Executive Summary
Healthcare Policy Issues
Market Entry
Current Market Trends
Market Size
Best Prospects
Main Competitors
Current Demand
Registration Process
Reimbursement
Barriers
Trade Events
FAQs
U.S. Commercial Service Contact Information
Tab Options
Executive Summary
Healthcare Policy Issues
Market Entry
Current Market Trends
Market Size
Best Prospects
Main Competitors
Current Demand
Registration Process
Reimbursement
Barriers
Trade Events
FAQs
U.S. Commercial Service Contact Information
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Executive Summary
In 2018, China’s healthcare market featured continuous, robust growth and dynamic regulatory change. China’s medical device market reached USD 78.81 billion, an increase of 22% from 2017. According to BMI Research, the total sales of pharmaceutical and health products reached USD 219.91 billion in 2018, growing 11.3% year on year; with OTC sales at USD 18.3billion, representing a growth of 8.1%.
Medical Device Market
Chinese suppliers mainly compete in low-end consumables, false teeth, hearing aids, mechano-therapy apparatus, wheelchairs, etc. Demand for high-end consumables, such as diagnostic imaging and endoscopy, top the list for in-demand imported products.
Chinese hospitals consider U.S. products to be of superior quality and the most technologically advanced, which has fueled the demand for U.S. products. U.S. firms garner nearly 75% of sales from large public hospitals. Significant potential exists for U.S. companies interested in entry or expansion in the growing Chinese market. Medical device companies will face pressure from public hospitals to lower prices.
Pharmaceutical & Dietary Supplements
China’s pharmaceutical market is largely driven by the country’s aging population increasing per capita expenditures on healthcare. Medical reform pertaining to market entry requirements and payment systems, along with regulatory changes on pharmaceutical prices, will continue to shape commercial opportunities. Brand name drugs with expired patents will face fierce competition from local manufacturers.
The nutraceuticals market in China is expected to reach USD 40 billion by 2023, growing at a CAGR of 14%. According to a report issued by consulting firm Roland Berger, China will soon overtake the U.S. as the largest nutritional supplement market in the world. The demand for nutritional products is attributed to increasing health-conscious behavior, rising incidence of lifestyle diseases, the country’s growing per capita GDP, shifting trends towards preventive healthcare, use of botanicals for medicinal benefits, and the growth of e-commerce. Chinese desire for U.S. nutraceuticals provides substantial opportunities for U.S. companies, however China’s stringent regulatory framework, specifically regarding product registration (under China’s Food and Drug Administration - CFDA), and competition from cheap local brands are considerable challenges. China’s nutritional supplement market is classified by ingredient type and by end-user classification. By ingredient type, it is further classified by vitamin, protein, amino acid, enzyme, and botanical supplement. The market is also classified by infant and adult use.
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Healthcare Policy Issues
China is one of the most promising healthcare markets for U.S. exports in the long-term given its size and growth potential. Rising per capita income, an aging population, greater access to healthcare and recent regulatory reforms are key drivers that will enhance the appeal of China’s market to U.S. companies. There are, however, significant challenges for U.S. companies in this market. The Chinese government is focused on healthcare as one of its priority sectors, and China is therefore seeking to cultivate national champions, to promote indigenous innovation and R&D investment and to reduce import dependency. Market access barriers commonly faced in China include regulatory approval delays, lack of meaningful IP protection and enforcement, pricing and reimbursement controls, and procurement preferences that increasingly advantage domestic companies over foreign multinationals. China has also put in place additional tariffs on medical device imports from the United States. Encouragingly, Chinese regulators have made significant progress improving clinical trial approval timelines and making it easier to conduct multi-regional clinical trials, as well as accelerating the review and approval of new drug and medical device applications. Such reforms will meaningfully improve the regulatory environment for U.S. firms and promote access to innovative treatments for Chinese patients.
