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Market Report

Medical Device Market in China 2007

Author:
Osec Business Network Switzerland
Stampfenbachstrasse 85, Postfach 492
CH-8035 Zürich
Phone +41 44 365 51 51
arechsteiner@osec.ch
www.osec.ch
Contents

1 Executive Summary........................................................................................................1
1.1 Objectives ...................................................................................................................... 1
1.2 Opportunities ...................................................................................................................... 1
2 Market Outlook................................................................................................................2
2.1 Domestic Market Landscape .......................................................................................................... 2
2.1.1 Market Size ................................................................................................................................................2
2.1.2 Demand and Supply Trends ................................................................................................................................................4
2.2 Import and Export Market of Medical Device.................................................................................. 6
3 Potential and Opportunities in Selective Segments....................................................8
3.1 Cardiovascular .................................................................................................................. 8
3.1.1 Market Size ................................................................................................................................................8
3.1.2 Competitive Landscape ..............................................................................................................................................11
3.1.3 Emerging Technologies ..............................................................................................................................................12
3.2 Orthopaedics ................................................................................................................. 13
3.2.1 Market Size ..............................................................................................................................................13
3.2.2 Competitive Landscape ..............................................................................................................................................14
3.2.3 Emerging Technologies ..............................................................................................................................................15
3.2.4 Other Growth Areas ..............................................................................................................................................15
3.3 Minimally Invasive Surgical Techniques ....................................................................................... 16
3.3.1 Market Size ..............................................................................................................................................16
3.3.2 Competitive Landscape ..............................................................................................................................................17
3.3.3 Emerging Technologies ..............................................................................................................................................17
3.3.4 Other Growth Areas ..............................................................................................................................................17
3.4 Diagnostics ................................................................................................................. 19
3.4.1 Market Size ..............................................................................................................................................19
3.4.2 Competitive Landscape ..............................................................................................................................................19
3.4.3 Emerging Technologies ..............................................................................................................................................20
3.4.4 Other Growth Areas ..............................................................................................................................................20
3.5 Wound Care and Management..................................................................................................... 22
3.5.1 Market Size ..............................................................................................................................................22
3.5.2 Competitive Landscape ..............................................................................................................................................23
3.5.3 Emerging Technologies ..............................................................................................................................................24
3.6 Dental Support ................................................................................................................. 25
3.6.1 Market Size ..............................................................................................................................................25
3.6.2 Competitive Landscape ..............................................................................................................................................25
3.6.3 New Technologies ..............................................................................................................................................26
3.6.4 Other Growth Areas ..............................................................................................................................................27
4 Market Environment .....................................................................................................28
4.1 Facts and Factors in Consumption ............................................................................................... 28
4.1.1 Role of Healthcare Providers ..............................................................................................................................................28
4.1.2 Purchasing Process ..............................................................................................................................................29
4.1.3 Decision Makers and Determinants .....................................................................................................................................30
4.1.4 Reimbursement: Insurance and Subsidies ..........................................................................................................................30
4.2 Competition in the Chinese Medical Device Market ..................................................................... 35
4.2.1 Overview of Chinese OEM Providers ..................................................................................................................................35
5 Marketing Environment ................................................................................................36
5.1 Road Map for Market Entry........................................................................................................... 36
5.1.1 Distribution Environment ..............................................................................................................................................36
5.1.2 Major Distribution Channels ..............................................................................................................................................36
5.2 Pricing and Average Margins of Medical Devices ........................................................................ 38
5.3 Legal Issues Related to Marketing in China ................................................................................. 39
5.3.1 Marketing Arrangements in China - Distribution ..................................................................................................................39
5.3.2 Marketing Through a Chinese Subsidiary or Representative Office ....................................................................................40
5.3.3 Marketing and Licensing of Products and Know-How in China ...........................................................................................40
5.3.4 Cooperation with Chinese Companies.................................................................................................................................42
5.3.5 Acquisition or Disposition of Chinese Companies or Assets ...............................................................................................42
6 Regulatory Environment ..............................................................................................43
6.1 Importing into the China................................................................................................................ 43
6.1.1 Introduction to PRC Customs and the Entry–Exit Inspection and Quarantine Bureau ........................................................43
6.1.2 The Entry Process ..............................................................................................................................................43
6.1.3 Tariff Classification ..............................................................................................................................................43
6.1.4 Valuation of Imported Merchandise .....................................................................................................................................43
6.1.5 Country of Origin Marking ..............................................................................................................................................44
6.1.6 General Contracts Issues ..............................................................................................................................................44
6.1.7 Other Regulations on Medical Device Import ......................................................................................................................45
6.2 National Monitoring and Management Policies ............................................................................ 46
6.2.1 Definition of Medical Devices in the Chinese Regulations...................................................................................................46
6.2.2 Government Authorities ..............................................................................................................................................46
6.2.3 Regulatory Device System ..............................................................................................................................................46
6.2.4 Clinical Trials ..............................................................................................................................................47
6.2.5 Market Approval for New Medical Devices ..........................................................................................................................47
6.2.6 Inspection of Medical Device Documents ............................................................................................................................49
6.2.7 Good Manufacturing Practices (GMP) Inspections and Others ...........................................................................................50
6.2.8 Enterprises Risk Management.............................................................................................................................................51
6.3 Product Liability Legal Aspects ..................................................................................................... 53
6.3.1 Legal Basis for Product Liability...........................................................................................................................................53
6.3.2 Damages ..............................................................................................................................................54
6.3.3 Procedural Aspect of the Chinese Product Liability .............................................................................................................55
6.3.4 Attorneys’ Fees and Costs ..............................................................................................................................................57
6.3.5 International Affairs ..............................................................................................................................................57
6.3.6 Reducing the Risk of Product Liability .................................................................................................................................57
6.4 Product Liability Risk and Insurance Aspects............................................................................... 59
6.4.1 Introduction to Product Liability Insurance ...........................................................................................................................59
6.4.2 The Chinese Legal Environment Associated with Product Liability Insurance ....................................................................59
6.4.3 Current Situation of Product Liability Insurance for Medical Devices ..................................................................................59
6.4.4 Insurance Companies Offering Product Liability Insurance .................................................................................................60
7 Appendices ...................................................................................................................61
7.1 Comprehensive List of China’s Medical Device Imports by Country ............................................ 61
7.2 Services Provided by Hospitals According to Classification ......................................................... 63
7.3 Process of Direct Purchasing with Fund Approval (less than USD 2,444) ................................... 64
7.4 Process of Direct Purchasing with Fund Approval (USD 2,444 to 12,222) .................................. 65
7.5 Risk Management Flow Chart....................................................................................................... 66
7.6 Abbreviations and Acronyms Used in the Study........................................................................... 67
Medical Device Market in China

1 Executive Summary
1.1 Objectives
To help Swiss medical device OEM and component manufacturers wishing to export their products to the
People’s Republic of China understand the political, economic, social, and technological aspects of this diverse
market.

1.2 Opportunities
All aspects of the Chinese economy have been growing at an incredible rate and this trend is expected to
continue. Medical devices are no exception. In 2005, sales and revenue from medical devices reached record
USD 6.2 billion dollars. The Chinese medical devices market has expanded at a CAGR of 16 percent while
maintaining a profit margin around 7 to 8 for the past few years. This trend is expected to continue in the near
future.

Currently, the domestic players are focused on the lower side of the technology scale. Devices requiring higher
technology are coming from imports, especially the United States, Japan, and Germany, to the tune of USD 3.8
billion a year. The opportunities for Swiss medical device manufacturers in China exist as demand has been
outstripping supply for the past five years. Compared to the markets in the United Kingdom, Japan, and Germany,
the Chinese market for medical devices shows higher potential as the supply in the recent years only meets
approximately 60 percent of the demand. Future growth is expected due to several factors, including the booming
economy, increased healthcare expenditure by the government, maturing insurance system, competition among
medical institutes and the increase in the number patients.

The marketing and legal environments in China are improving with regard to clarity and consistency. The laws
and regulations coming into play are falling in line with international standards such as WTO and ISO. The
economic environment is in a good position to continue its almost ten percent annual GDP growth. These factors
provide a less muddled operational environment, one that is already confounded by cultural differences.

As the Chinese citizens are becoming increasingly informed and empowered regarding healthcare expectations,
they are demanding higher levels of care and technology. This is supplemented by the fact that maladies and
diseases, which were once rare here, are becoming increasingly common. The people are more aware and
accepting of western ideas and conventions, including medical practices.

There is no reason to think that the medical device market will go anywhere but up for the foreseeable future,
especially for imported and high-tech devices.

Page 1
Medical Device Market in China

2 Market Outlook
2.1 Domestic Market Landscape

2.1.1 Market Size


The Chinese medical devices market has undergone tremendous growth and development during the past five
years exemplifying the fast pace of growth of China’s economy as a whole. Statistics provided by China
Association for Medical Devices Industry (CAMDI), based on data from State Food and Drug Administration
(SFDA) and China Healthcare Import Commercial Association gives an overview of this healthy economy.

According to CAMDI, 7,088 Class I and II medical devices were registered (a prerequisite to sale in the country)
in China by medical devices manufacturers in 2004. The number of medical devices manufacturers in China
increased at a compounded annual growth rate (CAGR) of 19.5 percent, from 356 in 1985 to 10,447 in 2004. The
sales revenue of the medical device industry in China was estimated at USD 6.2 billion and profits at USD 460
million.1 This indicates a CAGR of 14 percent and 11 percent, respectively, from 2001 to 2004.

The big players in China’s medical devices market include multinational companies (MNCs), such as GE
Healthcare, Philips, Siemens and Omron, which have (almost) monopolised the high-tech medical devices
market in China. The majority of domestic manufactures are small- and medium-size enterprises (SMEs),
focussing on low-technology devices. Figure 1 illustrates the growth in the medical devices market in China
during 2003-2005.

Figure 1: Size of Chinese Medical Devices Industry – 2003-2005 (USD million)

7,000.00
6,203.27
5,677.55
6,000.00
Value (USD million)

1,274.63
5,000.00 4,595.95 1,353.62

4,000.00 1,004.06 1,531.17


1,130.23

3,000.00 919.60

1,736.13 2,301.28
2,000.00 1,501.37

1,000.00
1,170.92 1,457.57 1,096.19
0.00
2003 2004 2005

Year
Q1 Q2 Q3 Q4

Source: http://report.cei.gov.cn/transform.asp?Column=040806

1
http://report.cei.gov.cn/transform.asp?Column=040806

Page 2
Medical Device Market in China

Figure 2 illustrates the details of the profits earned by the medical devices industry in China during 2003-2005.

Figure 2: Total Profit of China Medical Devices Manufacturers – 2003-2005 (USD million)
Profit (USD million)

500 466.39
412.4
400 373.77 142.88
108.79
300 162.6 43.56 122.46
200 140.01
128.21
100 211.2
120.04
72.84
0
2003* 2004 2005

Year
Q1 Q2 Q3 Q4

Source: http://report.cei.gov.cn/transform.asp?Column=040806
*Note: For 2003, only semi-annual figures are provided as no quarterly figures are available.

Figure 3 depicts the present situation of the five medical devices markets as of 2005, with a projected growth rate,
as indicated by the diameter, for the next decade.

Figure 3: China’s Medical Devices Market as a Function of Value and Growth as Compared with Other Developed
Markets

20
Growth in CAGR

15

10

0
-20 0 20 40 60 80 100 120
-5
Market Value in 2005 (USD billion)

United Kingdom China Japan Germany United States

Source: http://www.medicaldevices.org/public/default.asp,
http://www.buyusainfo.net/docs/x_3123132.pdf
UK Healthcare Market Overview: Opportunities for Swiss medtech companies in the United Kingdom
The US Market for Medical Devices: Opportunities and challenges for Swiss companies
Evalueserve analysis

Page 3
Medical Device Market in China

2.1.2 Demand and Supply Trends


As illustrated in figure 4, there exists a large gap between the annual demand and supply of medical devices in
China (data for the past three years).

Figure 4: Gap Between Supply (Revenue) and Demand in the Medical Devices Market of China – 2003-2005 (USD
million)

12,000.00
Amount (USD million)

10,000.00

8,000.00

6,000.00
10,567.51
9,196.76
4,000.00 8,082.80
6,096.27
5,171.55
2,000.00 4,061.95

0.00
2003 2004 2005

Year
Supply Demand

Source: http://report.cei.gov.cn ; http://www.cmdm.com; Evalueserve analysis

Note: 2005 demand is estimate

Economic growth resulted in the growth of per capita income and, hence, the demand for good medical care.
Moreover, economic growth has also provided an impetus to the healthcare sector for inviting significant
investments from the government. In addition, recent epidemics and threats, such as SARS and avian flu, have
prompted the government to undertake large investments in the healthcare sector. The medical devices market
in China is growing at a faster rate than the global market due to the following reasons2:
• Increase in the expenditure on healthcare: In 2005, China, with a population of approximately 1.3 billion,
incurred a healthcare expenditure of approximately 6.7 percent of its GDP (~USD 2.3 trillion). This figure
is low as compared to the US healthcare expenditure of 15.9 percent of its GDP (~USD 12 trillion), with a
population of approximately 300 million. China’s expenditure on healthcare increased at a rate
approximately 5 percent, from 5 percent of GDP in 1999 to 6.7 percent of GDP in 2005. The growth rate
was three percent for the United States during the same period.3 Based on reports, it is expected that the
Chinese economy will continue to grow at a rate of more than 10 percent annually for the next few years.
This, in turn, will lead to an increase in the per capita income in the country and will provide a boost to
the overall expenditure in the healthcare market. Assuming that the government does not decrease the
share of healthcare in its overall budget, the quantum of money spent on this sector will increase at a
rate of 10 percent per annum.
• Economic boom: One of the major benefits of economic boom is the increase in income for a majority of
people in the country. Therefore, the population at large demand better and more efficient health
services resulting in a higher demand for high-, medium- and low-tech medical devices. Moreover, the
endeavour of the government to provide better health services to its citizens result in large investments in
big hospitals to achieve international standards. These investments are directly proportional to the
investments in medical devices as well.
• Healthcare insurance: As China opens up its financial sector, it makes it easier for the international
financial services, including insurance, to enter the market. The insurance companies also provide
affordable healthcare insurance to a large section of the population in the mid-income group of China.
2
http://healthcare.seekingalpha.com/article/16550
3
Frost & Sullivan estimates

Page 4
Medical Device Market in China

This acts as a catalyst for the Chinese healthcare service providers to invest in modern technologies to
service a larger customer base. Since China’s entry into the World Trade Organization (WTO) in
December 2001, insurance companies have been offering improved services and risk coverage to meet
the international standards as well as competition.
• Privatised healthcare: Although the government runs a majority of hospitals and healthcare facilities, the
recent healthcare reforms have provided a greater operating freedom to hospital managers. This has
increased the decision-making capacity of hospital managers to improve efficiency and services to the
public, including their ability to purchase equipment.
• Epidemics and outbreaks: In the recent past, China, in particular, and South East Asia, in general, has
witnessed large-scale epidemics and outbreaks, such as SARS and avian flu. This has raised the
healthcare concern of the country resulting in more government investments for healthcare infrastructure
and sanitation.

Page 5
Medical Device Market in China

2.2 Import and Export Market of Medical Device


Medical devices imports for China mainly comprise large and high-tech products, such as X-ray appliances,
colour ultrasonic diagnostic instruments and magnetic resonance imaging (MRI) instruments. The majority of
China’s medical devices exports, however, comprise small and low-tech products, such as catheters and
endoscopic instruments, etc. 4

China’s medical devices trade has been developing rapidly during the past five years. China’s exports increased
a CAGR of 31.6 percent, from USD 1.23 billion in 2001 to USD 3.68 billion in 2005. Its Imports increased at a
CAGR of 19.6 percent, from USD 1.85 billion in 2001 to USD 3.79 billion in 2005. The growth in exports outpaced
imports by 12 percent due to the development of the domestic medical devices industry. In particular, the sector
of large and advanced devices has been developing rapidly during the past five years. Experts believe that
exports will continue to rise at over 20 percent and import at over 15 percent in 2006. 5

Figure 5 illustrates the growth of the medical devices import and export market in China for the past five years.

Figure 5: Medical Devices Export and Import – 2001-2005 (USD million)

4,000 3,679 3,786


Import and Export Value (USD

3,500 3,283

3,000 2,777
2,554
2,500
million)

1,910 2,020
2,000 1,852
1,517
1,500 1,227

1,000

500

0
2001 2002 2003 2004 2005

Year
Export Import

Source: http://www.cccmhpie.org.cn/

China has been experiencing a trade deficit (value) in the medical devices sector from 2001 through 2005. The
deficit, however, has decreased from USD 625 million in 2003 to USD 107 million in 2005. The faster rate of
growth of exports over imports in 2004 (by 8.9 percent) and in 2005 (by 17.2 percent) explain the decease in
deficit. Figure 6 illustrates the movement in the trade deficit in medical devices for China during 2001-2005.

4
http://www.cccmhpie.org.cn/
5
http://cccmhpie.mofcom.gov.cn/

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Medical Device Market in China

Figure 6: Medical Devices Trade Deficit – 2001-2005 (USD million)

700 37.5% 40%


33.2% 32.5% 35%
Trade Deficit (USD million)

600
33.7% 30%
500
23.6%
28.5% 25%
400
20%
300
15%
200 15.3%
10%
100 5%

0 3.1% 0%
2001 2002 2003 2004 2005

Trade Deficit Export Grow th Rate Import Grow th Rate

Source: http://www.cccmhpie.org.cn/

The 10 largest medical devices exporting countries for China in 2005 were the United States, Japan, Germany,
the Netherlands, France, Singapore, Britain, South Korea, Ireland and Switzerland. The three largest exporters,
the United States, Japan and Germany, contribute 66.1 percent of the total imports. Figure 7 is a graphic
representation of the largest medical devices exporters to China.

Figure 7: Top 10 Medical Devices Exporters to China – 2005

15.7%
2.0%
2.0% 28.8%

2.1%
2.5%
2.6%
3.0%
4.0%
18.8%
18.5%

United States Japan Germany the Netherlands


France Singapore Britain South Korea
Ireland Switzerland Others

Source: http://cccmhpie.mofcom.gov.cn/

A comprehensive list of the countries from which China imports its medical devices can be found in the appendix.

Page 7
Medical Device Market in China

3 Potential and Opportunities in Selective Segments


3.1 Cardiovascular

3.1.1 Market Size


In recent years, cardiovascular diseases have captured a large untapped market for pharmaceutical companies
as well as medical devices manufacturers. The growth of this market is very rapid, and it is attracting medical
devices manufacturers and pharmaceutical companies. It is estimated that approximately 2.6 million6 people die
annually from cardiovascular diseases in China.7 Cardiovascular diseases were responsible for 40.7 percent of
deaths across Mainland China in 2005, while it accounted for only 28.8 percent of deaths globally. Heart
diseases and strokes are the most prevalent cardiovascular ailments, which account for more than 30 percent of
the mortality. Morbidity rate of cardiovascular diseases in China is also growing at a fast pace. It reached 18.8
percent in 2005 as compared with 13.6 percent in the early 1990s and 5.1 percent in the 1950s. Table 1 depicts
the prevalence of cardiovascular diseases in Mainland China.

Table 1: Prevalence of Cardiovascular Diseases in Mainland China – 2003

Prevalence Incidence
Type of cardiovascular diseases
(million people) (million people/year)
Hypertension 160 3
Coronary Heart Disease 10 1.1
Stroke 6 1.5
Congestive Heart Failure 5 0.5
Congenital CV Defects 4 0.15
Myocardial Infarction 2.96 0.6
Total 187.9 6.85
Source: Wanfang Data

Figure 8 illustrates the breakdown of death due to various types of cardiovascular disease for 2003.

Figure 8: Percentage of Deaths from Various Cardiovascular Diseases in Mainland China – 2003

Pulmonary Heart Others, 12.00%


Disease, 8.20%

Hypertensive Heart
Disease, 9.80%

Other Coronary Heart


Disease, 10.80%

Myocardial Infarction,
10.90% Stroke, 48.30%

Source: www.moh.gov.cn

Death of stroke patients across China was the highest among all the countries in the world. In 2005, around 1.3
million people died due to stroke and, worse still, the number is estimated to increase by three-fold in next two
decades.8 Coronary heart disease in China is not as prevalent as in western countries, and it was responsible for

6
http://www.bjzhongke.com/jiaer/xinnaoxueguan.htm
7
http://www.ocn.com.cn/reports/2006195xinnaoxueguanyao.htm
8
http://www.100md.com/html/DirDu/2005/07/18/76/99/20.htm

Page 8
Medical Device Market in China

approximately 0.75 million deaths in 2003; however, the number has been on the rise in the past few years.
During 1990-2000 the incidence of coronary heart disease was increasing at a CAGR of 4.41 percent as
compared to 1.17 percent during 1984-1997.9

Although hypertension (including hypertensive heart disease) was responsible for only 9.8 percent of all deaths in
2003, it is becoming one of the major medical problems across Mainland China. Hypertension is responsible for
other ailments, such as strokes (76 percent of the stoke patients have hypertension records) and coronary heart
disease (65 percent of the coronary heart disease patients have hypertension records), which indirectly increases
the death rate of cardiovascular disease. The number of patients with hypertension witnessed the most dramatic
increase in the past decade. Figure 9 depicts the number of hypertension patients as compared with patients of
other chronic disease.

