As China steps up protectionist policies to grow its domestic industry, international medical device companies find themselves in a precarious position. China is one of the world’s largest medical device manufacturing hubs, and foreign multinational companies dominate the market, with China currently importing over 70% of medical devices.
Since April 2021, the Chinese government has worked on a medical technology five-year plan (2021–25), aiming to make at least six Chinese companies reach the top 50 revenue-making medical device companies globally. Currently, there are four Chinese companies in the top 100, but none in the top 50.
In the last few months, local ministries and commissions in China issued notices prohibiting all public medical institutions from procuring imported medical equipment without approval. This rigid change in procurement policy follows a similar action that China has taken in the pharmaceutical sector to bulk purchase generic medicines. However, China’s medical device model may fail to translate with advanced, patient-centered, and technology-intensive products like medical devices, says Fredrik Erikson, Director of the European Centre for International Political Economy.
“A sophisticated medical device requires training, education, instrument availability and cleanliness, and other post-sales services. Doctors often select a particular type of product to meet the specific needs of the patient and to obtain the best outcome for that patient. To ensure the quality and safety of healthcare, it is important that the procurement process considers the cost of care and outcomes and integrates the quality criteria specific to a given product category,” notes Erikson.
“If the terms of a centralized state tender leads to a narrow focus on the price of the actual device—and not the services that are required to use a complex device safely and effectively—there will be negative consequences. Significant price reductions might seem like a win in the short term. However, procuring at the lower cost might have a high price tag in the longer term for the healthcare system, especially when it leads to longer hospitalization, higher readmission rate ,and longer rehabilitation time, [such as] lower-value medical devices,” says Erikson.
Europe’s response to China’s policy is a case of urgency, according to experts. “The result of these policies is that European manufacturers of medical devices are deprived of opportunities to compete and win customers in China, sometimes on a national basis. Many of the medtech manufacturers in Europe are small and medium-sized enterprises with little capacity to fend for themselves in China,” states Erikson.
Additionally, China’s policies will threaten market dynamics across the globe. The loss of sales and market shares in China will create competition from state-backed Chinese manufacturers in third markets. It is already beginning in regions such as Africa, Asia, and Latin America.
Trade data suggests that Chinese exports of medical devices significantly increased during the COVID-19 pandemic, and China’s industry is now able to grow its global market share exponentially as healthcare systems around the world increase their expenditure. GlobalData forecasts that the Chinese medical devices market will grow at a compound annual growth rate of around 6% between 2022 and 2030.
The economic threat to Europe’s medical technology sector is hard to underestimate. The sector employs approximately 760,000 people directly in Europe, with 210,000 employees in Germany, 103,000 in the UK, 94,000 in Italy, and 89,000 in France. Overall, there are 33,000 medtech companies across the continent, 95% of which are small- and medium-sized firms. In 2020, the industry generated a trade surplus for Europe of €8.7 billion ($8.5 billion).
such as the European Commission filing complaints to the World Trade Organisation (WTO) over China’s procurement policy. “While there is no obvious instrument that directly could help to remedy the problem, a combination of measures—including both contingent policies, notably the evolving International Procurement Instrument (IPI), and negotiations—would be necessary to achieve two outcomes,” notes Erikson.
“First, it is required that actions are employed rapidly to avoid the continued deterioration of market access of European manufacturers arising from distorted procurement policies. Secondly, it is desirable for all sides that the long-term development of the market for medical technology goods continues to be competitive, rewards innovation, and provides patients with access to high-quality medical devices that meet their individual needs,” Erikson adds.
India’s window of opportunity
China’s policies may provide an opportunity for emerging markets. GlobalData Medical Devices analyst Rohit Anand tells Medical Device Network how companies may shift manufacturing facilities to other Asia-Pacific (APAC) countries such as India, which could benefit from the increased foreign direct investment.
“Some foreign companies may now see China as a less attractive destination to manufacture and sell medical devices, whereas some other [companies] will be forced to operate as a separate Chinese entity with squeezed profits. It may not be possible for medical institutions to completely replace all high-end imported medical devices with domestically manufactured devices over the next few years, and China will continue to be an import-dependent country. Also, the new policy may create a trust deficit and discourage medical device companies to invest in China,” says Anand.
According to GlobalData research, India was among the top three medical device markets in APAC in 2021. The Indian government announced its National Medical Devices Policy in 2021 to encourage medical devices manufacturers to begin producing high-end medical devices. The field of diagnostic imaging devices is expected to be a key area of interest for both government and manufacturers.
“The domestic manufacturing of high-end medical devices will support India’s aim of becoming a manufacturing hub,” says Anand, adding “India wants to become as self-sufficient as possible. Shortages of medical supplies during the COVID-19 pandemic took a huge toll on the country, and India’s manufacturing capabilities have seen significant development in the last few years.”
The list of incentives announced by the government include subsidies on capital interest; incentives on air cargo, zero waste, and skill development; reimbursement of State Goods and Services Tax (SGST); and a patent filing fee. These incentives will be given to companies setting up units in the state’s first Medical Devices Park. The state government has also offered industrial plots under this scheme at a lower cost.
“Domestic and multinational companies can utilize the Indian government’s move towards domestic manufacturing to gain market share. GlobalData expects that the incentives and the increased availability of skilled local labor will help the state become a preferred manufacturing destination in India,” says Anand.