China is in the process of reorganizing state agencies that oversee drug regulations. This includes merging NMPA with its enforcement agency, the State Administration for Industry and Commerce (SAIC), and its inspection agency, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), to form a new agency: The National Regulatory and Management Commission. Reform plans also include the formation of a new medical reimbursement agency, the Healthcare Security Administration (HSA) that will oversee China’s medical insurance policy. The HSA will regulate drug price and reimbursement policy, as well as centralize drug and medical device procurement. China’s National Health and Family Planning Commission (NHFPC) will be merged into the National Health Commission, a new agency that will oversee healthcare policy and reforms.
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Market Entry
China’s rapidly evolving regulatory environment will likely have a short-term negative impact on the overall market. In March 2018, China restructured its government organizations. The newly established National Medical Products Administration (NMPA) (slightly different from the former China Food and Drug Administration, or CFDA) is the governmental body responsible for regulating medical devices and drugs by testing, evaluating, and providing administrative approval for medical devices and drugs for the Chinese market. The registration requirements and procedures remain unchanged except for more simplified processes to expedite the certification of innovative drugs and medical devices.
Regulations and Standards
The fees for imported drugs are as follows: RMB 376,000 (approx. USD 58,150) for imported new drug registration related to clinical trial approval, RMB 593,900 (approx. USD 91,383) for imported new drug registration related to production/marketing approval, RMB 367,600 (approx. USD 56,562) for imported generic drug registration related to production/marketing without the need to conduct clinical trials, RMB 502,000 (approx. USD 77,242) for imported generic drug registration related to production/marketing approval with the need to conduct clinical trials, and RMB 227,200 (approx. USD 34,959) for drug registration renewals to be completed every five years.
The fees for imported medical devices are as follows: RMB 210,900 (approx. USD 32,446) for initial registration of a Class II medal device, RMB 308,800 (approx. USD 47,508) for initial registration of a Class III medical device, and RMB 40,800 (approx. USD 6,277) for registration renewals to be completed every five years. These fees do not include costs for clinical trials, in-country representation, and translation. The CFDA issued several rules first in 2015 and then at the beginning of 2016, including “Rules for the Classification of Medical Devices,” “Measures for the Supervision and Administration of Use Quality of Medical Devices,” “Naming Rules for the Generic Names of Medical Devices,” and “Good Clinical Practices for Medical Devices”.
The CFDA issued four draft circulars aimed at expediting reviews of drugs and devices, expanding the infrastructure for clinical trials, improving enforcement actions, and establishing a patent-linkage system with improved intellectual property protections. Law firm Covington & Burling notes that the new circulars will lessen the gap between China and Western countries regarding regulatory oversight of drugs and medical devices. According to Bloomberg BNA, the proposed policies will “substantially speed up the marketing approvals of imported and domestic drugs or medical devices, and provide some meaningful IP and data protection from a regulatory perspective.”Establishing a Representative Office
Setting Up Your Own Trading Company
Designating Distributors
Direct contact with the right local distributors will help foreign companies ensure greater control and better representation. Local distributors are highly focused on specific products or departments. Selecting the right distributor is a key success factor. Brand owners and manufacturers are advised to support distributors on training and marketing to maintain market competitiveness.
Participation in Technical Seminars and Expositions
Cross-border e-commerce
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Current Market Trends
China remains one of the world’s largest and most dynamic markets for the healthcare industry. The strength of the Chinese healthcare market is a result of sustained demographic change, increasing urbanization, and lifestyle changes. According to an EIU study, by 2020, China’s aging population is expected to reach 176 million people over the age of 65. This demographic trend will be compounded by increased concentration in urban areas, placing a substantial strain on healthcare resources. The effects of pollution and poor dietary habits also undeniably play roles in the increase of chronic illnesses. With 100 million diabetics, China is sometimes referred to as the “diabetes capital of the world.”
To combat the deteriorating health of its citizens, the Chinese government announced a new 5-year plan in 2015, with the goal of “Healthy China 2020”. This plan called for an increase in medical infrastructure, specifically private hospitals, with a planned 30% increase in beds at public hospitals and a 100% increase in beds in private hospitals. “Healthy China 2020” also vastly expanded insurance coverage.