Figure 9: Comparison Between Growth of Chronic Hypertension and Heart Disease and Other Chronic Disease
(number of people)

CAGR of 6.9% CAGR of 11.4%


200,000,000
CAGR of 2.7% CAGR of 0.8%
150,000,000

CAGR of -1.5% CAGR of -2.1%


100,000,000

50,000,000

0
1993 1998 2003
Other Chronic Disease Heart Disease Hypertension

Source: www.moh.gov.cn

As illustrated in Figure 9, during 1998-2003, the CAGR for the number of hypertension cases was 11.4 percent. It
was around five percent higher than the past five years’ average, compared to the decrease in the number of
chronic disease patients (at a CAGR of 1.5 percent) during the same period.10 By 2003, hypertension has already
become one of the major chronic diseases with a morbidity rate of 54.7/1000 in urban and 16.4/1000 in rural
areas of China.11

The two major trends observed in the growth of heart disease patients are as follows:
• Higher growth in urban regions as compared to rural areas: During 1995-2004, deaths from heart
diseases increased from 15.31 percent to 18.54 percent in urban cities, while the figure is only about 1
percent among rural residents.12 In addition, the demand for cardiac medicine from Beijing, Shanghai and
Guangzhou constituted more than 70 percent of the total sales volume in 2004 (according to the national
sample hospitals).
• Earlier age of initial onset: The number of patients in the age group of 35-44 is increasing at a steeper
rate than other age groups. In the past 15 years (1999-2005), the mortality rate of coronary heart disease
patients increased by more than 150 percent.

The main reasons for the increase are as follows:


• A large aging population: Cardiovascular diseases, especially hypertension, coronary heart disease and
stroke, have a correlation with age. By 2025, the number of people aged 65 or over is estimated to reach
280 million, which will account for 19 percent of the population.
• Eating habits: As western cuisines, which have higher content of low-density lipoproteins, are gaining
acceptance in China, the rate of incidence of atherosclerosis is increasing. Children introduced to this
would retain the new dietary intake patterns throughout their lives.

9
http://www.menet.com.cn/fbl/xnxg/wgrq.pdf
10
Evalueserve calculation based on figures released by MOH of China
11
http://www.moh.gov.cn/open/statistics/digest06/y27.htm
12
MOH of China

Page 9
Medical Device Market in China

• Increasing morbidity rate for hypertension: Hypertension is highly prevalent in China – diagnosis rate of
27.2 percent in 2001, 33 percent in 2005 and expected to be 41 percent by 2010. It is the major concern
for China’s first long-term national plan for the control and prevention of chronic diseases. With more
urbanisation of life style, more persons will be introduced to risk factors associated with hypertension.
• Tobacco use: In Mainland China, 60-70 percent of the male population consumes tobacco and has
double the morbidity rate. According to studies, each unit volume increase will possibly result in the
increase of myocardial infarction by four times.13
As revealed by experts, contraindications of continuing unhealthy living habits and high standard are the major
drivers for the increasing and earlier age of initial onset of cardiovascular diseases patients.

In 2004, around 167,000 people were offered different cardiovascular treatments in hospitals. Table 2 depicts the
average expenditure of each inpatient in hospitals.

Table 2: Average Expenditure per Inpatient Affected with Select Cardiovascular Conditions – 2004 (USD)

Treatment and
Condition Bed Fee Drugs Operation Total
Examination
Myocardial Infarction 38.36 544.98 205.91* 311.67 1,100.92
Congestive Heart Failure 38.06 321.52 N/A 92.91 452.49
Pulmonary Heart Disease 25.88 546.28 N/A 124.76 700.00**
Cerebral Haemorrhage 41.19 693.88 N/A 223.11 960.00**
Stroke 38.34 522.97 N/A 151.57 715.00**
Coronary Heart Disease 73.38 800.53 603.57 1,578.31 4,010.84
Source: www.moh.gov.cn
* Evalueserve analysis
** Due to an error in methodology in the original source, the total is the projected minimums for each treatment type

At present, there are three methods employed by physicians in China to cure heart diseases: medication, surgery
– mainly coronary artery bypass surgery – and intervention – mainly cardiac catheterisation and percutaneous
transluminal intervention (PTI). In Mainland China, medication is the preferred mode of treatment constituting
around 75 percent of the total expenditure. More than 80,000 patients had undergone surgery during 2004.
14
Table 3 enlists the average expenditure for different modes of treatment.

Table 3: Average Expenditure of Some Select Modes of Treatment – 2004 (USD)

Procedure Number of Fee


Coronary Artery Bypass Surgery (CABS) 5,000 7,275-9,675
Heart Transplants 40 12,000-18,000
PTCA15 N/A 4,850-6,000

Source: www.moh.gov.cn

Among all cardiac diseases, congenital cardiovascular defects account for about 65 percent, rheumatic valvular
diseases for 20 percent and coronary heart diseases for the remaining 15 percent. The incidences of surgery for
coronary heart diseases have increased during the past few years.

Owing to less developed technology, interventional cardiology made its way into China relatively later than other
western countries. However, in the recent years, this technology is becoming increasingly popular in Mainland
China, backed by advanced surgery techniques and treatment quality. By the end of 2004, interventional cardiac
treatment was possible in about 40 hospitals of Shanghai. The use of stents, especially drug-eluting stents (DES),

13
http://news3.xinhuanet.com/health/2004-04/21/content_1431244.htm
14
http://www.cmednews.com/Share/Show.asp?AutoID=1283
15
http://www.365heart.com/shownews.asp?id=4620

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Medical Device Market in China

is capturing the market of CABS in some medical institutes; the number of interventional cardiac procedures is 10
times that of CABS. This figure is generally around three to five times.16

According to statistics, around 35,000 people received interventional procedures in 2005 and this number is
expected to reach 200,000 by 2010, at a CAGR of 41 percent. Figure 10 depicts the trend of the number of
procedures in interventional cardiology.

Figure 10: Number of Procedures in Interventional Cardiology – 200-2010

250,000
200,000
200,000
141,136
150,000
99,597
100,000 70,283
49,598
50,000 25,000 27,967 31,287 35,000
16,000

0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: www.100md.com/html/DirDu/2005/06/17/62/38/17.htm

3.1.2 Competitive Landscape


Stents
The commonly used stents in Mainland China include BMS (bare-metal stent) and DES. DESs were developed in
the late 1990s and are becoming popular in Mainland China. Its products mainly include rapamycin-eluting and
paclitaxel-eluting stents. In 2006, around 80 percent of the stents being used in interventional cardiology are
DESs.17

Around 70 percent of the stents are imported with retail prices double of that in foreign markets. In 2000, BMS
products were worth USD 800-900 in western countries, while in Mainland China the price was closer to USD
2,000. At present, hospitals in China charge approximately USD 3,000-5,000 for an imported DES product,
compared to only USD 2,100 in other countries.

Major players in coronary artery stent products include the following:


• MicroPort Medical (FireBird): around 35 percent of the share by volume (15-20 by value); cost USD
1,833
• Cordis Corporation (CYPHER® rapamycin-eluting stent)
• Boston Scientific (TAXUS® stent)
• Cook (V-Flex Plus PTX™ coronary stent)
• Abbott (Dexamet-eluting coronary stent)18

Pacemakers
In the Mainland China market, the use of pacemakers averaged 15,000 units19 annually. They are worth USD
24.4-48.8 million and growing at a CAGR of 15 percent.20 The requirement for pacemakers is expected to reach
about 200,000 units per year21 (worth USD 4.89-9.78 billion). However, more than 99 percent of pacemakers are
imported.22 Owing to the huge gap between the demand and supply, distributors are making excessive profit. In

16
http://news3.xinhuanet.com/newscenter/2004-11/21/content_2242911.htm
17
http://www.cnpharm.com/www/news/91/42407.html
18
http://www.istis.sh.cn/list/list.asp?id=1435
19
www.jinjiang.gov.cn/jjkx/qykp/jjqy/2005033043413.shtml
20
http://www.365heart.com/meeting/nanjing/zhuanfang.shtml
21
http://www.365heart.com/meeting/nanjing/zhuanfang.shtml
22
http://www.stdaily.com/gb/stdaily/2005-11/17/content_455970.htm

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Medical Device Market in China

2005, the retail pieces of pacemakers were about 2-3 times the cost of imports. The largest player in the Chinese
market is Medtronic occupying more than 45 percent of the shares.23

Defibrillators
Defibrillators, automated external defibrillator (AED) and implantable cardioverter defibrillator (ICD), are used
primarily for tachycardia. There are currently 15 million tachycardia patients in China, of which, around 500,000-
600,000 need cardioverter defibrillators. However, very few manufactures in Mainland China are equipped with
this advanced technology; hence, the need to import them at a cost of approximately USD 4,888 per unit.

The number of the patients receiving ICD procedures reached 200 in 200024 and increased at a CAGR of 50
percent during 1999-2003. Major players in the market include St. Jude Medical, Medtronic and Cardiac Science.

3.1.3 Emerging Technologies


Endeavor™ Drug-Eluting Stent
Launched by Medtronic in July 2006, Endeavor™ drug-eluting stent represents state-of-the-art technologies of
Medtronic in mainland China. The Endeavor™ drug eluting coronary stent contains a cobalt alloy and is coated
with a proprietary drug compound designed to reduce restenosis (the re-narrowing of a coronary artery after it
has been treated with angioplasty or stenting). There are four Endeavor™ clinical trials for studying the safety
and efficacy in patients with coronary heart diseases.

TAXUS® Express2™ Stent System


Boston Scientific introduced its paclitaxel-eluting stent to meet the demand for dynamic microtubule creation. The
company provides its latest next-generation products TAXUS® Express2™ stent system to Mainland China.

APOLLO ™ Intracranial Stent System


At present, the majority of stroke inpatients are using anti-coagulatory drugs providing only a remedy instead of
cure. The Apollo intracranial artery stent system introduced by Shanghai-based MicroPort Medical is the first
product to be granted permission by SFDA for intracranial intervention in Mainland China.25

Launcher™ Guide Catheter


Launcher series products from Medtronic are popular in mainland China, especially in some top-level hospitals –
its share reaching up to 70 percent. Within the series, 6-French products are the most preferred type.

Powerheart AED G3
In 2005, Cordis Corporation launched its Powerheart AED G3 Automatic products in Mainland China. This
product takes advantage of its one-button operation and RescueReady® technology featuring patented daily,
weekly, and monthly self testing, assuring consistent performance. The products are also equipped with
advanced technology features, such as patented and programmable RHYTHMx® analysis software and STAR®
biphasic defibrillation energy waveform.

23
http://www.cec.gov.cn/info/NewsDetail.jsp?news_id=3335
24
http://www.xiloo.org/new/Article/ShowArticle.asp?ArticleID=822
25
http://appneurology.com/showArticle.jhtml?articleId=187200406

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Medical Device Market in China

3.2 Orthopaedics

3.2.1 Market Size


In comparison to other fields of medical devices, China’s orthopaedic devices market is quite small, valued at
less than USD 12 million. However, it has grown at a remarkable rate of 14-16 percent in the past years. In the
orthopaedic devices market, knee implants command the largest market share at about 50 percent, with trauma
and hip devices sharing the remainder of the market. The Chinese market for orthopaedic devices is expected to
exhibit a growth rate of about eight percent.26

Detailed facts about segments in orthopaedics are as follows:


• Bone and joint disease – According to a report published by World Health Organization (WHO) in 2004,
there are more than 100 million people suffering from bone and joint diseases in China. About 50 percent
of the people above 50 years of age suffer from bone and joint diseases. The incidence rate is greater for
people above 65 years, with females at 90 percent and males at 80 percent. In 1990, China had 40
million people affected by the disease and the number doubled by 2000. The prevalence rate has
increased from 1.2 percent in 1994 to 4.2 percent in 2000. According to WHO, China will have more than
150 patients by 2015, making it one of the world leaders.27
• Osteoporosis – According to the fifth Chinese national census of 2000, the aged population was 130
million and is expected to reach 410 million in 2050, comprising 27.6 percent of the Chinese population.
Therefore, the number of people suffering from osteoporosis will increase rapidly.28
• Lumbar vertebra disease – The Ministry of Health of the People’s Republic of China (PRC) states that
the number of lumbar vertebra disease sufferers in China has exceeded 200 million, comprising more
than 15.2 percent of the total population. There is also a trend of younger people being affected by these
ailments. The prevalence rate of lumber vertebra diseases in youth is 12 percent; the rates in the age
groups of 30-40, 50-60 and 60 and above are 59.1 percent, 71 percent and 82 percent, respectively.29
Table 4 depicts the average expenses per person for lumber vertebra disease treatment in China for
2004.

Table 4: Average Expenses per Person for Treatment of Lumber Vertebra Diseases – 2004 (USD)

Treatment
Number of
Operation Bed and
Discharged Average Stay (days) Average Expense Medicine
Fee Fee Examinatio
Patients
n Fee
19,667 13.3 600.00 168.37 34.84 175.71 255.51
National- Level National
Hospital
14.9 Hospital 1,483.51 N/A N/A N/A N/A
Province- Level Province
Hospital
13.7 Hospital 882.44 N/A N/A N/A N/A
Prefecture- Prefecture
Level City 14.2 Level City N/A N/A N/A N/A
Hospital Hospital 571.07
County- Level County Level
City Hospital
6.0 City Hospital 113.94 N/A N/A N/A N/A
County- Level County
Hospital
5.3 Hospital 102.47 N/A N/A N/A N/A
Source: www.moh.gov.cn

The relevant equipment in Chinese hospitals is not able to keep pace with the increasing number of patients with
orthopaedic ailments. Table 5 depicts the number and percentage of the major orthopaedic medical equipment in
hospitals of China in 2004.

26
http://www.pacificbridgemedical.com/publications/html/AsiaMay2006.htm
27
http://www.bjpzs.com/zhaoshang/company/dlxd/index.htm
28
http://news3.xinhuanet.com/politics/2006-10/20/content_5230578.htm
29
http://www.89189.com/sj/2004-11/2004111117503013.htm

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Medical Device Market in China

Table 5: Number and Percentage of Major Orthopaedic Medical Equipment in Hospital of China – 2004

Equipment Name Number of Units Penetration Rate (%)


800mA & Plus X-Ray (Including DSA) 2,017 10.1
800mA & Plus X-Ray (Not Including DSA) 2,262 11.2
CT 4,752 29.2
PET 98 0.6
SPECT 386 2.3
MRI 1,110 7.2
Colour Doppler Ultrasonoscope 7,613 35.7
Brightness Modulation Ultrasonoscope 19,653 83.0
Cobalt-60 Radiotherapy Unit 579 3.7
Source: www.moh.gov.cn

Top Hospital Orthopaedic Centres in China 30

• Beijing Ji Shui Tan Hospital (Beijing)


• People’s Liberation Army General Hospital No. 301 Branch (Beijing)
• Shanghai Changzheng Hospital (Shanghai)
• Peking University Third Hospital (Beijing)
• Guangzhou Military Area General Hospital (Guangzhou)
• Shanghai Ruijin Hospital (Shanghai)
• Peking University People Hospital (Beijing)
• Shanxi Medical School Second Hospital (Taiyuan)
• The Accessorial Hospital of Guangzhou University of Chinese Medicine (Guangzhou)
• Ningbo Second Hospital (Ningbo)

3.2.2 Competitive Landscape


The scale, production ability and technological level of China’s orthopaedic devices manufactures are limited.
Foreign enterprises, such as GE Healthcare, Philips and Siemens control most of the market, as is the case with
other segments of medical devices.

• Baimtec Material Co., Ltd.: It is a leading company for producing titanium medical implant replacements.
The company’s Jinghang Biomedicine Engineering Division specialises in the research and production of
implant prostheses. Backed by strong expertise, Baimtec has collaborated with eminent clinicians to
develop over 50 different series of implant prostheses. Around 600 hospitals in China have successfully
carried out the implantation of more than 100,000 sets of their prostheses.
(http://www.baimtec.com.cn)

• Shenzhen Anke High-tech Co., Ltd.: It is a Sino-foreign joint venture with high-tech enterprise, founded
in 1986. The company deals in the development, manufacture, sales and service of high-end medical
electronic equipment. Their products are utilised in medical imaging, medical information, medical
electronics and four fields, six classes, nearly 30 kinds of therapy, especially in radiology and ultrasound.
Now posses assets of USD 36.67 million, with net assets at USD 12.2 million and fixed assets at over
USD 4.89 million (http://www.asisz.com).

• Neusoft Medical Systems Co., Ltd.: It is located in Shenyang and produces a wide range of diagnostic
imaging products for CT, MRI, X-ray, Ultrasound, PACS/RIS, laser imager and patient monitor.
Combining their R&D, software development and system integration strengths as well as collaborating
with top medical institutes, the company has launched more than 20 new products since 1998. Neusoft
Medical Systems has installed thousands of high-tech medical equipment systems worldwide. In June
2004, they entered into a joint venture with Philips to gain access to world class R&D for expanding its

30
http://www.sp120.com/news/20051012/1953.htm

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Medical Device Market in China

manufacturing capabilities in four major imaging modalities – CT, MRI, X-ray and ultrasound – and
enjoying better economy of scale (http://medical.neusoft.com).

• Shenzhen MINDRAY Bio-Medical Electronics Co., Ltd.: It is a leading manufacturer and marketer of
medical devices in China with a significantly growing base outside China. The company is respected in
the global marketplace for its innovations and world-class products. Established in 1991, MINDRAY
offers a broad range of products across three business segments: patient monitors, clinical laboratory
instruments and reagents as well as ultrasound imaging systems. The company acquired the ISO9001
Quality Assurance certification in 1995 (http://www.mindray.com).

3.2.3 Emerging Technologies

Computer-Assisted Orthopaedics Surgery


This system consists of a scanning CT, a navigation workstation and location-reporting instruments. After
scanning the object, a dummy coordinate space is established via computer synthesising. After tracking the
position of the instrument with the help of the navigation workstation, an actual coordinate space is established. A
picture is shown in real time after matching the two points. The application of this system in cervical vertebra,
minimally invasive surgical (MIS) orthopaedic and joint and traumatic orthopaedic operations will improve the
operational precision and increase the success rate. However, a few hospitals in China have adopted this system
as of now.

Nanometer Artificial Bone


In 2002, the SFDA granted the permission for clinical human trials for nanometer artificial bone developed by
Tsinghua University. By 2005, they had received permission to produce the artificial bone as a Class III implant
product, making it the first nanometer medical product developed in China. The biggest difference of nanometer
artificial bone from its traditional counterpart is the zero percent possibility of immunological rejection. The
material can help human bone grow by being absorbed in the human body. The manner of repairing is very
similar to autogenous bone, but it leaves no residue in the body, thus, avoiding the pain inherent in autogenous
bone repairing. No side effects or adverse reactions have been reported by the approximate number of 5,000
recipients.

3.2.4 Other Growth Areas


At present, the main growth trend for China’s orthopaedic devices is the application of MIS techniques. As of now,
there are no domestic manufactures focusing on this field.

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Medical Device Market in China

3.3 Minimally Invasive Surgical Techniques

3.3.1 Market Size


In China, the application of laparoscopic cholecystectomy started in 1991. This was only four years after the
world’s first minimally invasive surgery was performed by the French general surgeon Philippe Mouret in March
1987. Nowadays, MIS techniques are being widely used in most large hospitals owned by provincial and
municipal governments. At the end of 2002, there were more than 200 hospitals across 26 provinces in China
equipped with MIS techniques. Patients in Mainland China are also being increasingly receiving treatments
utilising MIS techniques.

Major applications of MIS techniques in China are in the cardiothoracic and gastrointestinal fields. In addition, the
application of MIS techniques in rectal cancer in China has made a breakthrough worldwide.

Cardiothoracic: The number of patients opting for heart intervention procedures has increasing in the past
decade. Experts estimate that the current market size of cardiovascular intervention products is worth USD
103.89 million.31

According to a report from the PRC Ministry of Health, the incidence rate of cardiovascular disease in Mainland
China is more than five percent, with the world’s largest population base of more than 1.3 billion. 32 In addition,
China is a large aging population, which implies larger number of cardiovascular patients. It is estimated that
China will become the largest market for interventional vascular products in the near future.

