The Current State of China’s Medical Device Industry



1. China's medical device industry market size and growth rate

China's medical device industry is growing rapidly, far exceeding the global growth rate. Globally, the Medical device market is estimated to be worth 388 billion US dollars, with a year on year growth rate of 4.5%. In comparison, the Chinese Market is estimated as 461.7 billion yuan or 67 billion US dollars (according to the 2017 Chinese Medical Device industry Development report), and currently has a growth rate exceeding 20% (See Figure1 to 4).


As of 2016, there are more than 15,000 medical device manufacturers in China, with a total industrial output of nearly 500 billion-yuan and accounting for 1/6 of the global market. It is predicted that the industry's annual growth rate will continue to remain above 10% in the next 10 years and that by 2020, the industrial output is predicted to exceed 700 billion yuan.

China's health care expenditure accounts for 5% of total GDP; generally, advanced economies spend about 10% and the United States has reached 16%. At the same time, China's drug to medical device consumption ratio is only 1:0.33, below the global average of 1:0.7, and far below the 1:0.98 in advanced economic countries. In the long run, the Chinese medical device market is far from its potential (see Figure 5).


Medical imaging, in vitro diagnostics, cardiovascular devices and orthopedics are the largest market segments in the global medical device industry, accounting for more than half of the total. The Chinese market is similar, with medical imaging accounted for the largest proportion, followed by in vitro diagnostics, low-value consumables, cardiovascular devices and orthopedics, all together accounting for 55% of the total (see Figure 6 and 7).


2. The Number of Medical Device Manufacturers in China is large, but the overall scale is small.

According to the CFDA, as of the end of 2016, there were 15,343 medical device manufacturing enterprises in China, of which there 4,979 that produce class I devices, 8957 that produce class II devices, and 2,366 produce class III devices. These medical device manufacturers are mainly distributed in the Yangtze River Delta, the Pearl River Delta and the Bohai Rim region. Among them, medical device manufacturers in six provinces and cities such as Guangdong, Jiangsu, Zhejiang, Shandong, Shanghai and Beijing account for 58.5% of the total, and listed medical device companies are also mainly distributed in these six provinces and cities (see Figure 8 and 9).


The overall size and market value of China's medical device companies is still relatively small. In 2016, there were more than 150,000 medical device manufacturers in China. More than 90% of these enterprises were on a scale of less than 20 million yuan, and only 300-400 companies had an annual output value of over 100 million. The number of listed companies exceeds 50, of which 40 are A-share listed companies. In 2016, the three companies with the highest operating income were Xinhua Medical, Lepu Medical, and Yuyue Medical, but none exceeded revenues of 10 billion yuan, whereas international medical equipment leaders Medtronic, Johnson & Johnson, and GE Healthcare has revenues of $28.8 billion, $25.1 billion and $18.3 billion, respectively. The market value of Lepu Medical has exceeded 50 billion yuan, but there is still a big gap compared with Johnson & Johnson (over 300 billion US dollars) and Medtronic (over 100 billion US dollars). Two among the unlisted companies, the leading Mindray Medical and Shanghai Lian Ying are the most eye-catching. Among them, Mindray Medical (2016 revenue and net profit of 9 billion and 1.7 billion respectively) is preparing for IPO. After Shanghai Lian Ying won 3.3 billion financing in 2017, the post-investment valuation was 33.3 billion yuan (see Figure 10 and 11).


There are large gaps compared with international companies in many fields. First, domestic low-end equipment companies (over 10,000), are still experiencing low production and sales (annual output value 300 million yuan only), and the quality and quantity of the companies (high-precision manufacturing) pale in comparison to international equipment giants such as GM, Philips, Siemens and other leaders in high-end markets. Second, looking at research and development, the gap between domestic and international spending is mainly reflected in: relative and absolute investment (2016 US TOP10 R&D investment of 10.4 billion US dollars, accounting for 8.14% of total revenue; 1.806 billion yuan in China, only 5.35% of total revenue); product originality (China is mainly based on prevention and policy-oriented clinical application, so original product development is relatively rare), and technical details, core materials and key components are acquired by technology mergers and acquisitions. Third, there are barriers in the sales model: the US uses direct sales model while the agent model is more popular in China. More than 70% of domestic medical devices are sold to hospitals, but those medical institutions only favour a small number of specific suppliers. Brand loyalty also plays an important part (International giants are more experienced and provide better sales support and customer care). Fourth, some important segments in the market are still under foreign monopolies; specifically, medical imaging, IVD and low-value consumables are the top three varieties of foreign monopolies in China.

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