Consequently, according to the Ministry of Finance, fiscal spending on healthcare in 2016 surged by 10% to RMB 1.24 trillion (USD 185 billion). Likewise, the total number of hospitals in 2016 rose to 28,471 with 2,059 new private hospitals added between September 2015-2016. Notably, 95% of Chinese are now insured. It is projected that China’s healthcare spending will reach USD 1 trillion in 2020.
Although there are caveats, foreign healthcare companies will likely benefit from a wider insurance net, better infrastructure, and new government-supported innovation.
Despite China being the world’s second largest medical device market, there is still vast room for improvement, as the trends discussed earlier (urbanization, rise in chronic disease, etc.) continue to drive demand.
In sum, healthcare system reform, an increasing urban and aging population, the epidemic of chronic illness, new regulation, and increased public investment in expanding healthcare coverage continue to drive Chinese market growth.
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Market Size
2018
population
1. 40 bn
GDP (USD)
$13,559bn
health expenditure (USD)
$777.0bn
Medical Devices
Pharmaceutical & Health Products
Market size (USD)
78.81bn
220 bn
% of Govt health expenditure
10%
28.6 %
% of GDP
0.5%
1. 6 %
% supplied by imports
28
29.4
Per capita (USD) SPENDING
56.4
157.1
Source: BMI Research, China National Bureau of Statistics; Ref. exchange rate: 6.64
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Best Prospects
Drugs: oncology, chronic disease (cardiovascular, infectious, digestive); prescription and OTC
Medical diagnostic and imaging equipment: black & white and colored supersonic diagnostic units, sleeping monitor, digital X-ray system, MRI, CT, DR, and ultrasound equipment
In vitro diagnostic equipment and reagents: clinical and diagnostic analysis equipment, diagnostic reagents, medical test and basic equipment instruments, and point of care testing (POCT)
Therapeutic products: Tri-dimensional ultrasonic-focused therapeutic systems, body rotary gamma knife, simulator, linear accelerator, laser diagnostic and surgical equipment, nuclide treatment equipment, physical and rehabilitation equipment
Dental instruments (esp. X-ray) and cements
Artificial intelligence in endoscopic surgeries
‘Internet plus health’ innovative solutions
Hospital management and consultation; professional training to medical staffs
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Main Competitors
Depending on the specific product type, the main competitors for medical devices include EU countries specifically Germany and Japan. Current government policy supports and encourages medical device innovation inside China. Some domestic manufacturers such as Shenzhen Mindray, Edan Instrument, and Shandong Shinva manufacture high-quality products and are beginning to compete against foreign suppliers in medium to high-level technology niches.
Due to a lower cost base and strong growth potential in the pharmaceutical market, most of the world’s top 20 pharmaceutical firms have established facilities in China. Domestic pharmaceutical firms are catching up. The number of applications of local innovative drugs entering clinical trial has grown rapidly from 21 in 2011 to 88 in 2016, with a compound annual growth rate of 33%.
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Current Demand
In 2018, prescription drugs accounted for over 85% of total sales, and sales are expected to continue to grow, driven by China’s healthcare reform. Patented drugs contribute a small portion to total prescription drug sales. Due to the Chinese government extending patent protections for pharmaceuticals from 20 years to 25 years in May 2018, it maintained a growth of 10.99% in 2018. Oncologic, infections disease, digestive and metabolism disease drugs contributed to nearly 50% of the prescription market according to a McKinsey survey of 1029 sample hospitals.
With double-digit average growth in 3 successive years, China has one of the most dynamic markets for medical devices, valued at USD 78.81bn in 2018. Imported medical devices are dominating the high-end medical device market, due to the fact that healthcare providers prefer to use imported medical devices whenever possible. China’s locally produced medical device manufacturing base is developing quickly, and several locally manufactured devices are now comparable to imported devices, such as monitors, anesthesia machines, blood cell analyzers, color ultrasonography, and biomedical analyzers.
“Internet-plus health” provided by the China government remains a hot topic and trend for the transformation of the traditional healthcare sector. Local IT service providers like Alibaba are actively shaping this framework by seeking partners overseas.