Gastrointestinal: In China, the most common MIS performed in the gastrointestinal tract is the removal of
gallbladder. Since the first application of laparoscopic cholecystectomy in 1991, the technique has evolved
considerably. In 1992, laparoscopic cholecystectomy was introduced in the municipal hospitals of metropolises,
such as Beijing, Kunming, Shanghai and Chengdu. In 1993, laparoscopic technique was applied to gynaecology,
thoracic surgery and urology. By 1996, the technique had been adopted by large and medium-sized hospitals in
all 33 provinces, municipalities and autonomous regions in China. Nowadays, even some grass-root healthcare
centres in China are capable of carrying out this surgery.33 Figure 11 shows the breakdown of the total number of
surgeries using laparoscopic technique in terms of different organs in 1998.

Figure 11: Number and Types of Operations Using Laparoscopic Technique in China – 1998

Liver; 1,204; 1% Stomach; 294; 0%

Biliary Tract; 105,680; 91% Rectal; 60; 0%

Pancreas and Spleen; 135; 0%

Vermiform Appendix and Small


Intestine; 8,500; 8%

Cancer; 453; 0%

; Diagnosis and Acute Abdomen ; 571


0%

Source: http://www.100md.com/html/DirDu/1999/03/15/69/65/10.htm

31
http://stanford.wswire.com/htmlnews/2006/01/10/640666.htm
32
http://www.lshb.gov.cn/readnew.asp?newID=590
33
http://www.100md.com/html/DirDu/1999/03/15/69/65/10.htm

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Medical Device Market in China

3.3.2 Competitive Landscape


Once, the MIS devices market in China was completely monopolised by foreign manufactures, such as Johnson
& Johnson, Olympus, Medtronic, Boston Scientific and Guidant. Nevertheless, in recent years, some domestic
manufactures have developed and expanded in this market.

• MicroPort Medical (Shanghai) Co., Ltd.: It is a young but a leading domestic company in interventional
vascular products. It is located in Shanghai and was established in 1998 with a registered capital of USD
290,000. MicroPort has become a leading player in interventional vascular products market of China with
about 35 percent share worth USD 3.67 million in 2005. It has 10 invention patents, 37 utility patents and
new design patents in China, U.S., Japan, and Europe. In 2003, MicroPort got the permission from SFDA
to produce DESs and became the third company in the world to produce DESs. In 2004, it expanded into
the Japanese and European markets (http://www.microport.com/english).

• Lifetech Scientific Inc.: It is a high-tech enterprise that focuses on the development and manufacture of
cardiovascular transcatheter devices. Eight cardiovascular devices – such as intracardiac occluders and
vena cava filters – were developed with the cooperation of several academies. Lifetech Scientific is also
the biggest player on the market of occluder devices for congenital heart diseases.
(http://www.lifetechmed.com/)

• Hangzhou Yuhua Medical Optical Tech Co., Ltd.: It is a comprehensive medical equipment manufacturer,
of medical endoscopes. The company has promoted more than 1,000 types of products across various
clinical scopes. The company has received the Gold Award of Chinese Scientific Products Exposition
and the Recommended Award of Excellent Products of Chinese Medical Association. Yuhua has been
granted 12 patents, the ISO 9002-YY/T0288 quality system certification and the European CE marking.
(http://www.yuhuamedical.com/)

3.3.3 Emerging Technologies


Drug Eluting Stents
MicroPort has developed a DES with proprietary intellectual property rights for reducing the shortage of
interventional vascular products in China, while it became the third supplier of DESs in the world. The coating
contains various drugs to prevent the incrassation of the newly formed endangium; DES can prevent vassal
constriction while supporting them at the same time. Clinical data shows that the possibility of recurrence of
vassal constriction is less than 10 percent for DESs, as compared to 20-35 percent with bare metal stents. Now,
many domestic manufactures, such as Lifetech Scientific Inc., are developing their DESs. It is predicted that DES
will replace bare metal stents, and in 2007, the world market size of DES is estimated to reach a value of USD 8
billion.

Intracranial Stent System


MicroPort has undertaken the clinical trial of its new neurological interventional device, the APOLLO. This is the
first stent system for neurointervention in China. The system consists of a balloon-expandable 316L stainless
steel intracranial stent mounted on a rapid exchange delivery catheter. The design provides low deployment and
nominate pressure, exceptional longitudinal flexibility, excellent tracking and access ability for distal lesions and
reduced length shortening on expansion.

3.3.4 Other Growth Areas


MIS device R&D is still in its nascent stage in China. The most important tasks for the Chinese MIS techniques
devices industry now are to develop production ability in key fields of MIS techniques and devices, get proprietary
intellectual property rights, and then form the integrated industrial chain.

In July 2006, the Ministry of Education granted an approval to University of Shanghai for Science and
Technology to build a Modern Minimally Invasive Medical Devices and Technologies Research Centre. This was
the first MIS technique and devices research centre endorsed by the Ministry of Education. Along with MicroPort
Medical (Shanghai) Co., Ltd., this research centre is focusing on the following fields:
• MIS interventional products and techniques – Developing key techniques in cardiovascular and
cerebrovascular interventional products.
• MIS interventional materials techniques – Researching and developing various biomaterials used in stent
and catheter production and finding out their compatibility with human organs.

Page 17
Medical Device Market in China

• MIS radiation and ultrasonic therapy products and techniques


• Other engineering techniques in MIS devices R&D – Developing techniques, such as calorifics, optics,
electronics and hydromechanics.

Page 18
Medical Device Market in China

3.4 Diagnostics

3.4.1 Market Size


The current market size for in vitro diagnostics (IVD) in China was, as of 2005, is worth over USD 808 million,
growing at a CAGR of 30 percent during 2002-2004. Although this figure is less than four percent of the global
IVD market, it has grown faster in this market than any other major IVD market. Medical imaging in China was
worth USD 480 million in 2004 with steady growth of eight percent.

China is a leader in the producing low- and middle-level products, but imports majority of its high-end diagnostic
tools. The government has recently reduced tariffs and opened doors to help and encourage foreign firms to
import and distribute medical diagnostic equipment in China. The government is currently simplifying and
reducing the costs necessary for product registration.

Hospitals in China are more centralised than in western countries; there are few, or no, offsite reference labs to
send samples for diagnosis. The testing is done in the hospitals themselves. In large metropolis, such as
Shanghai and Guangzhou, three to five hospitals may be associated. Out of the 17,000 labs in China, none are
private, commercial ventures; moreover, only 7,000 are automated running for nearly two-thirds of the work.34

Table 6 illustrates the value and percentage of each market segment for IVD equipment sales in China for 2004.

Table 6: Value and Percentage of IVD Equipment Sales in China – 2004

Market Segment Value (USD million) Percentage


Immunochemistry 237.7 29
Routine Chemistry 210.9 26
Haematology 99.3 12
Critical Care Chemistry 51.2 6
Molecular Testing 38.7 5
Urine Chemistry 37.6 5
Coagulation 28 3
Other Markets 105 14
Total 808.4 100
Source: McEvoy and Farmer

Note: Includes equipment and reagent sales

3.4.2 Competitive Landscape


• Sunray Medical Apparatus Co., Ltd.: It focuses on obstetrics and neurological diagnostic equipment,
especially for foetal monitoring, neuroelectrical physiological diagnosing and encephalic blood vessels.
Sunray was founded in 1992 and meets all ISO, TÜV and UKAS international quality standards, such as
ISO 9001, ISO 13485 and EN46001. (http://www.sunray.cn/english2/company.asp)

• Jumper Medical Co., Ltd.: It was registered in June 1998. The company manufactures diagnostic devices
for gynaecology and obstetrics, ultrasound and X-rays. They have acquired ISO9001:2000 and ISO
13485 certifications as well as CE marking, all approved by TÜV.(http://www.jumper-med.com/index.htm)

• Perlong Medical Equipment Co., Ltd.: It is the import/export subsidy of the Perlong Group, one of the
largest manufacturers for medical devices in China. Their products include clinical laboratory devices and
X-ray video devices. They have acquired the ISO 9000 certification as well as the CFDA certification.
(http://www.perlong.com/english.asp)

34
http://www.mcevoyandfarmer.com/DTTR-November.pdf

Page 19
Medical Device Market in China

• Kindcare Medical System: It focuses on low-end diagnostic equipment, such as stethoscopes and
sphygmomanometer. They have all the relevant ISO, CE and FDA certifications.
(http://www.kindcare.cn/en/index.asp)

• Syncere Technology Ltd.: It is focused on product design of low-end medical diagnostic devices. The
company has earned both ISO 9001 and ISO 13488 certificates.
(http://www.synceretec.com/en/index.php)

• Shenzhen BASDA Medical Apparatus Co., Ltd.: It was established in March 2003 and its primary
products are 3D radioactive therapy system and lithotripter. The company qualified for ISO9001, ISO
2000 and ISO 13485 standards in 2003. (http://www.cabiz.cn/basda/index.asp)

• Ningbo Jumbo Medical Instruments Co., Ltd.: It is one of the largest manufacturers and exporters of
medical equipment. The company produces several types of X-ray machines, which are mobile and
panoramic. They have earned ISO 9001 and CE certifications (http://www.forevert.com/index.asp).

• Siemens Mindit Magnetic Resonance Ltd.: It is a subsidiary of Siemens, located in Shenzhen, which
specializes in the R&D, manufacturing, sales, technical support and comprehensive services for MRI
technology. It was founded in 2001 as a joint venture between Siemens and Mindit Company
(http://www.smmr-siemens.com/)

• Beijing Wandong Medical Equipment Co., Ltd.: It was established in 1997, and it is listed in the Shanghai
Stock Exchange (600055). It has more than 1,030 employees and registered capital exceeding USD
17.64 million. Wandong Medical has five primary equipment lines: radiographic imaging equipment, MRI
systems, dental units, medical electronic products and blood salvage apparatuses. Their diagnostics
equipment line includes products, such as conventional X-ray diagnostic equipment, high-frequency
radiograph equipment, direct digital imaging radiography and angiographs35
(http://www.wandong.com.cn/eindex.html).

• Ningbo Xingaoyi Medical Equipment Co., Ltd.: It was founded in April 1998 and is one of the largest MRI
manufacturers in China. XGY Medical is actively pursuing new joint ventures with both foreign and
domestic medical device manufactures, distributors and scientific research organisations
(http://www.china-mri.com/en/).

3.4.3 Emerging Technologies


Mobile CT scanners, such as the one developed by Neurologia, are compact, lightweight, mobile, battery-
powered multi-slice scanners designed for scanning anatomy in the 25-cm range (primarily the head and neck).

The Afinion AS100 analyser is a bench-top multi-assay analyser manufactured by Axis-Shield PoC AS (Oslo,
Norway) for in vitro diagnostic point-of-care testing. Test cartridges are currently available for glycated
haemoglobin and C-reactive proteins.

Several non-invasive intracranial pressure (ICP) diagnostic devices are expected to invade the market. Two were
developed by NASA and one by NeuroLife Noninvasive Solutions. One of the NASA-developed machines uses
ultrasonic waves to measure distensions in the skull, while the other utilises a very light mechanical stimulus.
NeuroLife Noninvasive Solutions developed a third type of non-invasive ICP diagnostic device. It is designed to
measure the pressure in the skull through the patient’s eye.

3.4.4 Other Growth Areas


Currently, there is a worldwide paradigm shift from laboratory diagnosis to rapid, point-of-care diagnosis. The
concept of point-of-care diagnosis was in its burgeoning phase when SARS broke out. As a result, a few medical
institutes introduce these products to prevent infection from public equipment. This market was estimated to grow
at 10 – 15 percent until 2008.36

35
http://www.wandong.com.cn/eindex.html
36
www.yydb.com/Article/MedicalMarket/MarketForecasting/30021.shtml

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Medical Device Market in China

Another area of development is the increasing integration of radiological information systems with image
management and hospital information systems. According to expert estimates, the next five years will see an
increase of 40 percent in the regular radiology systems to be digitized. This is a potential global market of more
than ten billion dollars. The related products include picture archiving and communication systems (PACS) and
radiology information system (RIS). The representative manufacturers include Kingstar Winning from Shanghai,
GRAD Inc from Shenzhen, INQGEN Technology from Taiwan, Kodak, InStar Systems and NovaRad.37

37
http://www.istis.sh.cn/list/list.asp?id=661

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Medical Device Market in China

3.5 Wound Care and Management

3.5.1 Market Size


China is one of the largest markets for wound care and management products. Each year, more than 10 million
people undergo surgeries. The number of people injured in automobile accidents alone reached 3.5 million38 and
the total number of wounded inpatient is growing at a CAGR of 7.2 percent.

Biological skin and dressings


According to statistics, approximately 4 million people needed skin grafting in 2005. However, due to the lack of
substitute products, majority of the wounds are covered with autogenous skin. This technique not only causes
new wounds in the skin-providing area, but also limits the potential source of skin. This market was valued to be
around USD 1.89 billion in 2005.39

Moist wound healing products


The moist wound healing method in Mainland China is still in its growing phase. It occupies around 20 percent of
the wound care market and 50 percent of the burn wound by volume Currently, the moist wound healing products
market includes hydrogels, hydrocolloids, alginates, films and foams. Hydrocolloid products constitute
approximately 40 percent of the market. The moist wound healing segment is expected to grow by more than 10
percent annually.

Wound management products


The adhesive bandage market of China is valued around USD 50.1 million (2-2.5 billion units) in 2006, and
expected to grow steadily in the next few years.40

Wound closure products


Although the development of wound management technologies, such as staplers, clips and sealant, keep
growing at a fast pace, the using of sutures in surgery is still popular. The market demand for sutures was around
USD 18 million in 1999, in which absorbable sutures (including medical catgut suture and polyglycolic acid –
PGA – sutures) accounted for only 5 percent in volume but 50 percent in terms of value.

The demand (by volume) for low-end products is from obstetrics and gynaecology, outpatient and cancer
surgeries, while demand for the higher end products is primarily from orthopaedic and MIS, cardiovascular and
thoracic surgeries. Table 7 illustrates the breakdown of the total demand for sutures by different categories of
surgery.

Table 7: Breakdown of Total Demand of Sutures by Purpose – 2002

Non-Absorbable Sutures (%) Absorbable Sutures (%)


Obstetrics and Gynaecology 34.3 51.3
General Surgery and Urologic Surgery 1.2 0.9
Oral and Maxillofacial Surgery - 0.7
Orthopaedic and Minimally Invasive Surgery 1.2 0.9
Neurosurgery 0.1 0.2
Cardiovascular and Thoracic Surgery 0.2 0.2
Cancer Surgery 29.7 27.5
Outpatient Surgery 29.7 18.3
ENT Surgery 3.6 -
Total 1,680 meters per year 5,458 units per year

Source: Wanfang Data

38
http://www.zlfm.com/Show_patent/show.asp?id=4974
39
http://www.863.org.cn/863_105/indust/indust_news/200501270004.html
40
http://www.topcj.com/html/ZXZX/GSDY/Article/20060908111748464.shtml

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Medical Device Market in China

* Figures do add up to 100% due to rounding

Owing to the natural tendencies and historical experiences, the increase in the total demand is expected to
maintain a steady three percent annual growth. Experts estimated that among all the absorbable sutures
products, usage of bio-products (of which 90 percent are catgut products) is decreasing at approximately ten
percent annually; this is as they could be replaced by low-end synthetic absorbable sutures. At present, usage of
high-end synthetic absorbable sutures (PGA, PGL, PDS and PGLA products) are increasing at a rate of four to
five percent annually and is expected to capture 26 percent of the absorbable sutures market by volume (1,394
units).41

3.5.2 Competitive Landscape


Although wound care and management have a long history in China, wound healing research and management
have made significant progress only in recent years.

Biological skin and dressings


The sterile dressing products used in China are primarily traditional medical gauze and spun-laced non-woven
fabrics, majority of which are domestically manufactured.

The use of biological skin is still in the seed phase. Although several institutes have invested a large amount of
time, effort, and money in this area, only a few of resulting products are successfully commercialized.

Moist wound healing products


The vast majority of the moist wound healing products are imported. The major players in this market include
Smith & Nephew, ConvaTec, Paul Hartmann, 3M, Medifoam and MEBO.

• Polymeric Film: Leading brands include Opsite (Smith & nephew), Tegaderm (3M), Stabulion (Coloplast)
and Bioclusive (Johnson & Johnson).

• Polymeric Foam: Competitors in the foams products include Medifoam (Biopol Global), Allevyn (Smith &
Nephew), Comfeel (Coloplast) and Tielle (Johnson & Johnson).

• Alginate Dressing: Leading brands in this segment include Comfeel (Coloplast), Sorbsan (Steriseal) and
Kaltostat (ConvaTec).

• Hydrocolloid Dressing: This group includes Algoplaque (URGO), TenderWet (Paul Hartmann) and
IntraSite (Smith & Nephew).

The MEBO International Group is the leading domestic company in this market. The company was
established in 1987. MEBO's skin regenerative product (Moist Exposed Burn Ointment), which successfully
competed traditional burns medicine in the world, has formed a gigantic international medical group for the
sale of medicines for burns, ulcers and skin regenerations. The number of patients receiving MEBT/MEBO
treatment is about 350,000 annually.

Wound management products


The two main types of adhesive bandage products include drug bandages and no-drug bandages. Johnson &
Johnson, along with its Band-Aid brand, is the world leader in this market occupying 70 percent of the no-drug
and around 40 percent of the drug bandages markets.

In 2003, Yunnan Baiyao entered as a domestic competitor in this area, which occupied 13-7 of the non-drug and
50 percent of drug-product markets. In 2005, the company entered into a partnership with Alltracel (which
provides their proprietary coagulation and haemostatic agent m•doc™). The revenue earned by the company
reached USD 4.64 million in 2005.42

41
Wanfang Data
42
http://www.eastmoney.com/060817,463593.html

Page 23
Medical Device Market in China

Other brands, such as 3M and Hainuo, have smaller shares. The products are similar to each other and are
differentiate primarily by their appearance.

Wound closure products


Synthetic absorbable sutures (mainly PGA products) in Mainland China depend on imports. Currently, 200 types
of products are widely prevalent in the market; significant players include Johnson & Johnson (the Ethicon Endo-
Surgery line of Harmonic® products), Tyco Healthcare (with 80 percent of the absorbable PGLA sutures market)
and Shanghai TianQing Biomaterials (Tianhe).

3.5.3 Emerging Technologies


MEBO® Moist Exposed Burn Ointment
MEBO International Group manufactures a product capable of protecting the wound by a unique sponge-like
frame-structure dosage form, which creates a physiologically moist environment to prevent infection to the burn
wound in early stage. In addition, it can also stop or reduce progressive necrosis by recovery of stasis zone in
burns wounds. It prevents and controls wound infection by pathogenic micro-organisms and reduction in bacterial
toxicity on burn wounds and necrotic tissue liquefaction and removal.
(http://www.mebo.com/en/)

Tiefu™ Genetically Modified Pigskin


Launched by Chongqing Zongshenjunhui Biotech in 2006, Tiefu™ is an innovative biological wound dressing.
Their products are made by genetic modification technology using fresh pigskin as the primary material. The
pigskins are harvested from pigs with identical genetic and biological characteristics. The product has natural
bioactivity and biocompatibility. They are used primarily for effective wound covering for a prolonged period to
prevent infection as well as water loss, and to promote wound closure. National Key Scientific Project, Chongqing
Municipal Key Scientific Project and Innovation Fund for Small Technology-based Firms have all supported the
R&D of this product. In addition, the People’s Liberation Army awarded Tiefu with the second-degree award for
scientific technology development.
(http://www.zongshenbiotech.com/english/cp/cp.asp)

DERMLIN™ Wound Healing Enhancer


In 2006, Jiangsu Yenssen Biotech developed a new method for proliferating epithelial cells and use them to treat
surface wounds. The dressing uses inorganic elements as biologically active substances to stimulate the
proliferation of epithelial cells, inhibit inflammatory exudates from the wound surface and promote healing of the
wound surface. The product line includes powder, ointment, patch and dressing. The State Development
Planning Commission in 2004 included the R&D of this product in its National Plan for Hi-tech Industrial
Development Projects.
(http://www.yenssen.com)

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Medical Device Market in China

3.6 Dental Support

3.6.1 Market Size


The value of market for dental equipment in China is estimated to be around USD 150 million, as of 2005. The
demand for new and high-tech dental equipment has been increasing for the past 20 years, especially in the
eastern seaboard and metropolitan areas. According the China Stomatological Association, there are more than
10,000 hospitals and clinics dedicated to dental care, with more than 1,200 in Beijing alone.43 Both the number of
patients and clinics has been on the rise for the past 20 years. This, coupled with the peoples’ expectations of
better and higher quality dental treatment, indicates an increase in the demand for better dental equipment.

