reduce negative impacts.
8.3 Overseas management In terms of
the overseas management be reviewed from two
perspectives: the risk consideration during the
merger & acquisition and the key challenges post
merger & acquisition.
Consider potential taxes, legislation and
confidentiality issues more specifically.
Establish a system of early warning with
precautionary measures to analyze and monitor
the potential risks continuously.
Key challenges of multinational companys daily
operations in China:
Localization of the management team, operations
and the associated challenges (e.g. differences
in risk appetite & tolerance level with that of
headquarters)

Risk consideration during the Harmonization of standard operating procedures

merger/acquisition: that fit into the Chinese operating environment,
including the standardization of process & controls
Unique political and economic mechanism in post merger/acquisition
China. The attitude and preferential policies
from the local government should be taken into Business partner relationship management
consideration.
Transfer pricing and indirect taxes
Due to some features of the Chinese regulation
and legislation system, such as the lack of Difficulties in monitoring operations (culture and
transparency, complexity and the inconformity language barriers)
between the central and local regulations, the
corresponding risks should be fully considered and 8.4 Using China as a manufacturing
prevented. base for eventual international
sales
Property ownership, such as the land use right
and intellectual property right, are not clearly Export taxing Generally, the exporter is not
identified. During the M&A, the companies often subject to export customs duty unless the exported
do not thoroughly vet on their partners holding goods fall within the dutiable category.
for true ownership. Under general trade export, the exporter would
apply the export VAT refund under the method of
Litigation potential exposure which is arising from Exempt, Credit and Refund. The export sales
the Chinese companies mutual guarantee and would be VAT exempt. The input VAT incurred on
management deficiencies. purchase could be credited against its domestic sales
and refunded according to the specific calculation
Other risks include the asset evaluation, surplus method. There could be an export VAT leakage for
employee settlement and environmental the exporter when the export refund rate is lower
conservation. than the input VAT rate incurred in the domestic
sales. The VAT rate could be 17 per cent, 13
A few key principles have emerged that may address per cent , 11 per cent ,6 per cent and 3 per cent,
the above risks when setting up a new overseas respectively depending on VATable sales/activities
operation. and location of taxpayers.

Fully grasp regulation and laws of different levels. For international sales, a company should
To some extent the M&As success is largely first obtain the qualification of independent
depended on the involved companys understanding international trading after the approval of relative
on these regulations. Over the past few years, China departments. It is also quite important for receiving
has enacted a preliminary regulatory framework for the tax refund after the sales. During the tax refund
M&A transactions. Generally in the state level, the declaration, many different materials such as the
following regulations --Provisions on the Merger customs declaration and specific time schedule are
and Acquisition of Domestic Enterprises by Foreign required by the Chinese tax bureau.
Investors , the Anti-monopoly Law and the
Catalogue on the Guidance for Foreign Investment All the above factors also should be taken into
in Industries are a few of the main regulations a consideration when the company deals with export
company must understand. shipping.

Involve different agencies to perform investigation Shipping considerations and

on the M&A transaction. partnerships The mechanics of shipping
include: (1) attention to packaging, including
banding of bundles, grade stamping, labeling,