Investment capital continues to flood into private hospitals that provide specialized services like ENT, stomatology, etc. These private hospitals are mostly designed to provide better services and attract high-end patients, and thus will play a significant role in importing high-end medical devices.
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Registration Process
All imported drugs and medical devices require registration or notification filing process with the National Medical Products Administration (NMPA, formerly known as CFDA) before being sold or distributed in the Chinese market. In China, medical devices are divided into three classes depending on levels of risks similar to, but different and stricter than, those of the USFDA. According to Order 650, all Class II and III devices are required to be registered with the NMPA while Class I products are required to be registered with the NMPA. Clinical trials are required for Class II and Class III medical devices unless they are on the NMPA’s exemption list for clinical trials.
The process of registering imported medical devices is complex and time consuming. Depending on the product class, it can take one to three years following the submission of all necessary documents and test samples. U.S. companies are encouraged to register their products through their authorized distributors or registration agents (e.g. Contract Research Organizations or CROs) if they do not have a representative office or subsidiary in China. The NMPA has a comprehensive system for medical device registration and inspection, including product testing and factory audits. A company is required to provide a testing report for the product conducted by an authorized Chinese lab. The company is also required to submit a product standard according to China’s “Product Regulation Standard,” for the NMPA’s record. In addition to the service fee charged by a local company for translation and product standard compilation, the cost varies for registering a product with the NMPA. The final cost also includes the cost of product testing by an authorized Chinese lab, the technical evaluation at the NMPA’s Medical Evaluation Center, and final administrative approval by the NMPA.
There are some positive changes regarding the regulatory environment in China. In April 2017, the Ministry of Finance and National Development and Reform Commission (NDRC) streamlined the regulation of 41 types of administrative and institutional fees set up by the central government, and 23 fee categories were eliminated.
In March 2017, China’s CFDA announced it would allow foreign companies to use multi-regional clinical trial data to support new drug and medical device applications in China as long as the trial design fits China’s technical guidelines. This means that companies will no longer need to conduct a second, local trial in China after running their global trials. China is now an official member of ICH and IMDRF and is working to meet international standards.
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Reimbursement
The medical reimbursement system in China is extremely complicated. Basic medical insurance (BMI) coverage for most Chinese citizens does not cover many treatments, leaving the patient to cover a majority of their healthcare costs. The medical insurance program is included as a part of China’s social security insurance, often dubbed as “five insurances plus one house funding.” However, patients are only partially or fully reimbursed if their prescriptions or procedures are pre-included in a “medical insurance catalog,” which is very limited. Each province determines what their coverage catalog includes for their locality. Public hospitals are under increasing financial pressure to control costs, and therefore they usually stock and prescribe drugs and treatments according to the government authorized (and price controlled) procurement list in order to avoid creating a heavy burden on the social welfare net. Foreign products are often barred from the medical insurance product catalog (in favor of Chinese produced goods). If a patient is in acute need of a high-quality antibiotic that is not included in the catalog, the patient must pay out of pocket. Consequently, the catalogue discourages physicians from using expensive imported drugs, especially on patients with chronic diseases requiring long-term medication. This system leads to problems in hospitals, including bribery. Lastly, many provinces have halted the process of updating the catalog, resulting in fewer innovative drugs available to serve the increasing needs of the Chinese public.
Since the establishment of the National Healthcare Security Administration (NHSA) in March 2018, breakthrough achievements have been made regarding cross-region medical reimbursement. More effort has been directed towards building a broader network in which cross-city/cross-regional medical reimbursement is acceptable. Furthermore, a number of U.S.-invested private hospitals were recently included in China’s BMI system, which had previously been dominated by Chinese public hospitals. These are all positive signals for U.S. healthcare services exporters.
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Barriers
China’s healthcare sector is heavily regulated, both on national and local levels. Barriers exist in the forms of uncertain regulatory environments and extensive delays in registration and re-registration of products. Additionally, price controls, tender, and bar code systems also play a role in delaying a company’s entry into the Chinese medical market.