The nationwide dentist-to-patient ratio is 1:20,000; however, it reaches 1:6,000 in Beijing. At present, periodic
check-ups and cleanings are rare in China for several reasons. Only 35.7 percent of respondents out of a
140,000-person survey had visited a dentist in two years, despite the evidence of an epidemic in oral hygiene.
The government is currently trying to reallocate and shift resources in the healthcare field, especially dental, as
well as grass-roots efforts to ease access to healthcare.

3.6.2 Competitive Landscape


Competition in the market has intensified over the past few years. This, coupled with slower growth in the
Chinese dental market, means that one should not expect immediate and impressive returns when initially
entering the market. A handful of dental devices manufacturers are currently serving the Chinese dental market
with various kinds of products, from dental units to disposable dental materials. A gap still exists in design and
function between domestic and imported high-tech devices, such as dental units and chairs. The best hospitals in
China (Class A, Level III) mostly use dental units and chairs imported from Germany, the United States and
Japan. . With the exception of high-tech devices, domestic products dominate the dental device market44. There
are currently more than 100 domestic dental equipment and product manufacturers, mainly in the low- and
medium-value markets accounting for approximately 40 to 50 percent of the market worth USD 150 million.

A list of key competitors in China is as follows:

• Beijing Wandong Medical Equipment Co., Ltd.: It was established in 1997 and listed on the Shanghai
Stock Exchange (600055). It has over 1,030 employees and its registered capital exceeds USD 17.68
million. Wandong Medical offers five primary equipment lines: radiographic imaging equipment, MRI
systems, dental units, medical electronic products and blood salvage apparatuses. Their dental
equipment line includes products, such as dental units, digital imaging equipment, disinfecting equipment
and comprehensive equipment (http://www.wandong.com.cn/eindex.html).

• Northwest Medical Instrument: It was founded in 1966 and focuses on dental instruments. The company
mainly produces dental units, chairs, hand pieces, air compressors, and sterilizers. The core brand of
Northwest Medical Instrument is Sinol. The company serves the domestic markets and exports its
products to west Europe and Africa. The revenues of Northwest Medical Instrument in 2005 were USD
8.77 million45. (http://www.sinolkq.com/)

• Fujian Meisheng Medical Science & Technology: It was established in 1992, mainly produces dental
devices. The company claims to own over 80 percent of the X-ray instrument market in China. The
company’s total assets are more than USD 12.5 million with more than 320 employees. Its products
serve the domestic customers and are exported to more than 20 countries/regions in Southeast Asia,
Middle East, and South America.46 (http://www.cn-ms.com.cn/)

• Shanghai Fimet Medical Instrument: It is a Sino-Finnish joint venture founded in 1994. Shanghai Medical
Instrument Co., Ltd. holds 50 percent of its shares. The other three shareholders are Finnish companies,
Fimet, Sitra and Finnfund. Its major products are F1 series dental chairs and units. The products serve

43
http://211.151.89.73/admin/cms/1519/index.jsp
44
http://machine.icxo.com/htmlnews/2005/04/18/582904.htm
45
http://www.sinolkq.com/, http://www.39kf.com/medicine/news/fx/2006-06-20-212197.shtml,
http://china.alibaba.com/company/detail/sinolkq.html
46
http://www.cn-ms.com.cn/

Page 25
Medical Device Market in China

the domestic market and are exported to more than 15 countries/regions, such as Australia, New
Zealand, Argentina, the Philippines, Singapore, Malaysia and Indonesia. The company has 44
employees and earns annual revenues of USD 3.17 million47 (http://www.fimet.com.cn/).

• Shanghai Victor Medical Instrument: It was founded in June 1991 and became a Sino-American joint
venture in November 2001, with an investment from America Mansfield Joint-Stock Co., Ltd. The major
products of the company are chair-mounted dental units. The company has 48 employees with annual
revenues of USD 2.3 million48 (http://www.sh-victor.com.cn/).

• Foshan Joinchamp Medical Device: It was founded in 2000. The company produces chair-mounted
dental units, sterilisers, endoscopes and air compressors. The products serve the domestic customers
and are also exported to Thailand, Indonesia, Saudi Arabia, Turkey and Russia. They are
ISO13485:2003 and ISO9001-2000 compliant as well as other Chinese compulsory regulation certified.
They are also eligible to apply for the CE mark49 (http://www.fszhongchuang.com/).

• Suzhou Victor Dental Medical Device: It was established in 1993. Its parent company is Taiwan Victor
Dental International Co., Ltd., which exports to more than 30 countries. The company mainly produces
dental units and the core brand is ‘Victor Dental’ 50 (http://www.victordental.com/).

• Shanghai Kangqiao Dental Instrument: Established in 1970, the company claims to be the largest dental
hand piece manufacturer in China. It has ISO 9001:2000 and ISO 13488:1996 compliance certificates as
well as CE mark eligibility. The company serves domestic market and exports its products to Europe,
America, Southeast Asia, Middle East, Korea, and Japan. Its registered trademark is ‘Kou Shen’ 51
(http://www.kqdif.com/gj.htm).

• Yamahachi Dental Material: It was founded in 1992 and is a wholly owned subsidiary of Yamahachi
Dental Mfg., Co. The company produces dental materials, such as artificial resin teeth, acrylics, and
dental waxes. The company exports most of its products but also serves the domestic market 52
(http://www.yamahachi-dental.com/).

3.6.3 New Technologies


Dental Laser
Studies on lasers have captures various fields in dental treatment and cosmetics, such as painless drilling, tooth
whitening and dentine hypersensitivity treatment. The higher costs of dental laser equipment as compared with
traditional instruments have proved to be detrimental to the wider utilisation of laser equipment in dental clinics.
In spite of this, the research on dental laser technologies has been going on in China. Experts believe that dental
laser technologies will become the leading edge for healthcare providers in the future.53

CAD/CAM (Computer Aided Design/Computer Aided Manufacturing) Dental Restoration


The procedure for dental CAD/CAM can be described as follows – the model of a prepared tooth is scanned; this
data is used to generate the coping design (CAD); the design, in turn, is used to generate a cutting path for
manufacturing the coping (CAM). CAD/CAM dental restorative systems can significantly reduce the time required
to produce a restoration as well as standardise the quality of the product.54

Research on CAD/CAM dental restoration is booming as the advantages of the technology have been widely
recognised by healthcare providers and experts in China. Domestic CAD/CAM restorative systems are currently
in its research stage and still have some way to go before becoming prevalent. Imported CAD/CAM systems
(mostly the CEREC series produced by Sirona Dental Systems) have been used clinically in China, but only a

47
http://www.fimet.com.cn/, http://east.sheinet.com/ceie/asp/corpinfo.asp?code=607263667
48
http://www.sh-victor.com.cn/, http://east.sheinet.com/ceie/asp/corpinfo.asp?code=607201642
49
http://www.fszhongchuang.com/,
http://gdfs.credit.gov.cn/website/enpListAction.do?ID=GDFS000005366&viewType=1&action=viewEnpDetail
50
http://www.victordental.com/, http://www.ccgp.com.cn/ccgp/list/trader_info_detail.jsp?newsid=6460
51
http://www.kqdif.com/gj.htm, http://21tcm.com/Company/42527/
52
http://www.yamahachi-dental.com/
53
Wanfang Database, http://www.kqqxw.com/new_view.asp?id=2894
54
http://www.renishaw.com/client/product/UKEnglish/PGP-1306.shtml

Page 26
Medical Device Market in China

small percentage of the healthcare providers can afford these costly systems (approximately USD 125,000 per
unit). Despite current limited penetration into the dental offices in China, CAD/CAM restorative systems are
predicted to be successful in the future. 55

Minimally Invasive Dentistry


Minimally invasive dentistry can be defined as the treatment of early-stage caries with a biological approach that
leads to minimal destruction of the tooth structure. The underpinning philosophies of this technology can be
classified into three categories: recognise (identify caries risk), remineralise (prevent caries and reverse non-
cavitated caries) and repair (control caries, maximise healing and repair the damage). Studies on minimally
invasive dentistry in China mainly focus on the satisfactory results of clinical experiments, especially with children
and nervous adult patients. 56

3.6.4 Other Growth Areas


Disposable dental materials, such as cups and trays, are predicted to be a growing sector in China. The demand
for disposable dental materials will increase as Chinese people become more aware of the importance in
sterilising dental devices. To meet this increasing demand, more providers of disposable dental materials will
emerge and provide different varieties of products. 57

55
Wanfang Database, http://211.151.89.73/xuehui/news/newsDetail.jsp?contentID=2201&contentGroupID=2113
56
Wanfang Database
57
http://machine.icxo.com/htmlnews/2005/04/18/582904.htm

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Medical Device Market in China

4 Market Environment
4.1 Facts and Factors in Consumption

4.1.1 Role of Healthcare Providers


The primary healthcare providers in China are government-run hospitals. In addition, there are healthcare clinics
that are either public hospitals or undertakings of the military or state-owned enterprises. Moreover, there are a
few foreign-run joint ventures and outpatient clinics. In 2005, there were 18,703 hospitals in China, including
12,982 comprehensive hospitals, 2,620 traditional Chinese medicine hospitals, 194 hospitals specialized in both
Chinese and western medicine, 195 minority hospitals and 2,682 specialized hospitals. The hospitals categorised
on the basis of their size included 950 large-sized hospitals, 5,200 medium-sized hospitals and 12,500 small-
sized hospitals.58 There are approximately 41,700 healthcare clinics and a total of 283,000 registered medical
facilities.

The government is striving to create an atmosphere of healthy competition among the healthcare service
providers (primarily hospitals) by reintroducing the accreditation system. The government first introduced the
system in 1995, but discontinued it later. This system classifies all hospitals into three major levels – I, II and III –
on the basis of their size and quality of offered services. These levels are further subdivided into three classes: A,
B and C. There is also a special class applicable only for level III hospitals. Hospitals can improve their position in
the existing accreditation system by providing better services. For example, a level IIIA hospital should be one of
the premier hospitals in the country. It should have at least 500 beds, provide a superior level of general and
public healthcare services and maintain high-quality education and research facilities. Most class II and III
hospital are established in the major urban cities, such as Beijing, Shanghai, Guangzhou, Shenyang and
Chengdu.

Table 8 enlists the parameters for a hospital in China to achieve a particular level.

Table 8: Detailed Requirement of Levels for Hospitals in China

Items Level I Level II Level III


Hospital Admission and Discharge Diagnostic
≥85 ≥90 ≥95
Coincidence Rate (%)
Coincidence Rate between Preoperative and
≥95 ≥95 ≥98
Postoperative Diagnosis (%)
Standards for Average Length of Stay ≤6 ≤18 ≤20
Qualified Rate of the Outpatient Prescriptions
≥90 ≥95 ≥98
(%)
Nosocomial Infection Rate (%) ≤3 ≤8 ≤10
Nursing Procedure Qualified Rate (%) ≥85 ≥90 ≥98
Rate of Utilisation of Beds (%) ≥60 85~90 85~93
Turnover of Beds (Time/Year) ≥32 ≥20 ≥17
Dining Rate of Patients in Hospital (%) N/A ≥80 ≥90
Autopsy Rate (%) N/A ≥10 ≥15
Successful Resuscitation Rate of Acute and
N/A ≥80 ≥84
Severe Illness Cases (%)
Number of Beds ≥20 ≥100 ≥200
Source: Ministry of Health of the People’s Republic of China

58
http://www.moh.gov.cn/newshtml/11902.htm

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Medical Device Market in China

Table 9 enlists the categorisations for each of the classes.

Table 9: Scoring System for Classifying A, B, and C Hospitals in China

Classes Level I Level II Level III*


A ≥900 ≥900 ≥900
B ≥750 ≥750 ≥750
C <749 <749 <749
Total Score 1,000 1,000 1,000

*There is a special class for Level III hospitals. To achieve this class the hospitals must meet the following requirements in addition to the
score tabulation:

• The comprehensive level of clinical departments must be in a leading position in China. These hospitals can treat patients
transferred from other level III hospitals, which are unable to meet the patient’s needs.

• At least one or more departments must be designated as world class and have a high level of influence in the medical sector.

• They must have at least one research centre cooperating with WHO or a foreign academic institute.

• They must accept at least two or three research projects in the ministerial level and win at least one or two national research
achievement prizes in during the probation period.

• It must posses the ability to train attending and higher level physicians as well as PhD and post-doctoral candidates.

Source: Ministry of Health of the People’s Republic of China

In the medical device market, the end users are not necessarily the decision makers. This authority lays with the
health services providers. The key decision makers for health service providing entities are the top management
and the purchasing department’s staffs. Other healthcare staffs dealing with patients also have a significant
influence over the products that are purchased by the services providers. In majority of the cases, doctors
dealing with specific ailments influence the services provider to purchase specific products and equipment.
These key decision makers are approached by medical representatives from a large number of medical device
manufacturing/supplying units across China and abroad. This, in turn, results in a selection process for the final
acquisition/purchase of the products/devices.

4.1.2 Purchasing Process


The purchasing process of medical devices varies in accordance with the size and background of the hospital.
Generally, the two main methods in Mainland China are direct purchase and biding.

Direct Purchasing with Fund Approval


Till now, the majority of hospitals, especially those run by the government in Mainland China, purchase medical
devices through this process. The list of requirements for devices is collected once a year from each division in
the hospital and submitted to the equipment department. The equipment department submits this to the hospital
office and then to the department of health of the local government. After the government’s approval of the funds,
the hospital can purchase the equipment at their will59 (see the appendix for the process of direct purchasing with
fund approval).

Co-centralised Bidding
Since 2001, the government has been promoting co-centralised bidding for equipment purchases. In July 2007,
the government issued the ‘Notification on Further Strengthening the Management of Co-centralised Bidding for
Purchasing Medical Apparatus and Instruments’. Through this, the government is planning to encourage co-
centralised bidding in purchasing medical devices and material. According to the draft, bids are held by the health
department of local governments (municipal or provincial), and all public hospitals must participate when they
plan to purchase devices.

59
www.china.org.cn/chinese/difang/1085289.htm

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Medical Device Market in China

4.1.3 Decision Makers and Determinants


The medial device market in China can be divided into three main categories: hospital facility equipment, medical
products to inpatient, and household-used medical instrument.

At present, there are three entities involved in the decision-making process for the majority of hospitals:
1. The instrument and equipment department is the major body for purchasing medical equipment in the
hospital.
2. Professors from the consulting institute form the equipment management committee.
3. The director of a hospital is the final decision maker for a purchase.

During the purchasing process, doctors, and especially the director of each division, will provide a list of
equipment that needs to be purchased. However, due to a lack of professional knowledge, the instrument and
equipment department usually takes a passive role of approval. In contrast, the leaders in hospital are often not
involved in the purchasing. Therefore, for the purchase of facility level products and newer technology, directors
are the key decision maker.60 Doctors, however, have the most powerful influence on deciding upon the brands
and products, especially through recommendations to their patients.

Determinants in purchasing of medical devices


1. Technology is one of the most important determiners for government or municipal hospitals when
choosing facility equipment, especially diagnostics devices.
2. Reliability and effectiveness
3. Installation and use requires the supplier to provide a full line of services including training and technical
manuals.
4. Price may not be regarded as a key determiner from hospitals that receive government subsidies;
however, the majority of the private hospitals pay due consideration this factor.
5. After-sales services can be the weakest point of foreign devices providers who only set a representative
office and leave everything to the domestic distributors.

Table 10 shows the relative weight of each factor that purchaser’s take into account when purchasing diagnostic
equipment.

Table 10: Major Factors Chinese Purchaser’s Consider to Purchase Clinical Diagnostic Equipment (%)

Item X-ray CT MRI Centrifuge Imaging Film Processing


Financial Means 35 45 35 15 10 10
Price 35 30 20 35 20 30
Functions 35 30 15 30 25 35
Quality 75 60 65 75 65 70
Service 20 25 25 10 15 10
Others 0 5 0 10 0 0
Source: Pacific Bridge Medical

4.1.4 Reimbursement: Insurance and Subsidies


4.1.4.1 Basic Medical Insurance
In accordance with the requirements of the State Council, local governments under the guidance and inspection
of the Ministry of Labour Security implemented a basic healthcare insurance system in 1999. This system was
aimed at staff members and workers in cities and towns.61

60
http://yiliao.yiwangtong.com/deta.asp?id=32312
61
http://www.chinalaw.gov.cn/jsp/jalor_en/disptext.jsp?recno=1&&ttlrec=1

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Medical Device Market in China

The central government makes it mandatory that basic healthcare insurance system should benefit the staff
members and workers of various working units in cities and towns. This also includes enterprises (state-owned,
collective, enterprises with foreign investment, private ventures and so on), government entities, institutions,
social organisations and people-run non-enterprise units. The governments of provinces, autonomous regions
and municipalities controlled by the central government decide whether the staff and workers of the
enterprises/organisations should contribute for the basic medical insurance system. The
enterprises/organisations are divided into rural and township enterprises as well as urban and township individual
economic organisations.

Basic medical insurance funds comprise overall planning funds and individual accounts. Basic medical insurance
fees collected from work units and employees are deposited in basic medical insurance funds. The basic medical
insurance fee paid by an employee (around two percent62 of his/her wage) is transferred to his/her individual
account. The basic medical insurance fees paid by work units (around six percent7 of employees’ total wages)
are divided into two parts – around 70 percent7 is used for the overall planning funds and around 30 percent7 is
transferred to individual accounts.

The basic medical insurance funds are used in accordance with the following rules:
• Medical expenses below a threshold are paid from individual accounts or by individuals themselves;
• Medical expenses over a ceiling are not paid from the basic medical insurance funds;
• Medical expenses between the threshold and the ceiling are mainly paid from overall planning funds and
the remaining percentage should be borne by individuals.
The threshold is approximately ten percent7 of the local employees’ yearly average wages, and the ceiling is
approximately four times7 of the local employees’ yearly average wages.

The bodies handling social insurance are in charge of raising, managing, and paying basic medical insurance
funds, with the labour security and financial departments at different levels as their supervisors.

The Ministry of Labour Security has defined the share of medical devices services that cannot be remitted, or can
only be partially paid, from basic medical insurance funds.63
• The funds do not cover the expenditure on the following devices:
o Positron emission tomography (PET) instruments;
o Electron beam computed tomography (EBCT) instruments;
o Ophthalmic excimer laser machine;
o Recovery equipment (glasses, dentures, artificial eyes, artificial limbs, hearing aids, etc.);
o Healthcare/massage/examination/treatment devices for self-use.
• The funds only partially cover the expenditure on the following devices:
o X-ray equipment for computed tomography;
o Stereotactic radiosurgery equipment (γknife, χknife);
o Diagnostic X-ray for angiocardiography equipment (including digital subtraction equipment);
o MRI equipment;
o Single photon emission computed tomography (SPECT);
o Colour Doppler equipment;
o Medical linear accelerator;
o Extracorporeal shock wave-lithotripsy (ESWL) equipment;
o Hyperbaric oxygen therapy equipment;
o Artificial organs/materials used in the human body (heart pacemakers, artificial joints, artificial
lenses, vessel stents, etc.).

Based on the parameters defined by the Ministry of Labour Security, labour security departments of provinces,
autonomous regions and municipalities have formulated the corresponding scopes for implementation in their
respective areas. The local governments are allowed to broaden but not reduce the ‘cannot cover’ list. Minor
changes to the ‘partially cover’ list are permitted.

62
The central government publishes the rates for reference only, and they are approximated values. Actual rates are decided by the overall
planning units including prefectures, municipalities, autonomous prefectures and certain counties.
63
http://www.molss.gov.cn/gb/ywzn/2006-02/14/content_106442.htm

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Medical Device Market in China

The number of people involved in the basic medical insurance system has been increasing since its launch in
1999. Figure 12 depicts the increase in the number of participants from 5.94 million in 1999 to 137.83 million by
the end of 2005.

Figure 12: Increase in the Number of Participants in Basic Medical Insurance – 1999-2005 (million persons)

160
137.83
140
124.04
120 109.02

100 94.00

76.30
80

60
43.32
40

20
5.94
0
1999 2000 2001 2002 2003 2004 2005

Number of Participators in Basic Medical Insurance

Source: http://www.molss.gov.cn/gb/zwxx/ghytj.htm

Figure 13 illustrates the annual revenues of the basic medical insurance funds. They have been increasing at a
CAGR of 52.6 percent.