30 The Peoples Republic of China Market for Medical Devices.

and color coding; (2) proper documentation; (3)
scheduling the best shipping routes and carriers;
and (4) an understanding of foreign customs,
regulations, tariff rates, and health or sanitary
requirements.
The details of export shipping are often handled
by a freight forwarder who acts as an exporters
agent when shipping goods overseas. Freight
forwarders are licensed by the Federal Maritime
Administration to facilitate the movement of goods.
They may advise the exporter regarding freight
costs, port charges, consular fees, documentation
fees, insurance, and handling costs. In addition
to assuring that the goods arrive overseas in good
condition, they review the letter of credit and other
necessary documentation and may prepare the
ocean bill of lading. After shipment, the forwarder
will send all documents to the paying bank to
confirm the export of the commodity.
Government regulations --different
from domestic sales Besides the export
tax regulation mentioned above, the other main
regulations or rules which differ from domestic sales
are as followings:
It is not mandatory for a foreign medical device/ becoming more frequent, deeply involved and
equipment company to obtain manufacturing widely distributed.
license when setting up an offshore plant
manufacturing medical device/equipment product As part of global strategy, for local market, for
for markets outside China, but it is recommended bypassing high customs duties, GMP
to keep a positive communication with the SFDA
9. Chinese medtech
companies go abroad
In order to better understand the motives and
challenges of Chinese companies who are
interested going abroad, four general points need
to be mentioned about the economic and political
environment they are settled in. Until recently
the Chinese government placed heavy restrictions
on Chinese companies going abroad. In 2011
Chinese companies were for the first time officially
encouraged to seek for opportunities abroad
through Chinas 12th Five Year plan9. Despite
these encouragements however, the processes
involved in overseas ventures have not improved
much and remain difficult and complicated. The
challenges for companies seeking to go abroad start
before a company can establish a definitive plan
of action. All companies seeking to make the leap
overseas are first required to obtain approval for
the venture from the many state owned agencies on
the provincial and national level. Next, a company
must be willing to expose all internal financial
The Peoples Republic of China Market for Medical Devices.
if the products are in the high risk category.
Before exporting, the company should apply for
and obtain an Export Certification from the SFDA.
The validity term of the Export Certification is 2
years, except when it is indicated to be one-off.
Given the different exporting countries, there are
different quality certification requirements such as
the ISO 13485 and CE Certification.
Summing-up It is generally believed that the
Chinese medical device market will grow even faster
in the coming years. Medical companies should
have a good understanding on the regulations
and incentives. The companies best positioned
for success will be those that develop new models
and solutions well adapted to this unique Chinese
environment.
In addition of setting up a manufacturing site in
China, many MNCs also established a large-scale
R&D center. Nowadays the number of joint venture
and wholly foreign owned enterprises accounted for
about 30 per cent of the life sciences companies
in China, with sales accounted for about 26 per
cent to 27 per cent of the related market. The
investment of international players in China is
and accounting information to these government
agencies. Due to complications in the Chinese
system, a privately held company exposes itself
to risks when sharing all its financial information
with the government, thus the perceived benefit of
seeking business abroad must outweigh these risks.
Government run companies seeking to establish
businesses abroad however have their own set of
problems. A government held company may have
problems establishing successful business abroad as
Western governments and consumers may have a
more negative perception of the products. Due to
the widely publicized manufacturing problems that
occur from time to time in products intended for
the West, the reputation of Chinese productions
may have the reputation for being untrustworthy,
especially if the products are generated from a
government controlled company which is perceived
to have less oversight and internal regulation when
compared to privately held companies.
31
And then there is the issue of market competition.
Due to favorable treatment of Chinese companies
over foreign companies on Chinese soil, it is often
more lucrative for Chinese companies to focus on
gaining domestic market share rather than going
though the expensive and competitive process
of entering an oversaturated market like that
in the US or Europe. Furthermore the cost and
difficulties with entering other BRIC counties
do not outweigh the benefits for most Chinese
companies. Additional costs to Chinese companies
going abroad encompass the different structure
in clinical trial and regulatory elements. Quality
control and differences in standards between the
West and China can be a roadblock that is difficult
to overcome. Finally there is the issue of location.
If a company decides to enter one of the Western
markets they often chose a location where they
can capitalize on an already established Chinese
business or personal relationship. Many Chinese
people have connections in the US and Europe
through relatives or through various companies.
A location with an already established network,
especially near ports (Rotterdam / Hamburg), will
become a preferential choice.
Why medtech Companies go abroad:
Motives and Challenges Only a few
Chinese medtech companies such as Weigao,
Shinva Medical, Lepu Medical or Mindray have
the needed capital and advanced skills to go abroad.
Despite the many challenges Chinese companies
face in overseas investments, some do attempt
the process as there may be important benefits
stemming from different needs within a company.
Some Chinese medtech companies suffer from a
lack of innovation and intellectual resources thus
causing them to seek activity abroad to bolster their
R&D capabilities. In other instances businesses
which have depended on low labor and raw
materials costs for survival have lost their advantage
due to an increase in pricing and now seek new
business models for successful reorganization. Still,
the majority of Chinese medtech companies face
the challenge of being relatively inexperienced in
international business and its many facets. Western
taxes and Anti-Dumping duties on Chinese
products may be unaffordable for the company
while the handling of legal problems and pricing
transfer pose further challenges. Following the
promises of Chinas 12th Five Years plan it is
expected that the administration and supervision
mechanism of overseas investment in the medtech
industry will be improved. Verification and approval
procedures will be simplified in order to boost
the success of Chinese medtech enterprises going
abroad. If the 12th Five year Plan is successful,
Chinese medtech companies will for the first time
glean supported by the government in overseas
investment credit and income taxation.

10. References
1. 2010 Corruption Perception Index Ranking: Switzerland 8, Hong Kong 13, Taiwan 33, China 78:
http://www.transparency.org/policy_research/surveys_indices/cpi/2010.

2. Liu Yangs book:

3. Information: Ministry of Health P.R China

4. T Hesketh, Li L, Zhu WX: The effect of Chinas One-Child family policy after 25 years; New England
Journal of Medicine 2005: 353; 1171-1176, September 15, 2005

5. Wu Y, Ma G., Hu Y., Li Y., Li X., Cui Z., et al.: The current prevalence status of body overweight and
obesity in China: data from the China nutrition and health survey: Chin J Prev Med 2005: 39: 316-20 with
English abstract

6. China Medical Devices Review, February 2011, Volume 11, Number 2, Issue 116

7. Information: www.clearstate.com

8. Mattes Urs, Huang Frank, Bulmer Glenn: Healthcare and the Orthopedic Market in the Peoples
Republic of China, International Journal of Health Science, Volume II, Issue 3, July-September 2009

9. Thefive-year plans of Peoples Republic of China are a series of social andeconomic

developmentinitiatives. Starting in 1953 the Peoples Republic of China created the Five Year Plan
whereby every five years a new set of initiatives aimed at advancing industrial growth and socialization was
introduced. Since the birth of the plan 12 five year plans have been established.

32 The Peoples Republic of China Market for Medical Devices.

Partners:

Medtech Switzerland
Wankdorffeldstrasse 102
Postfach 261
CH-3000 Berne 22
Phone +41 31 335 62 41
Fax +41 31 335 62 63
contact@medtech-switzerland.com
www.medtech-switzerland.com

Medtech Switzerland is an initiative of the Swiss

government, Osec and the Medical Cluster to promote
the export of medical technology to key world markets.