Lengthy Registration Process https://www.biopharmadive.com/news/china-drug-trials-manufacturing-generics-cfda/439487/ ). To a certain extent, requiring clinical trial institutions to go through the approval system limits the effective use of clinical resources. Disparities in qualifications to conduct clinical trials between large hospitals result in doctors’ lack of motivation to take part in clinical trials. On the medical device side, China has issued three batches of Class II and Class III Medical Device Clinical Trial Exemption Catalogs. On September 28, 2018, these catalogs were incorporated into one list that includes 855 medical devices, and 393 In-Vitro-Diagnostic (IVD) products.
Noncompetitive Hospital Procurement
On November 15, 2018, China’s Joint Procurement Office adopted a novel procurement scheme (also known as ‘4+7’ volume-based tendering policy) with the aim of dramatically cutting the drug price by guaranteeing minimum procurement quantities across all public hospitals in eleven cities, which include the four municipalities directly administered by the central government: Beijing, Shanghai, Chongqing and Tianjin, and seven key cities in four provinces: Shenyang, Dalian, Xiamen, Guangzhou, Shenzhen, Chengdu, and Xi’an. These eleven key cities represent a major share of the target drugs’ Chinese market. Currently, only 25 types of drugs are under this pilot scheme. It is a controversial policy that has caused adverse impact on many originators due to its ‘winner takes all’ features (i.e. the procurement process amounts to a zero-sum game with the successful bidder on a particular drug collecting the entire guaranteed purchase amount from all eleven cities). Only two foreign pharmaceutical companies won in first-round bidding.
Charging Code
The charging code application process includes required approvals from:
head of the hospital department
hospital pricing chief and review team
provincial health commission (during the restructuring transition between the health commission and the healthcare security administration)
provincial healthcare security administration.
For medical devices on the national level, there have been no new medical service procedure charging codes assigned since 2012. As a result, many companies have started to push products into hospitals by getting charging codes approved on the provincial level. Once a company obtains a charging code from the corresponding provincial health authority, the charging code can be used in any public hospitals within that health authority’s jurisdiction.
New Challenges https://ustr.gov/ .
Serial Number
Tariff Nomenclature Heading Number
Previous Rate
Present Rate
Commodity Name
109
90181310
17%
25%
Magnetic Resonance Imaging (Complete equipment)
110
90181930
17%
25%
Patient Monitor
111
90185000
17%
25%
Ophthalmology apparatus and instruments
112
90189099
17%
25%
Heading 90.18 Unlisted medical, surgical or veterinary instruments and apparatus
113
90221400
11%
25%
X-ray equipment for other medical, surgical or veterinary applications
114
90229090
11%
25%
Other equipment and parts and accessories listed in heading 90.22
Serial Number
Tariff Nomenclature Heading Number
Present Rate
Commodity Name
2394
90183210
25%
Tubular metal needles
2395
90184100
25%
Dental drill rig
982
90181941
20%
Audiometer
983
90189020
20%
Blood pressure measuring instruments and apparatus
984
90221300
20%
X-ray equipment for other dental applications
884
90189030
10%
Endoscope
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Trade Events
MEDTEC China www.medtecchina.com
China International Medical Equipment Fair (CMEF) https://en.cmef.com.cn/
DenTech China https://www.dentech.com.cn/en-us/index
U.S. – China Health Forum https://www.uschinahealthsummit.org/
China National Pharmaceutical Machinery Exposition https://www.cipm-expo.com/w/show_c_chs.php?ID=14
Dental South China www.dentalsouthchina.com/
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FAQs
1. How do I protect my intellectual property rights in China? https://china.usembassy-china.org.cn/tag/ipr/ .
2. Where do I start if I want to enter into Chinese market?
3. How do I find a reliable distributor?
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U.S. Commercial Service Contact Information
Contacts - Beijing ming.yang@trade.gov
Huiling ShiHuiling.shi@trade.gov
Contact – Chengdu mini.tian@trade.gov
Contact – Guangzhou jenesy.wang@trade.gov
Contacts – Shanghai xiaoli.pan@trade.gov
Yaoyi Wangyaoyi.wang@trade.gov
Contact – Shenyang yang.liu@trade.gov
Contact – Wuhan Catherine.le@trade.gov