Figure 13: Basic Medical Insurance Funds Revenues – 2000-2005 (USD billion)

20
17.56
18
16
14.26
14
12 11.13

10
7.60
8
6 4.80
4
2.13
2
0
2000 2001 2002 2003 2004 2005

Basic Medical Insurance Funds Revenues

Source: http://www.molss.gov.cn/gb/zwxx/ghytj.htm

Page 32
Medical Device Market in China

4.1.4.2 Commercial Healthcare Insurance


Commercial healthcare insurance in China is comparatively less developed; however, it is growing at a fast pace.
The revenues from this industry peaked at USD 3.25 billion in 2004, showing an increase of 17.6 percent over
2003.64

Commercial insurance companies design their own healthcare insurance programs including premium and
reimbursement plans. The top commercial insurance companies are as follows:

• China Life Insurance Co., Ltd. is the largest life insurance company with an extensive distribution
network in China.
(http://www.e-chinalife.com/explore/v1/investor.aboutus.eng.do)

• China Pacific Insurance (CPIC) (Group) Co., Ltd. comprises China Pacific Property Insurance Co., Ltd.
and China Pacific Life Insurance Co., Ltd. The CPIC Group has been ranked more than once among the
top 200 global insurance giants by the Standard and Poor’s Corporation (S&P).
(http://www.cpic.com.cn/english/about.html)

• New China Life Insurance Co., Ltd. is an international life insurance company with more than 4.5 million
clients, including more than 6,800 corporate clients as of 2005. In 2005, the company was listed in the
Top 500 Valuable Brands in China by World Brand Lab.
(http://www.newchinalife.com/xhweb/shouye.asp)

• Ping An Insurance (Group) Co., Ltd. was ranked as 539 in Forbes’ Top 2,000 Large Companies – the
only Chinese insurance company in the list. Also in 2005, the company topped the Financial Times’ Top
10 International Financial Brands in China.
(http://www.paic.com.cn/pa18Web/framework/index.jsp)

• Taikang Life Insurance Co., Ltd. had total assets of USD 6.8 billion, and the revenue earned was USD
2.8 billion. The company has been listed as one of the Top 500 Companies in China in both 2004 and
2005.
(http://www.taikang.com/)

• Taiping Life Insurance Co., Ltd., established in 1929, has the longest history in China. In 2003 and 2004,
the company got a BBB+ credit rating from Fitch, giving it the highest credit rating ever earned by a
Chinese insurance company.
(http://www.tplife.com/)
4.1.4.3 Subsidies to Government-Owned Non-Profit Healthcare Providers
The government of China has classified healthcare providers into two categories: non-profit and for-profit. Non-
profit healthcare providers dominate the healthcare services system and enjoy favourable tax policies. Moreover,
subsidies are provided to non-profit healthcare providers owned by the government. Subsidies are granted
mainly to public health services (law enforcement and monitoring, disease prevention as well as healthcare), key
research projects, basic medical services, healthcare infrastructure and device purchase that comply with the
plans of the government.65

On an average, government investment in a healthcare provider constitutes less than 10 percent of the provider’s
revenues – for example, it was 7.7 percent in 2000 and 8.4 percent in 2003 (an increase attributable to SARS).
This figure was more than 30 percent in the 1980s and has been declining since the 1990s.66

64
http://www.chinacir.com.cn/
65
http://www.moh.gov.cn/newshtml/576.htm
66
http://www.mof.gov.cn/news/20050906_1825_8643.htm

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Medical Device Market in China

Figures 14 and 15 indicate the predominance of non-profit healthcare providers in the healthcare services system
of China.

Figure 14: Number of Visits to Healthcare Providers – 2002-2005 (millions of visits)

2,350
2,300

2,250 75

2,200
63
2,150

2,100
51
2,050 56 2,223
2,132
2,000
2,053 2,033
1,950
1,900
2002 2003 2004 2005

Visits to Non-profit Healthcare Providers Visits to For-profit Healthcare Providers

Source: http://www.moh.gov.cn/12.htm;http://www.stats.gov.cn/tjsj/ndsj/

Figure 15: Number of Inpatients in Healthcare Providers – 2002-2005 (million persons)

80.00

70.00 1.76
1.43
60.00 1.50
1.25
50.00

40.00
69.87
65.00
30.00 56.79 59.21

20.00

10.00

0.00
2002 2003 2004 2005

Inpatients in Non-profit Healthcare Providers Inpatients in For-profit Healthcare Providers

Source: http://www.moh.gov.cn/12.htm;http://www.stats.gov.cn/tjsj/ndsj/

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Medical Device Market in China

4.2 Competition in the Chinese Medical Device Market

4.2.1 Overview of Chinese OEM Providers


Original equipment manufactures (OEMs) in the medical device market are at a nascent stage of outsourcing
manufacturing or services to third parties. This is primarily due the old management techniques applied by
innumerable SMEs across the entire value chain in the medical device market, starting from research and
development till product sales. This hierarchical implementation results in higher costs due to conducting non-
core activities.

At present, revenues generated from outsourcing are negligible when compared to total revenues of the medical
device industry. In contrast, the share of the outsourcing services in the United States and Europe is about one-
third of the total revenue in medical device market.

There is more than one reason for less outsourcing in the medical device OEM market in China. First, the market
credit system is immature. Second, domestic manufacturer’s still follow old management styles. This entails the
companies being present across the entire value chain starting from product R&D to after-sales service. Third,
more OEM meeting platforms, such as ‘Medical Equipment Design & Technology Exhibition China’, are required.
These platforms will enable domestic companies to acquire information on the global practices and improve
communication between OEMs and outsourcing service providers, both domestic and overseas. Moreover, some
of the largest hindrances in outsourcing are the availability of upstream industries, lack of raw materials as well
as parts’ suppliers and vendors, poor manufacturing quality and low quality standards.

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Medical Device Market in China

5 Marketing Environment
5.1 Road Map for Market Entry

5.1.1 Distribution Environment

One of the most important facts to be kept in mind when exporting medical equipment in China is that it is not a
single market. There is a severe disparity between tier I, tier II and tier III cities in terms of infrastructure, needs,
resources and interpretation of regulations. The environment in China is very dynamic, including legal, marketing,
social, and consumption aspects. Different markets will need different distribution plans as there is no ‘one size
fits all’ approach in China.

Wholesalers in China are usually small and specialised in a limited range of products, and national-level
wholesalers are few in number. Suppliers have to deal with different wholesalers in different geographic regions.
This fragmentation of the distribution chain makes it difficult for foreign goods to enter the market as it implies
dealing with a myriad ‘Mom and Pop’ distributors.

5.1.2 Major Distribution Channels

There are three options available for foreign manufacturers to distribute their wares: Chinese state-owned
distribution companies, privately owned trading companies and Hong Kong distributors. Regardless of the
channel, often a representative from the corporate or Asian headquarters is appointed to review the performance
of the Chinese distributions. Medical devices companies that do not have the intention or resources to establish
and monitor their distribution networks through an office in China usually opt to utilise the resources of Chinese
distributors.

In China, foreign trading companies (FTCs) are authorized and experienced groups that have an established
infrastructure to deal with foreign trade. Typically, FTCs provide for multiple provincial-level entities in China;
however, they prefer to work within their existing network, as opposed to developing new business. In addition,
they have limited marketing or promotion experience and predominately functioning as intermediaries between
the manufacturer and retailer.

Industrial trading companies (ITCs), administered by the respective industrial ministries and bureaus, are
younger and smaller than FTCs. ITCs have a better understanding of the specific products they are trading, but
they are generally limited in their geographies.

Privately owned trading companies have emerged as a feasible alternative since 1995. Like other private
enterprises they are more motivated, entrepreneurial and market-oriented than State Owned Enterprises SOEs.
One of the major drawbacks is that privately owned trading companies usually do not have large cash balances
to allow for inventorying and stocking medical products. Therefore, there is a risk that if the distributor loses one
major client, the entire trading company could collapse. These companies are generally also limited in their
expanse and sometimes are not authorized to engage in foreign trade.

Generally speaking, Hong Kong distributors are familiar with both Western and Chinese business practices, and
they are capable of identifying appropriate end users, import/export corporations and local distributors in China.
Communications are also an advantage as they have a grasp over Mandarin, Cantonese and English. Hong
Kong distributors have a high selling price because they usually insist on a higher margin. This may limit their
effectiveness in China’s price-sensitive market.

A representative office in the Mainland may be the best choice for a foreign medical devices company that
wishes to maintain geographic proximity to its Chinese distributor. A local presence through a representative
office can perform liaison activities in China, but it is illegal for them to engage in profit-making activities, such as
importing, selling or issuing invoices. Representative office staff in China will target and work with customers,
while the local distributor eventually will finalize the sale.

A company that manufactures its products in of China will find it easier to distributing them as the distribution
channel is more straightforward as compared to the channels for products produced outside of China.

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Medical Device Market in China

Manufacturing medical products in China also allows the company to avoid high-import tariffs as well as having
more hands-on control over the business in general.

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Medical Device Market in China

5.2 Pricing and Average Margins of Medical Devices


Distribution in China is, generally speaking, an extended system, with each province usually having three to five
tiers. This is especially true with SOE distribution companies. The product is transferred from the factory to the
distributors, from where it then goes to the provincial, county and city level. Sometimes, even the retail stores
themselves act as wholesalers for local merchants. On average, the margins in the Chinese distribution structure
adds anywhere between 5 and17 percent for each layer.

In early 2006, the National Development and Reform Commission (NDRC) put a cap on prices of medical
equipment due to rapidly rising costs. Medical devices are distributed in a similar manner to generic goods, with
profit margins for each level. In order to make the costs more bearable to the end user, the NDRC has outlined
six changes:
1. Establish a medical devices price-monitoring system
2. Periodically announce market prices for medical devices
3. Implement more control over the profit margins over the logistical channels for medical devices
4. Lower the sale margins for medical devices sold to hospitals
5. Issue controls on manufacturers’ prices and China’s port prices for medical devices
6. Strengthen price monitoring and inspection-enforcement strategies.

NDRC has focused on decreasing the price of disposable and implantable medical devices in the recent past. As
a result, the price of disposable medical devices can increase only up to a maximum of 40 percent between the
manufacturer and the patient. Implanted medical devices’ prices can increase only up to a maximum of 25
percent between the manufacturer and the patient for products priced below USD 611. For those devices’ priced
above USD 611, the maximum is 20 percent.

The notice also states that hospitals’ profit margins cannot be more than 10 percent for disposable medical
devices priced at less than USD 62 and cannot be more than five percent for disposable medical devices priced
between USD 61 and 611. If a medical device costs more than USD 611, the maximum profit margin for hospitals
cannot be more than USD 30.

There is sufficient reason to believe that this new pricing policy is simply a paper tiger and the authority having
jurisdiction is not sufficiently equipped to enforce it. One reason is that this pricing policy does not differentiate
among different raw materials and components used in the device. This results in a lack of flexibility in the new
policy. Another common way for manufacturers and hospitals to circumvent this is simply by raising the
manufacturers suggested retail price. The device or product appears to be in line with the pricing policy, but in
fact the price has been exaggerated, with the cost passed onto the patient none the wiser.

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Medical Device Market in China

5.3 Legal Issues Related to Marketing in China


Until now, there are no specific legal issues related to marketing of medical devices in China. In 1995, two
statutes about advertising medical devices in China were issued – Medical Devices Advertisement Investigation
Standard and Medical Devices Advertisement Investigation Measure – by the State Administration for Industry &
Commerce. It is required that any medical devices not be advertised before permission has been granted from
related provincial and lower-level food and drug administrations. For medical devices produced in other countries,
before advertising in China, it is required to get market ingression of the country of the manufacture and the
permission of the SFDA.

Unlike the United States, China is a unitary state as the Chinese Constitution is the most important law. Laws
adopted by the National People’s Congress are second in priority. Finally comes the policies and regulations
established by State Council and provincial and lower level governments. No law, policy or regulation can
countermand the Constitution.

It is theoretically easier for European medical devices manufactures to market its products and services in China
as compared to other countries, such as the United States.

5.3.1 Marketing Arrangements in China - Distribution


Most hospitals in China purchase a majority of their medical devices through distributors. Foreign companies are
prohibited from selling directly in China unless they have a local manufacturing entity. Companies that are new to
the Chinese market and those who have already engaged in exporting, often sell their products via a network of
distributors. This network is fundamental to the success of the foreign medical companies exporting to China.
Distributors generally provide services, such as warehousing, shipping, sales, marketing and service support.
The ability to leverage local contacts is vital in creating an effective distribution network in China, creating a
significant barrier the entry of both smaller local companies and larger international competitors that lack a
meaningful local presence.

Medical devices distribution is highly specialized and localized in China. Most medical devices distributors
operate within relatively small territories. Only a few distributors are willing or able to cover the entire country.
Most distributors focus on China’s eastern coastal cities, where the purchasing power is concentrated, and less
on western China. As a result, most manufacturers need to appoint multiple distributors to effectively cover entire
China.

When building a distribution network, a foreign company should keep several things in mind. Relationships are
key in finding and qualifying distributors — and, ultimately, in successfully selling a product. The best way for a
medical company to find a new distributor is to investigate distributor groups to which company executives have
been introduced by a trusted personal acquaintance, business colleague or professional third party. In addition,
the foreign company must keep in mind that face-to-face meetings are crucial to establish a solid relationship
with a distributor; e-mail correspondence, and phone calls alone are not sufficient.
5.3.1.1 Finding a Distributor
Most medical device distributors in China were state-owned companies, which were highly bureaucratic and not
very market-oriented. During the last seven to eight years, private medical devices importing companies have
started emerging. These groups tend to be more aware of marketing issues and can perform more efficiently
than state-owned entities. In contrast, most of them are relatively small and not well financed. Moreover, many
still lack expertise in the selling of high-tech medical device products.

When identifying a distributor, foreign companies should always use ‘local insight’ to know about the distributor’s
current situation and background. It can be difficult for a foreign company to determine if the distributor truly
knows the medical regulations and has financial staying power. If possible, a foreign company should contact
other foreign companies that have already employed the prospective distributor or utilise a consultant in China. In
addition, it is crucial to determine the amount of time and effort a Chinese distributor is willing to spend on their
products.

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Medical Device Market in China

5.3.1.2 Distributor Problems


In China, foreign companies may face some conflicts with distributors, usually based on cultural differences, but
sometimes out of malice. Distributors may not expend as much effort as agreed to in the contract. This often
takes the place of the distributor favouring another supplier while neglecting others. This is the most common
problem that foreign companies meet.

Foreign companies who decide to end partnerships with distributors may find they have acquired a bad
reputation in China. This may potentially cause problems in securing a new distributor in the future, especially
when ending or changing partnerships with a large-scale distributor. They can have a significant influence and
possibly even control smaller distributors. Therefore, when problems occur, it is best to hold face-to-face
meetings and try to come to a mutual agreement, avoiding legal action whenever possible.

5.3.2 Marketing Through a Chinese Subsidiary or Representative Office


Representative offices are often the easiest type of offices for foreign firms to set up in China; they are also most
commonly recommended for small- to medium-size businesses. Chinese law restricts these offices to non-profit
making activities, such as consulting activities and market research. These offices are permitted to undertake
after-sales activities covered under the original warranty. Despite these limitations, this form of business has
proved very successful for many foreign companies.

China's Company Law, effective since 1 July 1994, permits the opening of branch offices by foreign companies.
While representative offices are given a registration certificate, branch offices obtain an actual operating or
business license and can engage in profit-making activities. Establishing a branch office gives a company
increased control over a dedicated sales force and permits greater utilisation of its specialised technical expertise.

A locally incorporated entity or cooperative joint venture with one or more Chinese partners or a wholly foreign-
owned enterprise (WFOE) may be the final step in developing the market for a company's products. Domestic
production avoids import restrictions, such as tariffs, and provides foreign firms with greater control over both
intellectual property and marketing.

Some companies prefer to establish a WFOE rather than a joint venture for gaining greater management control.
This is due to concerns of intellectual property rights (IPR) protection, desire for simplicity or for various other
reasons of corporate policy. The law on WFOEs requires that they either implement advanced technology or be
primarily export-oriented. These laws will be changing in accordance with WTO regulations, which will be fully
effective from 11 December 2006. However, an increasing number of foreign companies find WFOEs to be a
viable entry vehicle to the Chinese market as it is less time consuming and cost-effective than a joint venture.

5.3.3 Marketing and Licensing of Products and Know-How in China


5.3.3.1 Product Sale and Delivery Agreements
There are no specific laws about the sale and delivery of medical devices in China. SFDA has promulgated
regulations on instructions, labels and packing of medical devices for product sales in China. Instructions in
labels must be in Chinese and other languages can be added. Instructions must be in accordance with national
and industry standards. No advertising, such as ‘the most advanced’, can appear in the label and packing. The
product name must be marked in instructions, labels and packages in accordance with the registration certificate.
5.3.3.2 Distribution Agreements
These agreements should account for the differences in across various cultural and legal systems. Westerners
tend to draft lengthy contracts focusing on small legal details. In contrast, the people of China conduct business
among friends and consider their relationships more valuable than the details found in a Western contract. Often
in China, a foreign company may find itself discussing points of contention, such as sales targets and product
service clauses even after the distributor contract is signed.
5.3.3.3 Licensing Agreements
For most foreign medical device manufacturers in the Chinese market, one of the competitive advantages lies in
technological predominance. The licensing of intellectual property is not a direct tool to market medical devices in
China, but it is very important to help foreign manufacturers keep their respective advantages in the Chinese
market.

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Medical Device Market in China

5.3.3.4 Patent Licenses


According to the “Patent Law of the People’s Republic of China”, the duration of a patent right for inventions shall
be twenty years, the duration of a patent right for utility models and patent right for designs shall be ten years,
starting from the date of filing.

After granting a patent right for an invention or utility model, no entity or individual can exploit the patent without
the direct and explicit authorization of the patentee. Any production, usage, sales, or imports of the patented
product, or use of the patented process, is prohibited.

Any entity or individual exploiting the patent of another shall enter an agreement with the patentee for exploitation
and pay the patentee a fee for this privilege. The licensee has no right to authorize any entity or individual, other
than that referred to in the contract for exploitation, to exploit the patent.67
5.3.3.5 Copyright Licenses
According to the Copyright Law of the People’s Republic of China, a foreign entity is eligible to enjoy copyright
protection if both the countries are party to relevant international agreements, or they have direct agreements.
Works of foreigners or stateless persons first published in the People's Republic of China shall enjoy copyright
protection in accordance with this law. Any work of a foreigner who is a citizen of any other country, which has
not concluded an agreement with China, or which is not a party to an international treaty with China or a stateless
person first published in an country which is a party to an international treaty with China, or in such a member
state or non-member state, shall be protected in accordance with this Law.

Areas in which copyrightable work may be created by or for a medical devices company include software
programs, marketing brochures and website design. To be effective under Chinese law, any transfer or license of
rights in a copyright must be in writing68.
5.3.3.6 Licensing of Trademarks and Service Marks
According to the Trademark Law of the People's Republic of China, the Trademark Office of the administrative
authority for industry and commerce under the State Council shall be responsible for the registration and
administration of trademarks throughout the country. This law also applies to service marks. A trademark
registrant has the right to use the words of ‘registered trademark’ or a symbol ‘®’ to indicate that his trademark is
registered.

The period of validity of a registered trademark is 10 years, from the date of approval of the registration. If the
registrant intends to continue the use of the registered trademark after the expiration of the validity period, an
application for renewal of the registration has to be made within six months before expiration. If no application is
filed within the period, a grace period of six months is allowed. If no application is filed at the expiration the grace
period, the registered trademark is cancelled. The period of validity of each renewal of registration is 10 years.

Any foreign person or foreign enterprise intending to apply for the registration of a trademark in China should file
an application in accordance with any agreement between the People's Republic of China and the country to
which the applicant belongs. This may be according to the international treaty to which both countries are parties
or on the basis of the principles of reciprocity. Any foreign person or enterprise intending to apply for the
registration of a trademark or for any other matter concerning a trademark in China can appoint any of such
organization as designated by the State to act as her, his or its agent69.
5.3.3.7 Licensing of Know-How and Trade Secrets
There is no specific law for know-how and trades secrets licensing in China. In the ‘Law Against Unfair
Competition of the People's Republic of China’, there are some articles about protecting know-how and trade
secrets. According to this law, technical and operational information not known to the public is capable of earning
economic benefits to the owner of rights. Thus, the owner of rights takes measures to protect these information.70.

