The Chinese healthcare market – already worth €2.7bn – is growing at an extraordinarily rapid rate. This offers the European medical technology industry fantastic opportunities, but also a number of challenges, especially in the areas
of regulation and pricing. The way forward lies in a balanced framework and a genuine dialogue between the industry and the Chinese authorities.
China has become one of the most important markets in the world, offering many opportunities, and probably just as many challenges, to a wide range of industries. A businessman was recently reported to have said that everything was possible in China,
but that nothing was easy. This certainly holds true for the healthcare sector, particularly for the medical technology industry.
The Chinese market has already reached the size of the Spanish and Brazilian markets. In recent years, China has become the second largest market for medical devices in Asia, just after Japan. With an annual growth rate of more than 10%, China is
expected to become the largest market in six to eight years.
China will thus soon become a major player in the world, alongside the US (with about 42% of the world market), Europe (about 30%) and Japan (about 13%). Despite the many regulatory and economic challenges to be tackled in China, this trend is
unsurprising given the needs and size of the Chinese population.
The major challenge facing the Chinese Government is the health of its population. Currently, about 150 million people enjoy health coverage that is fairly close to European standards, another 150 million people enjoy basic coverage, and about one
billion people, mainly in rural areas, are practically not covered at all.
According to a statement from the recent AdvaMed conference on international affairs, the Chinese Government wants to offer basic health coverage to its entire population by 2010. So how is this objective to be achieved? Can China afford it?
Certainly, tackling this challenge will not be easy, and industry is willing to assist the Chinese authorities. There is probably no quick fix, but a sound dialogue between public and private stakeholders is vital to progress.
SIGNIFICANT IMPACT ON PRICING
To be successful, the Chinese Government wants to control costs. To that end it also wants to control distribution channels (so as to encourage ethical business practices, particularly amongst the local distributors), mark ups, and so forth.
Concretely, the National Development and Reform Commission (NDRC) is seeking to limit the distribution channel mark up to 25%. While the industry fully supports the objectives of the Chinese authorities, it strongly feels that the chosen avenue is
questionable in that it cannot contribute towards reaching the stated objective, and it is questionable from a competition law perspective.
Competency for pricing lies with the NDRC, but is not exclusive to it. The Chinese provinces also have a say, as demonstrated by the Shanghai Pricing Bureau (SPB) request to provide information on cost, insurance and freight (CIF) prices. Indeed, the
SPB goes further than the NDRC in that it requests information from manufacturers on the cost of manufacture, and the CIF costs of imported products, as a prerequisite to granting the necessary authorisations to deal in medical devices.
The SPB rules are also unacceptable to the European industry inasmuch as they require that commercially sensitive, confidential pricing information be provided to local industry associations. They are also onerous because they require this information
on an ongoing basis.
The European medical devices industry fully supports ethical business practices – as is clearly evidenced by the Eucomed code of business practice – and accepts that non-sensitive information should be made available.
TOO MANY COOKS
The other difficulty lies in the regulatory arena. It is often considered that China suffers from a case of “too many cooks”, which, according to the saying, “spoil the broth”. Indeed, the industry is very familiar with what it calls regulatory
redundancy. In practice, two institutions are in charge of investigating medical devices in China – the State Food and Drug Administration (SFDA) and the Administration in charge of the General Administration of Quality Supervision, Inspection and
This plurality results in confusion (the two authorities sometimes work in an uncoordinated manner), approval delays and repetitive assessments – let alone the extra fees. The Ministry of Health also plays a role, albeit one limited to
surveillance. If one adds that the SFDA is understaffed (less than 20 people for medical devices), it comes as no surprise that the industry finds it difficult to ensure rapid access of patients to innovative medical technology.
The SFDA is currently preparing to launch a number of legislative initiatives. It has announced that several proposals will be finalised by the end of 2007. On the contents, the SFDA is very keen to understand the European system and the Global
Harmonisation Task Force (GHTF) model, and Eucomed fully supports the adoption of these approaches. It also supports China’s adoption of internationally recognised standards for medical devices, and the withdrawal of national standards or deviations to
international standards. On the methodology, it goes without saying that the industry needs sufficient consultation times, and has made this clear to the SFDA.
HAZARDOUS SUBSTANCES LEGISLATION
Besides medical devices legislation, China has enacted a law on hazardous substances that is very close to the EU’s directive on the restriction of hazardous substances (RoHS). This legislation should come into force by March 2007. Unlike the
RoHS, the Chinese law will apply immediately to medical devices. The European industry is concerned that the application of this legislation should fully comply with WTO rules – that is, its application should concern only imported products.
Last but not least, the industry is very concerned by the counterfeit products originating from China. Huge efforts are required to overcome that hurdle, primarily by the Chinese authorities, which must make sure that the legislation in place –
often said to be sufficient – is strictly complied with by the Chinese industry. At stake is nothing less than the safety of patients.
In conclusion, the regular visits by industry delegations to China, whether representing the medical technology industry, other healthcare industries or the cosmetic industry, illustrate the growing importance of that country. The industry can and
wants to help China, which faces a huge challenge in the healthcare arena. It is confident that it can do so, not least because innovative medical technology offers opportunities for a more efficient use of financial resources.