67
http://www.sipo.gov.cn/sipo_English/flfg/zlflfg/200203/t20020327_33872.htm
68
http://www.sipo.gov.cn/sipo_English/flfg/xgflfg/200204/t20020416_34754.htm
69
http://www.sipo.gov.cn/sipo_English/flfg/xgflfg/200204/t20020416_34755.htm
70
http://www.sipo.gov.cn/sipo_English/flfg/xgflfg/200204/t20020420_34756.htm

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Medical Device Market in China

5.3.4 Cooperation with Chinese Companies


5.3.4.1 Manufacturing and OEM Agreements
A contract prepared for a Chinese OEM manufacturer should include a fair amount of detail, and certain aspects
of the agreement should be carefully interpreted. In particular, the contract should specify the period for which the
price quote is valid as well as the shipping terms. International Commercial Terms are most important for
identifying the people responsible for the goods at each step of the production and delivery process. In China,
free on board (FOB) specifications are used which states that the foreign medical company is responsible for the
products once they reach the dock. It is best to solve problematic issues through face-to-face meetings. However,
it is also important to include a dispute resolution clause in the contract. The clause should define the applicable
law, such as ‘PRC Contract Law’ or ‘Uniform Commercial Code’ and establish a procedure for dispute resolution.
Arbitration is usually a better option than a lawsuit in China.
5.3.4.2 Joint Ventures
There are two main types of joint ventures in China: equity joint ventures (EJVs) and contractual joint ventures
(CJVs). In the past, foreign investments in China was made in the form of a joint venture and most were initially
set up as 50:50 partnership joint ventures (or 51/49) between the foreign and Chinese companies. Restrictions
on foreign ownership in China are becoming lenient. The Chinese companies do not want to earn as much
percentage as they are legally allowed. Therefore, foreign companies control 80 to 90 percent of the venture; the
Chinese companies opting for only 10 or 20 percent. A foreign company should consider their long-term goals
and conduct extensive research before deciding on a particular type of business structure.
5.3.4.3 Equity Joint Venture
An EJV takes the form of a limited liability company with legal person status in China. In this type of structure,
parties share the investment and management, along with risks and losses in proportion to their contributions.
The foreign party’s contribution must be a minimum of 25 percent and neither party may reduce their contribution
during the venture.
5.3.4.4 Contractual Joint Venture
When establishing a CJV, the parties define the manner of operation, management, obligations, risk, profit
sharing, etc., through an upfront contract. This flexibility allows companies to establish a CJV to take advantage
of short-term business opportunities. In most CJVs, the foreign party provides most or all of the funding,
technology and key equipment. The Chinese party generally provides land, natural resources, facilities and
labour. However, the CJV may not have legal person status or may have limited liability if the State
Administration of Industry and Commerce judges the enterprise under-capitalised.

5.3.5 Acquisition or Disposition of Chinese Companies or Assets


A foreign medical device company can consider acquiring a Chinese company or its assets (including intellectual
property rights and production facilities) as part of its strategy to enter the Chinese market.

Recently, more and more foreign companies, especially international companies, are initiating mergers and
acquisition (M&A) in some key verticals with some key domestic enterprises. As a result, China would implement
more restrictions for M&A by foreign investors, including the medical device industry. The ‘Anti-monopoly Law’
has started legislative procedure, in which the M&A by foreign investors is required to provide more detailed
documents for examination by the anti-monopoly of the administrative authority.

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Medical Device Market in China

6 Regulatory Environment
6.1 Importing into the China
After entering WTO, importing merchandise from foreign countries is easier and bears a lower duty and tariff rate.
The duty rate of medical devices was reduced from 11 percent to 5-6 percent. The Chinese government also
cancelled special management requirements for importing large-size medical devices in 2001.

6.1.1 Introduction to PRC Customs and the Entry–Exit Inspection and Quarantine Bureau
Customs mainly takes charge of revenue collection and law enforcement, and has the power to stop products at
the border and to assess civil and criminal penalties. Customs also cracks down on smuggling activities. The
Entry–Exit Inspection and Quarantine Bureau (CIQ) is primarily concerned with entry-exit inspection and
quarantine, quality supervision of import-export products, and other inspection and quarantine.

The original import mission of Customs and CIQ is to ensure a secure trade environment in which imported
merchandise comply with PRC laws and regulations. As to the medical devices, there are other laws and
regulations issued by various government departments for the Customs and CIQ to take charge of enforcing the
laws promulgated by other departments, such as Food and Drug Administration (FDA), to regulate the imported
medical devices.

6.1.2 The Entry Process


When the merchandise arrives from a foreign country into the customs territory of PRC, it must get a clearance
from Customs. The process for obtaining legal clearance from Customs is called the entry process. Only through
the entry process can the imported merchandise obtain a legal status.

Any imported product must have a commercial invoice, which includes complete and accurate information about
the product. Custom has specific rules on the content of a commercial invoice. In most cases, the calculation of
custom value and duty are based on the price shown on the commercial invoice.

6.1.3 Tariff Classification


A product imported into the custom territory of PRC is subject to custom duty or exempt from it. According to
‘Regulations of the People’s Republic of China on Import and Export Duties’ (RPRCIED) and ‘Customs Tariff of
Import of the People's Republic of China’ (CTIPRC), the import tariffs are classified into the most-favoured-nation
rate of duty, general tariff rate, quota duty, etc. The tariff classification of a product determines the rate of duty
applied. The detailed duty rate of a product depends on how it is classified by the CTIPRC. As the process of
tariff classification is complex, a product may have different classifications based on different persons. These
classifications may fall into a different duty rate so the correct tariff classification is very important. Otherwise, it
may cost the importer huge sums of money in duty and penalty.

Customs makes the final decision about the dutiable classification and status of the merchandise, the importer
may disagree with the dutiable status after the entry has been liquidated. In that case, the importer has the right
to protest with 60 days after s/he has been made aware.

6.1.4 Valuation of Imported Merchandise


In order to calculate the amount of duty, the importer has to determine the Customs value for each product in
accordance with China Custom’s law. There are six methods for valuing imported merchandise under Custom’s
law. Transaction value is the most commonly used method. The six methods are as follows:
• Transaction value
• Transaction value of identical merchandise
• Transaction value of similar merchandise
• Deductive value
• Computed value
• Other valuation method determined by the Customs
The valuation methods must be applied in the above listed order. If the product cannot be valued through the
transaction value method, then the transaction value of identical merchandise will be applied. If the transaction

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Medical Device Market in China

value of identical merchandise cannot be determined, then similar merchandise will be applied and so forth. The
importer can apply to switch the order of deductive value and computed value.

The transaction value of imported merchandise is the price actually paid or payable for the merchandise exported
to PRC. The ‘price paid or payable’ includes all payments; however, certain addition and exclusions may be
necessary to get a proper Custom approval. The value of the following items must be added to get a proper
Custom value of an imported product if they are not included in the transaction value:
• Commissions, except those paid by the importer for the buying agent controlled by the importer, incurred
with respect to the import merchandise are part of the transaction value
• Cost of the container is incorporated as a part of the product
• Packing cost burden by importer consists of the cost of labour and materials used in packing the
imported merchandise
• Assists If the following items are supplied free of charge or at a reduced cost to the foreign manufacturer
for use in connection with producing merchandise which is later imported to the PRC, their value has to
be added to the custom value:
o Materials, components, parts, tools, melds, dies and other similar items that are used in the
production of the imported merchandise
o Development, artwork, design work and other similar items produced in another country,
which are necessary for the production of the imported merchandise
• Royalties or license fees paid by importer as a condition of sale
• Proceeds resulting from the subsequent resale, disposal, or use of the imported merchandise directly or
indirectly to the foreign seller

Generally, the transaction value of the imported merchandise is based on the price shown on the commercial
invoice issued by the seller. However, Customs will probably refuse to use the ‘transaction value’ to value an
imported product if the importer and exporter are related. The following parties are viewed as related parties:
• Family members
• Each is an employee or director for the other side
• Controlled by the other party directly or indirectly
• Both of them are controlled by the same third party directly or indirectly
• Both of them jointly control one third party directly or indirectly
• One directly or indirectly own more than a 5-percent share of the other party
• One is an employee or director of the other company

If the importer can demonstrate the transaction value in the related-party transaction is close to the following
price, Customs can use its transaction value to calculate the custom value:
• The transaction value of identical or similar merchandise sold to unrelated parties at the same time
• Deductive value of identical or similar merchandise at about the same time
• Computed value of identical or similar merchandise at about the same time

6.1.5 Country of Origin Marking


According to the ‘Regulations of the People's Republic of China on Place of Origin of Imported and Exported
Goods’, and other related laws, the importer must declare the article’s country of origin in the process of customs
declaration. The purposes of the origin requirement are to let purchasers know the foreign origin of the products
and to help to decide the duty rate.

The foreign ‘country of origin’ can be the following:


• The nation that manufactured, produced, or grew the product
• If the product is produced by more than one country, its country of origin is the country where the product
last underwent a ‘substantial transformation’. ‘Substantial transformation’ is defined as a manufacturing
process that changes the tariff classification of the product. If the manufacturing process does not
change the tariff classification, the country of origin is determined by the percentage of value change, the
manufacturing process or by other means.

6.1.6 General Contracts Issues


As other things in China, the methodology used to negotiate and develop contracts is conducted in a manner
significantly different from other western countries. This can result in misunderstandings, loss of money and legal

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Medical Device Market in China

complications if the trend is not properly taken into account or accepted. The process of decision making is often
more important than the decision itself, with both sides being satisfied.
6.1.6.1 Contract Law in China
The National People’s Congress promulgated the Contract Law of the People’s Republic of China in 1999. At the
same time, the Economic Contract Law of the People’s Republic of China, the Law of Contract Related to
Foreign Partners of the People’s Republic of China and the Technical Contract Law of the People’s Republic of
China were abolished. Contract Law now is the only applicable uniform standard that regulates all aspects of
contract law in China.
6.1.6.2 Contractual Risk Allocation
Awareness of hindrances in contract-risk management has increased during the past several years in China,
especially in the indemnity and insurance areas. Like other countries, most commercial risks are equally
applicable to either party in an agreement.
6.1.6.3 Implied Covenants and Warranties
In China, there are no mandatory provisions to a law that a contract must have implied covenants or warranties
to clearly express the commitment and representation of the contract party. Those contracts that have warranties
or covenants articles can be resolved in accordance with the Guaranty Law of the People's Republic of China.
6.1.6.4 Laws Related to Foreign Investment
China, to date, has enacted and formulated many laws regarding foreign investments. To make a contract with a
Chinese partner, the following laws need taken to be taken into account: the ‘Law of the People’s Republic of
China on Chinese-Foreign Equity Joint Ventures’, the ‘Law of the People's Republic of China on Chinese-Foreign
Contractual Joint Ventures’ and the ‘Law of the People’s Republic of China on Foreign-Capital Enterprises’.
6.1.6.5 Regulatory Issues
For foreign medical device manufacturers in specific, there are a few provisions from the SFDA that must be
complied with in the context of a contract and covenant. Some jurisdiction having authorities must be imposed on
a contract party, such as “Provisions on Medical Device Manufacturing Supervision & Administration”, “Provisions
on Medical Device Distributor Licensure Administration”, and “Provisions on Medical Device Manufacturing
Enterprise Quality System Inspection”.

6.1.7 Other Regulations on Medical Device Import


• The Catalogue of Goods Prohibited from Import. According to this catalogue, some medical devices are
prohibited from import, such as colour ultrasonic diagnostic instrument, endoscope, and so on. Special
government department must approve import of these medical devices. 71

• Announcement on Strengthening Supervision and Administration on Import of Donated Medical


Appliances: This announcement strengthens the supervision on the import of donated medical
appliances, and makes it more clear what the importer must to do. The imported donated medical
appliances have to be registered under the General Administration of Quality Supervision, Inspection,
and Quarantine. In addition, the donated medical appliances must apply to the CIQ for inspection and
quarantine, and can only enter after getting a Clearance Note of Entry Goods from CIQ.72

71
http://www.customs.gov.cn/YWStaticPage/4239/5f1b7a39.htm
72
http://www.customs.gov.cn/YWStaticPage/433/19ea738f.htm

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Medical Device Market in China

6.2 National Monitoring and Management Policies

6.2.1 Definition of Medical Devices in the Chinese Regulations


According to Chinese law, a medical device is any instrument, apparatus, appliance, material or other article
whether used alone or in combination, including the software necessary for its proper application whose principal
action in or on the human body is by means of pharmacology, immunology or metabolism, but which may be
assisted in its function by such means. The use of medical devices is to achieve the following intended
objectives:73
1. Diagnosis, prevention, monitoring, treatment or alleviation of disease
2. Diagnosis, monitoring, treatment, alleviation of or compensation for an injury or handicap condition
3. Investigation, replacement or modification for anatomy or a physiological process
4. Contraception

6.2.2 Government Authorities


State Food and Drug Administration
Established in 2003 in the lines of the disbanded State Drug Administration, the SFDA is the top-governing body
of medical devices in the Mainland China market, which has a similar position as the FDA in United States.

Being under the direct control of the State Council, SFDA assumes responsibilities for comprehensive
supervision on the safe management of food, health food and cosmetics and is the competent authority of drug
regulation. Its main responsibilities also include the promulgation and implementation of relevant laws,
regulations and supervision policies in the domestic medical devices market. SFDA has 31 provincial-level , 433
municipality-level and 1,936 county-level agencies (total of 2,401 including state-level) as well as 16 state-level,
122 provincial-level, 373 municipality-level and 436 county-level technical organizations (total of 947).74

There are ten national level testing centres accredited by the China National Accreditation Committee for
Laboratories and the General Administration of Quality Supervision, Inspection, and Quarantine. They are
responsible for product quality, testing, and evaluation, as well as researching and proposing new technical and
qualitative standards.

• Beijing Center for Medical Device Quality Supervision and Testing


• SFDA Medical Device Quality Supervision and Testing Center of Peking University
• Center for Medical Devices for the National Institute for the Control of Pharmaceutical and Biological
Products
• SFDA Shanghai Center for Medical Equipment Quality Supervision and Testing
• Tianjin Medical Instrumentation Inspection Center of the SFDA
• SFDA Wuhan Quality Supervision and Testing Center for Medical Devices
• SFDA Jinan Quality Supervision and Inspection Center for Medical Devices
• SFDA Shenyang Center for Medical Equipment Quality Supervision
• SFDA Guangzhou Quality Supervision and Inspection Center for Medical Instruments
• SFDA Hangzhou Center for Medical Equipment Quality Supervision and Testing

General Administration of Quality, Supervision, Inspection, and Quarantine


In addition, the General Administration of Quality, Supervision, Inspection, and Quarantine (AQSIQ) also
assumes supervisory responsibility for certain medical devices when they are imported. AQSIQ conducts
mandatory safety registration, certification and inspection of certain devices.
http://www.cnca.gov.cn/download/english.html

6.2.3 Regulatory Device System


The regulatory device system in China is complex and is neither transparent nor consistent. The regulatory
environment has been changing rapidly starting in March 2003 with an overhaul and revision of the regulating
authority State Food and Drug Administration.

73
SFDA
74
http://www.sfda.gov.cn/eng/

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Medical Device Market in China

The general level regulation in the medical devices market is the ‘Regulations for the Supervision and
Administration of Medical Devices’ (RSAMD) issued by State Council in 2000 and revised in 2001. All units or
individuals engaging in the production of medical devices within Mainland China and all levels of the State Drug
Administration Department shall comply with this method without exception.

In the past years, approximately 10 regulations have been issued by SFDA to regulate the market.
• Provisions on Classification of Medical Devices
• Provisions on Medical Device Registration
• Provisions on New Medical Device Approval (Interim)
• Provisions on Medical Device Manufacturing Supervision & Administration
• Provisions on Medical Device Distributor Licensure Administration
• Provisions on Medical Device Manufacturing Enterprise Quality System Inspection
• Provisions on Single Use Sterile Medical Device Supervision & Administration (Interim)
• Regulations on Manuals (RM/LPME)
• Labels and Packaging of Medical Equipment (RM/LPME)
• Provisions on Medical Device Standardisation and Provisions on Clinical Trial of Medical Devices

These regulations provide a clearer and more transparent regulatory reference for the manufacturing process,
production environment and product quality as compared to earlier ones. However, the legal framework in
Mainland China is still far from mature when compared with those in western countries; they differ in the following
aspects:
• Focus on the market approval instead of supervision of existing products
• Lack of defective product recall and product liability systems

According to SFDA, all medical devices can be categorised into three standardised classes. The supervision as
well as managing forces and administration are distinct between different classes:
• Class I: Low-risk devices (safety and effectiveness can be ensured through routine administration);
regulated by provincial governments
• Class II: Modest-risk devices (further control is required to ensure their safety and effectiveness);
regulated by provincial governments
• Class III: High-risk devices (implanted into the human body, used for life support or sustenance or pose
potential risk to the human body; thus, they must be strictly controlled with respect to safety and
effectiveness); regulated by SFDA

6.2.4 Clinical Trials


As mentioned in a regulation by SFDA, clinical trials are key steps for new devices to be launched in the Chinese
market – whether imported or domestically manufactured. The main purpose of the clinical trials is to test
whether the medical devices for safety and effectiveness before it enters the market. However, it can also be a
key marketing tool as the results are some of the most persuasive forms of advertisement.

Clinical trials are effective only when they are performed by at least two government-designated medical
institutes. 75 It is the medical devices suppliers’ responsibility to initiate, organise, sponsor and supervise the
entire clinical trial process. These include the following steps:
1. Choose a medical institute
2. Provide free trial devices
3. Provide investigator training
4. Provide sponsorship to medical institutes
5. Provide compensation to trial candidates if the trial devices cause any harm.76

6.2.5 Market Approval for New Medical Devices


Applying for SFDA and CCC certificates are long and complicated as the other application procedures in
Mainland China. The SFDA attempts to review every application within 90 days of receipt but four to six months
are more normal. The Medical Device Evaluation Centre requires 50 working days for a technical examination
and issuing SFDA medical device registration certificates. Only after the results are published, the applicant

75
The list for government designated medical institutes can be found at http://www.sfda.gov.cn/cmsweb/webportal/W23/A64005434.html
76
http://www.sfda.gov.cn/cmsweb/webportal/W45649039/A56659191.html

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Medical Device Market in China

receives notification on whether supplemental documents are required for submission (which takes another ten
days). There are also some other issues that may stretch the timeline and complicate the procedure.

SFDA Certificate
According to ‘Provisions on New Medical Device Approval’, any new device is not allowed to be sold and used in
the Mainland China market without the approval and registration from SFDA. The latest regulation for registration
of medical devices in China was issued by SFDA in August 2004, which clarified the process and the materials
needed to get an SFDA certification. The government is considering waiving product quality, testing, and
evaluations if it has approval elsewhere in the world. The two main aspects for the approval are application
documents and procedures.

There is a distinction in both of the aspects between imported devices and domestic manufactured devices. For a
domestic manufactured device, the food and drug supervision department of city- and province-level, respectively,
examines and approves domestically manufactured Class I and II products, which require simpler documentation.
The devices categorised as Class III must get an approval from SFDA. 77 However, for all imported medical
devices (including Hong Kong, Macau, Taiwan and other foreign countries) examination of the materials are
conducted directly by SFDA.

For new imported medical devices, there are 12 documents required to be submitted to SFDA in both Chinese
and English. The required documents are listed as follow:
1. SFDA registration form
2. Legal production qualification (e.g., US FDA registration)
3. Business license for the Chinese agent registering the product (the agent must be located in China, have
a valid license and have a letter of commission from the manufacturer)
4. Marketing approval from government of its country of origin (Certificate to Foreign Government as well
as 510(k), pre-market approval (PMA) application for US-made devices issued by FDA or Free Sale
Certificate)
5. Product Standards (ISO, CE, AAMI, etc.); this also includes an authorisation letter to a Chinese agent to
translate and reformat the product standard according to Chinese regulation
6. Operations Manual (product instructions)
7. Test reports issued by a SFDA-certified test centre (only required for Class II and III products that have
not received an ISO 9000 certification)
8. Report for clinical trial (only required for certain types of devices; manufacturer may submit clinical trial
data that was submitted in the country of origin)
9. Quality guarantee letter (certifying that the product being registered and sold in China is identical to the
product approved in the country of origin)
10. Authorisation letter to a Chinese agent, responsible for reporting adverse events accrued in China
(includes an authorisation letter from the manufacturer and a promise letter from the Chinese agent, the
agent's qualification document)
11. After-sales authorisation (includes an authorisation letter from the manufacturer, a promise letter from
the after-sales agent and an after-sales agent qualification document)
12. Self-guarantee declaration (to vouch for truthfulness of submitted documents)
In addition, copies of government certificates from the United States (i.e., point number 4 in the list) will be
accepted by the SFDA; however, it should be notarised.

After the preparation of all these documents, a company can start the SFDA application process. The procedures
are illustrated in the appendix.78

The registration certificates expire in four years; a renewal registration has to be approved by the SFDA six
months before the initial registration expires. Documents required for a renewal of the registration certificate
include the previous registration certificate and follow-up reports. In addition, the manufacturer needs to submit a
new registration for any changes in manufacturing location (movement to another location or addition of a new
location). Changes in basic information, such as company name, product name or the manufacture location only
needs an amendment to the existing registration.

77
http://www.ul-ccic.com/news_nl/2004-Issue12/page4.htm
78
http://www.sfda.gov.cn/cmsweb/webportal/W23/A64005447.html

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Medical Device Market in China

Earlier this year, SFDA made an official statement emphasising the importance of medical electrical equipment
safety. Now all the medical electrical equipment registration applications/renewals must include a completed GB
9706.1-1995 compliance test report conducted by either the applicant or a third party. All manufacturers of
currently registered medical electrical devices need to submit a GB 9706.1-1995 compliance test report by 31
December 2007. In addition, if the applicant conducts the testing, SFDA evaluates the testing facility to ensure
that it meets regulatory standards.

CCC Certification Mark


In addition to the medical devices registration, the China Compulsory Certificate (CCC) is also necessary to
ensure safety for the new imported devices in to the following seven categories:79
• Medical diagnosis X-ray equipment
• Haemodialysis equipment
• Hollow fibre dialysers
• Extra-corporeal blood circuit for blood purification equipment
• Electrocardiographs
• Implantable cardiac pacemakers
• Artificial heart-lung machines

CCC certificates are awarded by the Authorised Certification Body and tested by the China Quality Certification
Centre (a subsidiary of AQSIQ). A penalty ranging from USD 1,222 to USD 3,666 is imposed if the product is not
certified and ensured by supervision administration, such as Chinese Customs and the Certification and
Accreditation Administration of the People’s Republic of China (CNCA).

Agent Services
A good choice for foreign medical devices processors and manufacturers is to find a sophisticated agent or
consulting company. Several companies provide full-line application services to foreign devices supplier to apply
for certificates from SFDA and CCC.

KendleWits: It is one of the first international Clinical Research Organisations in Mainland China. The company
offers full service Phase I-IV clinical trials. They maintain a good working relationship with SFDA. Their
knowledge of the Chinese regulatory processes, along with a strong working relationship with SFDA, ensures
that all the right regulatory requirements are met on time. They also help facilitate the regulatory process as the
clinical trial progresses.

CAMDI: It provides medical consulting services, including import product registration, SFDA, CCC, CE, ISO 9000
certificate compliance, and clinical trials design. They maintain a good working relationship with the State Food &
Drug Administration.

6.2.6 Inspection of Medical Device Documents


Foreign medical suppliers (either distributor or manufacturer) need to comply with the requirements enlisted in
Regulations on Manuals, Labels, and Packaging of Medical Equipment (since 2002 and revised in 2004).

Although the market approval for new medical devices requires all the documentation for RMLPME, there are still
many medical devices providers who have not updated their labels in accordance with the new regulations. They
fail to include Chinese versions of key documents, such as warnings or user manuals when the products are
imported. Thus, SFDA is taking more random and unannounced inspection on medical devices and
pharmaceuticals to determine the actual conditions of the products.

It is important for foreign medical devices companies to make sure that all documents and information strictly
adhere to the regulations for medical devices packaging and documentation in China. An imported medical
device is restricted in the Chinese border if they do not provide document that adhere to RMLPME. In addition, if
the devices are already sold in the market, SFDA will prohibit the sale until the required paperwork and
documentation are submitted.

79
http://www.ccc-mark.com/lists-of-products-subject-to-ccc-mark.html

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Medical Device Market in China

6.2.7 Good Manufacturing Practices (GMP) Inspections and Others


6.2.7.1 Chinese GMP
According to RSAMD, a medical devices manufacturer is not allowed to conduct design, development and
manufacturing activities until they receive Medical Device Manufacturing Licenses; also, a medical device is not
allow to be used or sold until it receives the Medical Device Registration Certificate of China. However, there is
no clear regulation, such as GMP on quality control, data evaluation, record keeping, products failure and
complaint investigation of a manufacturer in the medical devices industry in Mainland China. However, the
majority of the manufacturers have neither.

Compared to GMP in the United States, the government promotes and develops the relevant regulations for the
drug industry (starting in 2005), which has already impacted the industry players significantly. To further
strengthen the quality control as well as manufacturing supervision, and to provide standard reference for
supervision, SFDA added GMP for medical devices manufactures in its plan.

The medical devices department of SFDA clearly outline the schedule for implementing GMP in the Chinese
medical devices market:80
1. 2006: Release GMP general principles, implement guides for asepsis products, implement guides for
implantable products (as of November 2006, this step has not been taken, although the government has
announced that the final draft is complete); devices manufactures are allowed to apply for GMP
certificate voluntarily
2. 2007: Compulsory implementation of GMP for selected sterile and implantable devices; regular check of
manufacturers
3. 2008: Compulsory implementation GMP for all sterile devices and implantable Class III devices
4. 2010: Compulsory implementation GMP for all Class III medical devices
5. 2012: Compulsory implementation GMP for all Class II medical devices;

The current draft of ‘Criterion for Medical Device Quality System Management’ (Chinese GMP) has been
released by SFDA in accordance with RSAMD and targets the whole process including purchase, R&D,
manufacture, install, distribute, sales and after-sales services of any manufacturer in Mainland China producing
Class II and Class III medical devices. It also integrates the ISO13485 standard and the US FDA quality system
inspection technique along with certain requirements specific to China.

The regulation requires medical devices manufacturers to adhere to the following:


1. Establish clear quality-control objectives
2. Conduct periodic reviews of the plants
3. Document all design and development procedures for production
4. Record each batch of medical devices, including how many in each batch and where they were
distributed in China
5. Conduct inspections on all products to ensure that each medical devices category conforms to the
standards for that type of device
6. Preventive actions and analysis of past performance
7. Inspect products that are sent out to ensure that each medical devices category conforms to the
standards for that type of devices81

In addition, the regulation provides guidance on how to document design and development procedures as well as
verify performance designs.

The GMP examination is also required for the application/renewal of Authorisation License for Medical Device
Manufacturer if GMP implementation is compulsory.82 However, there is no evidence that domestic GMP will
apply for foreign manufactured products or foreign distributors, agents or representative offices.

80
http://www.chnmed.com/html/service/renzheng/gmp/
81
http://www.devicelink.com/mddi/archive/06/10/005.html
82
http://www.cmdm.com/article.php/ArticleID/2106

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Medical Device Market in China

6.2.7.2 Other Supervision of Medical Device Manufacturers


In early 2006, SFDA formulated a new regulation titled ‘Provisions on Daily Supervision and Administration of
Medical Device Manufacturing Enterprises’. It includes all SFDA procedures carried out for the inspection of
medical devices manufacturing enterprises, including obtaining a manufacturing license inspection, product
registration, quality-system inspection and daily on-site inspection.

The provisions delegate the daily administration and supervision of devices manufacturing to SFDA’s regional
branches. Provincial, autonomous region, municipal and county regional SFDA branches are responsible for
manufacturing units, performing all on-site inspection of manufacturing facilities.

All regional divisions must provide information about any medical device requiring close supervision to the SFDA
on 15 June and 15 December each year. Each regional branch must compile the ‘Catalogue of Specially
Supervised Medical Devices’ and present the information to the SFDA Medical Device Department annually.

The SFDA also tightened the supervision requirements for the medical devices products and the manufacturers.
In September 2006, SFDA released a new interim regulation titled ‘Sampling Management Rules of Medial
Devices Sampling in Quality Administration’.
The sampling and quality inspections are undertaken by all levels of agencies and technical organizations.
Medical devices manufacturers, distributors and even units using the medical devices can be the subject of the
inspection. In addition to sampling the products, copies of several documents – including registration certificates,
product standards, manufacturing records, test reports, stock volumes, producing volumes, sales volumes and
other related documents – are also required. If the result of the sampling inspection is negative, the provincial-
level divisions of SFDA will take actions to prohibit sales of disqualified products.

6.2.8 Enterprises Risk Management


6.2.8.1 Regulation Issues
In China, medical device manufacturers should meet national or professional standards. If there are no
applicable national standards, medical devices manufacturers should meet professional standards. If a medical
device manufacturer desires to register a product to sell on the domestic market, they must, for all intents and
purposes, comply with national or professional standards. The Standardization Administration Authority and the
Drug Regulatory Authority under the State Council shall jointly formulate national standards of medical devices.
The Drug Regulatory Authority under the State Council shall formulate professional standards of medical
devices.83 These though are only established as guidelines, as there are no compulsory regulations.

At present, there are no specific national standards in risk management of medical devices manufacturers. There
is a professional standard about medical devices risk management, YY/T 0316-2003, ‘Medical Devices –
Application of Risk Management to Medical Devices’, which is equivalent to ISO 14971:2000.

There are two international standards provided by the International Organization for Standardization (ISO), which
are concerning with the risk management of medical devices manufactures. One is ISO 13485:2003, ‘Medical
Devices – Quality Management Systems – Requirements for Regulatory Purposes’. It emphasises that medical
devices manufacturers should carry on risk management during each stage of the production process. It should
also maintain a record on risk management. The second one is ISO 14971:2000, ‘Medical Devices – Application
of Risk Management to Medical Devices’. It is the only applicable standard for risk management to medical
devices manufactures in the world; it has been adopted by the United States, European Union (EU) and Japan.
The requirements provide a framework within which experience, insight and judgment are applied systematically
to manage the risks associated with the use of medical devices.

The following is an overview of risk-management activities applicable to medical devices in compliance with ISO
14971:2000.

In ISO 14971:2000, risk-management process should include the following elements: 84


• Risk analysis: Systematic use of available information to identify hazards and estimate risk

83
http://www.sfda.gov.cn/cmsweb/webportal/W45649038/A48335998.html
84
International Standard ISO 14971:2000

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Medical Device Market in China

• Risk evaluation: Judgment, on the basis of the completed risk analysis, of whether an acceptable risk
has been achieved in a given context based on the current values of society
• Risk control: Process through which decisions are made and protective measures are implemented for
reducing risks to, or maintaining risk within, specified levels
• Overall residual-risk evaluation: The evaluation process for the risk even after protective measures have
been implemented
• Post-production information

In accordance with ISO 14971:2000, manufactures shall take the following initiatives: 85
• Define the policy for determining acceptable risk, taking into account relevant international standards and
national or regional regulations
• Ensure the provision of adequate resources
• Ensure the assignment of trained personnel for management, work and assessment activities
• Review the results of risk-management activities at defined intervals to ensure continuing suitability and
the effectiveness of the risk-management process.
6.2.8.2 Risk Management of China Medical Devices Manufactures
As required by the Administration Medical Device Registration by SFDA, application documents for class II and III
domestic medical devices must include a risk-analysis report. This report should comply with YY/T 0316-2003
(ISO 14971:2000). Most domestic medical devices manufactures that focus on class II or III devices have set up
a risk-management system. For manufactures that primarily produce class I devices, the risk-management
standards are lower as there are no compulsory requirements to meet.

There is a dearth of qualified people with knowledge and appropriate experience in domestic manufacturers
performing risk-management tasks. To supplement this shortage, SFDA and CAMDI are planning to conduct a
series of long-term training courses in medical devices risk management, starting in December 2006 with each
phase of approximately two months’ duration. These courses will focus on the application of YY/T 0316-2003
(ISO 14971:2000), risk-analysis report writing and risk-management case study. This will help to train enough
qualified people in medical devices risk management.

For some larger domestic manufacturers, most of them have the ISO 13485:2003 certification in addition to YY/T
0316-2003 (ISO 14971:2000).

85
International Standard ISO 14971:2000

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Medical Device Market in China

6.3 Product Liability Legal Aspects

6.3.1 Legal Basis for Product Liability


Generally, the medical devices can be categorised into medical devices serving as a tool and medical devices
serving to improve body functions.

Serving as a Tool
For the medical devices, such as surgical knife, haemostat, gauze and X-ray machine, the end consumer is the
medical institute. Those devices are used as tools for the institute in providing medical services to the patients.
The relationship between the medical institute and patient is simply based on a medical contract, and the use of
medical devices is one part of the treatment behaviour.

Serving to Improve Body Function


Medical devices, such as stents, pacemakers and implantable cardioverter-defibrillator become part of the
patient’s body to ensure its normal function. The patients have already purchased the devices from the medical
institute, and thus the property rights have also been transferred to the patient. Therefore, there is not only
contract relationship, but also a buyer-seller relationship between medical institutes and patients for most of the
time. Medical institutes act as a distributor, and the patient is the consumer under this situation. However, if the
patients purchase the devices from sellers other than the medical institute and according to its request, there will
be no buyer-seller relationship between the institute and patient.
6.3.1.1 General Rule
In Mainland China, there are three related laws forming the regulatory framework of product liability, namely
‘General Principles of the Civil Law’, ‘Law on Product Quality’ and ‘Consumer Protection Law’. In addition, the
‘Regulation on Handling Medical Malpractices’ also helps in judging the liabilities.

Product liabilities are quite different from other civil liabilities in China. Product liability is established once the
product harms the victim due to a defect during manufacturing, processing or distributing and there is no legal
defence. In addition, the product’s liability is based on a defective product, that is to say no defective product, no
product liability.
6.3.1.2 Liable Person
Generally speaking, the producer is subject to product liability for harm to people caused by a product defect that
was due to an omission in design, manufacture, warning or instruction. It is a type of strict liability, as it does not
depend on the producer being cognizant of the danger.

For the convenience of the victim, the ‘Product Quality Law’ states that the victim has the right to indict the seller
or distributor after they compensate the victim; the distributor also has the right to demand compensation from
the manufacturer.

The distributor may also be the subject of the product liability if the distributors ‘know’ or ‘should know’ the
potential threat. That is, if the medical institute sells a defective product to a person by malpractices in normal
check, the medical institute has the obligation of compensating the damage as well as the right to claim for
compensation from the device supplier. In addition, if the distributors can identify neither the producer nor the
supplier of a defective product, the distributor shall be liable for the compensation.

Empirically, the majority of the medical institutes are not likely to take any responsibility related to medical
devices if they only fail to discover the manufacturer.
6.3.1.3 Definition of Defect
The ‘Law of the People's Republic of China on Product Quality’ defines a product defect in the following
situations:
1. The product that constitutes an unreasonable threat to personal safety or to the safety of another
person's property
2. The product is not at par with the national or professional standards for ensuring human health, personal
safety and safety of property. For a Swiss manufacturer, if the product does not achieve the medical
devices product standard issued by SFDA, the product is assumed to be defective.

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Medical Device Market in China

A product is ‘defective’ if it does not fulfil either of the above criteria. However, it does not include the possibility
that science and technology at that point in time are not advanced enough to discover the defect.

A defect, in Chinese law, is not clearly categorised into manufacturing, design or warning/instructions defect.
However, there are two common points of defect categorisation – namely manufacturing defect and warning
defect.
6.3.1.4 Defences of Liability
As both sellers and producers have to take certain amount of liability, there are also different defences for each
of them. The ‘Law of the People's Republic of China on Product Quality’ allows for the defence of product liability
in following situations:

Producers
Producers are exempt from liability for compensation if they can prove the existence of any of the following
circumstances:
1. The product has not been circulated
2. The defect causing the damage does not exist at the time when the product is circulated
3. The science and technology at the time of product circulation is at a level incapable of detecting the
defect

Seller
Seller shall be responsible for repair or change of the product, or for refund of the purchase price if the product
sold is found to be in any of the following conditions. If losses are incurred by the consumer, the seller shall
compensate for the losses:
1. The product does not possess the properties as required and there are no prior indications of the same
2. The product does not conform to the product standards marked on it or its packaging
3. The product does not conform to the quality conditions indicated by way of product directions, samples,
etc.

In addition, if there are sales contracts or processing contract between producers, sellers or distributors, the
judgement is in accordance with provisions of the contract.

6.3.2 Damages
In Mainland China, the majority of the compensation is provided to the victim when the defective product causes
physical harm, while the commercial losses are not in the range of compensation. In addition, the damages are
primarily focused on the visible losses rather than future potential income. The damages according to ‘Product
Quality Law’ fall into compensation for physical harm and compensation for property damage.

Compensations for physical harm are distinct in three situations:


1. Where physical injury is caused by a defect in a product, the person liable shall compensate the victim
for the expenses of medical treatment, expenses of nursing care during treatment and the loss in
earnings due to the loss of his working time.
2. Where the victim is disabled, the person liable shall, in addition, pay for the self-care equipment,
subsistence allowances, disability compensation to the victim and living expenses necessary for any
other person(s) supported by the victim, etc.
3. Where such defects cause death to the victim, the person liable shall also pay for the funeral expenses,
compensation for death and the living expenses necessary for any other person(s) supported by the
deceased before his death, etc.

Compensations to the property damage include the compensation for direct and indirect losses. The liable
person shall restore the damaged property to its original state or compensate at the market price. However, there
is no related law or regulars defined the mental impairment.

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Medical Device Market in China

6.3.3 Procedural Aspect of the Chinese Product Liability


6.3.3.1 Jurisdiction
In China, only manufacturers or distributors within the territory of the PRC shall abide by the Law. If a Swiss
manufacturer does not have a presence in Mainland China and the products are imported through domestic
sales or distributor, it will be the distributors’ who bear legal responsibility. Any compensation between Swiss
manufacturers and domestic distributors will be based on the contract between them.
6.3.3.2 Pleading and Service of Process

6.3.3.2.1 Pleadings
The People’s Court must respond by either placing the case on the docket or rejecting it within seven days,
depending upon the plaintiff’s statement of complaint or an oral complaint that meets the requirements for
acceptance.

The following conditions must be fulfilled when a lawsuit is brought:


1. The plaintiff must be a citizen, legal person, or any other organisation that has a direct interest in the
case;
2. There must be a definite defendant
3. There must be specific claim or claims, facts and cause or causes for the suit
4. The suit must be within the scope of acceptance for civil actions by the People’s Court and under the
jurisdiction of the People’s Court where the suit is entertained

If, according to the law, both parties have voluntarily agreed to a written agreement to submit their contract
dispute to an arbitral organ for arbitration, they may not institute legal proceedings in a People’s Court. The
People’s Court shall advise the plaintiff to apply to the arbitral organ for arbitration.
6.3.3.2.2 Service of Process
The People’s Court shall send a copy of the statement of complaint to the defendant within five days after
docketing the case, and the defendant shall file a defence within 15 days from the receipt of the copy of the
statement of complaint. When the defendant files a defence, the People’s Court shall send a copy of it to the
plaintiff within five days from its receipt. Failure by the defendant to file a defence shall not prevent the case from
being tried by the People’s Court.

If the person to be served is a legal person, the documents shall be received by the legal representatives of the
legal person or the principal heads of the other organisation or anyone of the legal person or the other
organisation responsible for receiving such documents.

The People’s Court shall, with respect to cases whose acceptance has been decided, inform the parties in the
notification of acceptance and in the notification calling for responses to the action of their relevant litigation rights
and obligations of which the parties may likewise be informed orally.
6.3.3.2.3 Class Action Suits
In Mainland China, class actions are also called representative actions. It comprises the following situations:
1. A representative joint action with fixed number of plaintiffs
2. A representative joint action with unfixed number of plaintiffs
Representative Joint Action with Fixed Number of Plaintiffs
If there are a large number of people in a party, the party may form a joint action. The party may elect
representatives from among themselves to act for them in the litigation. The acts of such representatives in the
litigation shall be valid for the party they represent.

However, the representative shall get the consent of the party they represent before actions including
modification or waiver of claims, admission of the claims of the other party or pursuing a compromise with the
other party.

Representative Joint Action with Unfixed Number of Plaintiffs


If the object of an action is of the same category and the persons comprising one of the parties is large, but
uncertain in number at the commencement of the action, the People’s Court may issue a public notice. This
notice states the particulars and claims of the case as well as informing those entitled to participate in the action
to register their rights with the People’s Court within a fixed period.

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Medical Device Market in China

Those who have registered their rights with the People’s Court may elect representatives from among
themselves to proceed with the litigation. If the election fails its purpose, such representatives may be elected by
the People’s Court through consultation with those who have registered their rights with the court.

The acts of such representative in the litigation shall be valid for the party they represent; however, modification
or waiver of claims or admission of the claims of the other party or pursuing a compromise with the other party by
the representatives shall be subject to the consent of the party they represent.

The judgments or written orders rendered by the People’s Court shall be valid for all those who have registered
their rights with the court. Such judgments or written orders shall apply to those who have not registered their
rights but have instituted legal proceedings during period of limitation of the action.

Although the representative joint action is quite matured in Mainland China, currently this kind of pleading is not
very popular due to the following reasons:
1. Less acceptance by the public
2. Many judges are not willing to adopt joint action as their bonuses are based on number of cases heard.
They are more willing to split the joint action into several cases.
3. Chinese leaders prefer small cases rather than joint actions in case larger ones may influence the ‘social
stability’.
6.3.3.3 Discovery
According to the ‘Civil Procedure Law’ in Mainland China, the statement of complaint provided by the plaintiffs
shall include the evidence, sources of evidence, witness’s names and addresses. In addition, it is the duty of a
party to an action to provide evidence in support of his allegations.

The evidence can be presented in the following forms:


Documentary and material evidence submitted must be the original. If it is truly difficult to present the original
document or item, then reproductions, photographs, duplicates or extracts of the original may be submitted. If a
document written in a foreign language is submitted as evidence, a notarised Chinese translation must be
appended.

Audio-visual material shall be verified and examined by the People’s Court to determine whether it can be taken
as a basis for ascertaining the facts.

Expert conclusions are some of the most important evidence in some specialised areas, such as medical and
chemical product cases. However, generally it is gathered that when the People’s Court deems it necessary to
make an expert evaluation of a problem of a technical nature.

For a medical accident, medical associations are responsible for organising technical identification of medical
accidents including organising expert groups. All related materials are to be collected and sent to SFDA for a test
report. For those devices that cannot be tested (implantable devices), the comments made by experts are in
accordance with experiences in similar products.

However, at this stage, experts can only testify that whether the medical devices were defective. Empirically, only
a few medical institutes take responsibility for product defect issues.

Other types of evidence include testimony of witnesses, statements of the parties and records of inspection.
6.3.3.4 Sanctions for Non-Compliance
The People’s Court shall investigate and collect the evidence if a party or his agent ad litem are unable to do so
and the People’s Court considers it necessary for the trial. The People’s Court shall, in accordance with the
procedure prescribed by the law, examine and verify evidence comprehensively and objectively.

Sanctions may be imposed to the non-compliance units or individuals that refuse to provide information and
evidence. The fines are less than USD 125 for individuals and from USD 125 to USD 3,666 for corporations. The
offender, if dissatisfied with the decision, may apply to a People’s Court at a higher level for an appeal, which can
be granted only once. The execution of the decision shall not be suspended during the time of reconsideration.

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Medical Device Market in China

6.3.4 Attorneys’ Fees and Costs


Attorney’s Fees
In China, the parties have to pay their own attorney’s fee regardless of who wins. Several provinces standardise
attorneys’ fees, generally ranging from USD 100 to USD 2,444 for each case or USD 25 to USD 366 per hour.

Court Costs
The litigation fee is calculated by the People’s Court and is paid by the appellant before the case starts. After the
judgment has been made, the losing party shall be responsible for the litigation fee. However, if both parties are
found responsible, the court costs are divided between them, with the proportion determined by the judges.

6.3.5 International Affairs


As of now, there are no independent articles in Mainland China that mention product liability for manufacturers in
or from different countries. In addition, although both China and Switzerland have signed ‘The Hague Evidence
Convention’, which allows Chinese litigants to obtain evidence from Switzerland, China is not a signatory of the
‘Hague Convention on the Law Applicable to Products Liability’. This requires more effort with less benefit for
cases involving a non-domestic producer.

The Chinese government is trying to make a breakthrough in the current situation and protect domestic
consumers from ‘defective’ imported products. The China Society of International Private Law provides the most
advanced reference to international affairs as it relates to product liability, namely the ‘Model Law of Private
International Law of PRC’ (the model law is not a official regulation in China) which uses popular international
practise. In this model law, the People’s Court has the jurisdiction on the litigation if it brings damage or harm and
is manufactured or sold in Mainland China. In addition, the foreign manufacturers also have the obligation to
compensate the victim for the defective product; the compensation is similar for that paid to domestic
manufacturers.

6.3.6 Reducing the Risk of Product Liability


Foreign medical devices manufacturers who sell their products in China should take some measures to reduce
product liability risks. Here are some generally accepted measures:

State-of-the-Art Product Design


All medical devices sold in the Chinese market should fully meet all national or professional standards regarding
product design. The Standardization Administration Authority and the Drug Regulatory Authority under the State
Council jointly devise these standards. Most of the standards related to product design were recently abolished
by the SFDA because the standards were considered outdated. So far, no new standards have taken set.

Quality Control
Quality control is very important to reduce product liability risk. Foreign medical devices manufacturers should
pay attention to each phase of manufacturing, including materials and component selection, product testing and
packing, and storage and handling. In China, YY/T 0287-2003, ‘Medical Devices - Quality Management Systems
– Requirements for Regulatory Purposes’, is the only standard for medical devices product quality control.

Warnings and Instructions


Warnings and instructions should be provided for users, both healthcare providers and patients. According to the
‘Regulation of Administration of Medical Devices Instruction’ introduced by SFDA in 2002, warnings and
instructions of medical devices must contain all the information to ensure proper usage of the product, including
the product structure, capability, sphere of application, maintenance method and foreseeable risk of harm
resulting from both use and misuse of the medical devices.

Monitoring and Follow-up with Customers


After the products have been sold, open lines of communication with both healthcare providers and patients are
important. This will help to aid in the discovery of any possible defects in the use of medical devices. It will also
allow the manufacturer to provide additional instructions or warnings or conduct a recall of the products if
necessary. In addition, manufacturers can also survey customers’ opinion to help improve their products.

Preservation of Records

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Medical Device Market in China

In order to prove that all standards are met during the design and manufacture of medical devices, records
generated during these processes must be kept. For documents related to risk management of the products (it is
required by YY/T 0316-2003, ‘Medical Devices – Application of Risk Management to Medical Devices’), all the
records must be kept in risk-management documents. Preservation of records will provide critical functions such
as adverse event reporting and demonstrate meaningful employee training and quality assurance.

Insurance
To reduce the product liability risk, it is important that medical devices manufacturers make their products under
the coverage of product liability insurance. This will indemnify the manufacturer against payments that must be
made as a result of a judgment or a settlement. According to the related regulation of China underwriting, the
duration of insurance to medical devices product liability is five years.

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Medical Device Market in China

6.4 Product Liability Risk and Insurance Aspects

6.4.1 Introduction to Product Liability Insurance


Property and liability insurance companies generally provide product liability coverage to indemnify the insured in
the manner and within the limit of liability specified in the policy schedule against claims that the insured should
be liable for physical injury or property damage arising out of the named insured’s products or completed
operations.

A product liability claim usually falls into one of three possible types:
1. Design defect
2. Manufacturing defect
3. Failure to warn

Medical devices can potentially be involved with any the above types of liability claims as they have a special
operational purpose and usage conditions, two factors generally not found in the majority of traditional, non-
medical equipment. Medical devices are universally regarded as having high exposure to hazards, such as
physical and property damage. The risk of medical device product liability is featured as high severity and low
frequency, allowing for smaller margins of error. To reduce the economic impact of such kind of risk, medical
devices providers can transfer it to insurance companies through the purchase of product liability insurance. Also,
this generally translates into higher premiums and deductibles for the insured.

6.4.2 The Chinese Legal Environment Associated with Product Liability Insurance
At present, existing rules and regulations in China associated with product liability are not comprehensive. Thus,
it negatively influences the development of product liability insurance.

There are four potential legal bottlenecks:


z The independent product liability law has not come into being and the legal regulation is inadequate.
The principle definitions of product liability are present in ‘General Provisions of the Civil Law’; the
relevant concepts of product liability are demonstrated in the ‘Product Quality Law of the People's
Republic of China’ and the ‘Law of the People's Republic of China on the Protection of Consumers'
Rights’. Detailed product types are described in ‘Food Hygiene Law of the People's Republic of China’,
etc. The related regulations or rules promulgated sporadically.
z The legal definition for products is narrow, limiting the diversification of product liability insurance. For
example, according to ‘Product Quality Law’, a product is defined as ‘the processed and produced
product used for sale’.
z The definition of design and manufacturing defect is ambiguous, making identification of the scope of
product liability coverage difficult.
z The regulations regarding the criteria of product liability are inconsistent and obscure, negatively
reflecting product liability insurance development.

6.4.3 Current Situation of Product Liability Insurance for Medical Devices


The product liability insurance market for medical devices grew slowly due to several factors including legal
regulations, consumer awareness, medical devices providers and institute’s awareness, and risk selection of
insurance companies.

• Legal: Currently, there are no independent and comprehensive legal regulations associated with product
liability. Furthermore, the execution of law is neither complete nor consistent.
• Consumer: The legal awareness of consumers is underdeveloped. For example, if a consumer’s person
or property is injured or damaged by a design or manufacturing defect, they will seldom make a legal
claim to seek their benefit through the legal system.
• Medical devices providers: The legal awareness of providers is low and they frequently neglect the
contingencies involved in product defect claims. In addition, medical devices providers are unwilling to
transfer the liability risk to insurance companies due to an expensive premium and low rate of occurrence.
Medical institutes: As the principle reference group, medical institutes, either non- or for-profit have not
considered the product liability insurance as a key or necessary point when they purchase medical
devices through internal purchasing procedure or public bidding. Although product liability risk exists,

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Medical Device Market in China

most medical institutes hold a common opinion that the medical devices provider would be liable for such
claim rather than the institutes themselves.
• Property and liability insurance companies: When insurance companies evaluate risk exposure of
product liability for medical devices, they take into account a myriad of factors, such as the device’s
inherent risk level, usage conditions, operational purpose, annual sales revenue, territory of use,
manufacturing data, and so on. During the process of product inquiry, several insurance companies
express that the risk of medical devices is not preferred, and if accepted, the premium will be expensive
and excess liability will be very high. To the extreme, they will even decline some high-risk devices, for
example, the implant into the human body, or use for life support or sustenance.

Generally speaking, medical devices manufacturers and distributors eschew purchasing product liability
insurance for several reasons. Some of them are – difficulty in finding an insurance provider who is willing to
cover the equipment, the product liability law is non-existent and other related laws, such as indemnity, are
inconsistent in formulation and application.

6.4.4 Insurance Companies Offering Product Liability Insurance

• AIU Insurance Company Shanghai Branch is a leading insurance company in the world, a subsidiary of
America International Group (AIG), headquartered in New York. AIU Shanghai Branch was the first
foreign-owned property and liability insurance company, which was set up in 1992 (www.aiush.com.cn ).

• Winterthur Insurance (Asia) Ltd. Shanghai Branch is a leading insurance company in Europe,
headquartered in Switzerland. Winterthur Shanghai Branch is a foreign-owned property and liability
insurance company, which was set up in 1997 (www.winterthur.com.cn).

• PICC Property and Liability Insurance Company is the first domestic property and liability insurance
company and a leading property and casualty (P&C) insurance company in China, which was set up in
1949 in Beijing. It provides a broad range of P&C insurance products for a wide variety of customers
throughout China (www.picc.com.cn).

• China Pacific Insurance (Group) Co., Ltd. is a leading P&C insurance company in China, which was set
up in 1991, headquartered in Beijing (www.cpic.com.cn)

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Medical Device Market in China

7 Appendices
7.1 Comprehensive List of China’s Medical Device Imports by Country

Appendix Table 1: Segmentation of China’s Import of Medical Device by Country; Asia, Africa and South America
(2005, Unit: USD)

Area/Country Volume Value Percentage (by value)


Asia 664,538,751 1,146,273,942 30.2732%
Myanmar 8 820 0.0000%
North Korea 37 203,792 0.0054%
Hong Kong 3,297,152 19,129,657 0.5052%
India 2,278,339 41,960,675 1.1082%
Indonesia 1,918,706 1,657,894 0.0438%
Iran 31 24,114 0.0006%
Israel 3,346,048 68,776,832 1.8164%
Japan 93,685,908 710,556,007 18.7658%
Macao 2,740 19,676 0.0005%
Malaysia 314,433,851 40,547,464 1.0709%
Nepal 143 27,746 0.0007%
Pakistan 362,833 247,344 0.0065%
Philippines 605,854 3,201,251 0.0845%
Saudi Arabia 15 418 0.0000%
Singapore 24,051,611 96,796,964 2.5564%
South Korea 12,995,155 79,226,118 2.0924%
Sri Lanka 940,313 214,323 0.0057%
Thailand 47,963,363 8,811,315 0.2327%
Turkey 155,531 39,334 0.0010%
United Arab Emirates 704 13,220 0.0003%
Vietnam 126,565,867 1,399,417 0.0370%
China 14,395,524 31,262,936 0.8257%
Taiwan 17,539,018 42,156,625 1.1134%
Africa 49,143 237,541 0.0063%
Egypt 46,760 73,415 0.0019%
Kenya 20 29,764 0.0008%
Mauritius 1,150 72,947 0.0019%
South Africa 1,213 61,415 0.0016%
South America 12,775,366 27,739,345 0.7326%
Argentina 2,935,134 6,053,684 0.1599%
Barbados 31 9,585 0.0003%
Brazil 6,468,234 5,591,743 0.1477%
Colombia 128,795 268,377 0.0071%
Dominican 4,650 35,323 0.0009%
Costa Rica 10,320 85,259 0.0023%
Cuba 1 439 0.0000%
Dominica 139,481 3,285,622 0.0868%
Ecuador 0 1,299 0.0000%
Guatemala 18,144 17,237 0.0005%
Mexico 2,940,858 9,973,703 0.2634%
Puerto Rico 129,559 2,355,426 0.0622%
Uruguay 58 9,247 0.0002%
Venezuela 101 52,401 0.0014%

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Medical Device Market in China

Appendix Table 1, con’t: Segmentation of China’s Import of Medical Device by Country; Europe, North America
and Oceania (2005, Unit: USD)

Area/Country Volume Value Percentage (by value)


Europe 128,452,855 1,463,318,872 38.6464%
Belgium 3,184,644 13,616,171 0.3596%
Denmark 1,080,763 28,994,428 0.7657%
Britain 15,433,381 96,447,616 2.5472%
Germany 8,069,030 701,223,465 18.5194%
France 15,279,180 114,369,721 3.0205%
Ireland 11,970,887 76,288,081 2.0148%
Italy 13,797,017 61,368,986 1.6208%
Netherlands 1,119,950 151,345,064 3.9970%
Greece 15,168 245,415 0.0065%
Portugal 347 23,749 0.0006%
Spain 48,039,343 14,974,849 0.3955%
Austria 458,247 37,650,088 0.9943%
Bulgaria 560 70,621 0.0019%
Finland 2,246,492 15,577,252 0.4114%
Hungary 8,063 703,788 0.0186%
Iceland 82 138,382 0.0037%
Liechtenstein 12,579 759,123 0.0200%
Malta 417,010 150,178 0.0040%
Norway 31,064 17,586,715 0.4645%
Poland 91,798 4,198,801 0.1109%
Sweden 4,583,416 39,704,489 1.0486%
Switzerland 2,232,389 75,930,469 2.0053%
Estonia 3,910 35,683 0.0009%
Lithuania 94 65,639 0.0017%
Russian Federation 24,255 2,729,748 0.0721%
Slovenia 4,523 248,680 0.0066%
Croatia 288 960 0.0000%
Czech Republic 335,959 8,609,033 0.2274%
Slovakia 12,416 261,678 0.0069%
North America 86,389,783 1,124,782,055 29.7056%
Canada 495,890 33,454,297 0.8835%
United States 85,893,893 1,091,327,758 28.8220%
Oceania 2,422,596 24,066,996 0.6356%
Australia 2,407,165 23,459,014 0.6196%
New Zealand 15,431 607,982 0.0161%
Others 5,460 15,202 0.0004%
Other Countries 5,460 15,202 0.0004%
Total 894,633,954 3,786,433,953 100.0000%

Source: http://cccmhpie.mofcom.gov.cn/

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Medical Device Market in China

7.2 Services Provided by Hospitals According to Classification

Appendix Table 2: Services Provided by Level in Hospitals in China

Services Level I Level II Level III


Community Health-care 9 9 9
Medical Treatment 9 9 9
Health Administration 8 9 9
Teaching and Research 8 8 9
Section Office:
Internal Medicine:
Digestive System 9 9 9
Respiratory System 9 9 9
Angiocarpy 8 9 9
Circulatory System 8 9 9
Nervous System 8 9 9
Urinary System 8 9 9
Surgery
Abdomen 9 9 9
Chest 9 9 9
Heart 8 8 9
Urinary 9 9 9
Neurosurgery 8 9 9
Orthopaedics 9 9 9
Trauma 8 8 9
Orthopaedics 8 8 9
Gynaecology and Obstetrics 9 9 9
Emergency Room 9 9 9
Paediatrics Department 9 9 9
Ophthalmology Department 9 9 9
Otorhinolaryngology Department 8 9 9
Stomatology 9 9 9
Dermatology Department 8 9 9
Infection Department 8 9 9
Physical Therapy Department 8 9 9
Convalescence Department 8 9 9
Anaesthesia Department 8 8 9
Oncology Department 8 8 9
Interventional and Radiology Department 8 8 9
House Calls 9 9 9
Traditional Chinese Medicine 9 9 9
Source: Ministry of Health of the People’s Republic of China

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Medical Device Market in China

7.3 Process of Direct Purchasing with Fund Approval (less than USD 2,444)

Head nurse or director

Approval from
Equipment Management
Diversion

Approval from head of hospital

Designate supplier

Supply and stock into


Housewares

Check and Accept by Division

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Medical Device Market in China

7.4 Process of Direct Purchasing with Fund Approval (USD 2,444 to 12,222)

Director of hospital division


applies

Equipment management
division collects all applications
once a year

Equipment Management
Committee (Head office)

Approval from District Board of


Health

Approval from District Board of


Finance

Equipment Management
Division arranges for
purchasing plan

Hospital monthly biding


purchase

Division check and accept

Decide on supplier
Contract and install

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Medical Device Market in China

7.5 Risk Management Flow Chart

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Medical Device Market in China

7.6 Abbreviations and Acronyms Used in the Study


AAMI – Association for the Advancement of Medical Instrumentation
AED – Automated External Defibrillator
AIG – America International Group
AIU – American International Underwriters
AQSIQ – Administration of Quality, Supervision, Inspection, and Quarantine
BMS – Bare-metal Stent
CABS – Coronary Artery Bypass Surgery
CAD – Computer Aided Design
CAGR – Compound Annual Growth Rate
CAM – Computer Aided Manufacturing
CAMDI – China Association for Medical Devices Industry
CCC – China Compulsory Certificate
CE – Conformité Européenne, European Conformity
CIQ – China Inspection and Quarantine
CJV – Contractual Joint venture
CNCA – Certification and Accreditation Administration of the People’s Republic of China
CQC – China Quality Certification
CT – Computerized Tomography
CTIPRC – Customs Tariff of Import of the People's Republic of China
CV – Cardiovascular
DES – Drug-eluting Stent
DSA – Digital Subtraction Angiography
EBCT – Electron Beam Computed Tomography
EJV – Equity Joint Venture
ESWL – Extracorporeal Shock Wave-lithotripsy
EU – European Union
FDA – Food and Drug Administration
FOB – Free On Board
FTC – Foreign Trading Company
GDP – Gross Domestic Product
GMP – Good Manufacturing Practices
ICD – Implantable Cardioverter Defibrillator
ICP – Intracranial Pressure
IPR – Intellectual Property Rights
ISO – International Standards Organization
ITC – Industrial Trading Company
IVD – In Vitro Diagnostics
JV – Joint Venture
M&A – Mergers and Acquisition
MD – Medical Device
MEBO – Moist Exposed Burn Ointment
MIS – Minimally Invasive Surgical
MNC – Multinational Corporation
MRI – Magnetic Resonance Imaging
NASA – National Aeronautics and Space Administration
NDRC – National Development and Reform Commission
OEM – Original Equipment Manufacturer
P&C – Property and Casualty
PRC – People’s Republic of China
PACS – Picture Archive Communication System
PDS – Polydioxanone
PET – Position Emission Tomography
PGA – Polyglycolic Acid
PGL – Polyglactin-910
PGLA – Polymer Polyglycolic-Lactic Acid
PICC – People’s Insurance Company of China
PMA – Pre-market Approval

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Medical Device Market in China

PTCA – Percutaneous Transluminal Coronary Angioplasty


PTI – Percutaneous Transluminal Intervention
R&D – Research and Development
RIS – Radiology Information System
RM/LPME – Regulations on Manuals & Labels and Packaging of Medical Equipment
RPRCIED – Regulations of the People’s Republic of China on Import and Export Duties
RSAMD – Regulations for the Supervision and Administration of Medical Devices
S&P – Standard and Poor’s Corporation
SARS – Severe Acute Respiratory Syndrome
SFDA – State Food and Drug Administration
SME – Small and Medium Size Enterprise
SOE – State Owned Enterprise
SPECT – Single Photon Emission Computed Tomography
TÜV – Technischer Überwachungs-Verein, Technical Monitoring Association
UKAS – United Kingdom Accreditation Service
USD – United States Dollar
WFOE – Wholly Foreign-owned Enterprise
WHO – World Health Organization
WTO – World Trade Organization
XGY – Ningbo Xingaoyi Medical Equipment Co., Ltd.

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