In recent years, the Party and the state have attached great importance to the development of medical devices, encouraging innovation while optimizing the supervision and management system. Currently, China's medical device industry is developing towards localization, high-endization, branding, and internationalization. It is reasonable to believe that with the proposal of the new healthcare reform plan and the 'Healthy China 2030' health development strategy, China's medical device industry will continue to develop and make solid progress.
Industry status quo and development trends
The global medical device industry market size was 3,150.6 billion yuan in 2020, a year-on-year increase of 2.2%. It is expected that by 2025, the global medical device industry scale will reach nearly 4,447 billion yuan, with a compound growth rate of 4.2% from 2016 to 2020. Looking at the domestic market, as of 2020, China's medical device market size was approximately 729.8 billion yuan, a year-on-year increase of 17%, nearly four times the global growth rate of medical devices. China has also become the world's second-largest medical device market after the United States, with an expected total market size of nearly one trillion yuan by 2023.
Global & Chinese Medical Device Market Size Comparison
2016 - 2030E
Source: Compiled by Frost & Sullivan
At present, a large amount of medium and low-value consumables in China have basically achieved import substitution. In fields such as active surgical instruments, obstetrics and gynecology, and assisted reproduction, imported and domestic products are evenly distributed. For non-active surgical instruments and implantable devices, domestic products are still accelerating their catch-up. However, high-value consumables such as active implantable devices, ophthalmic instruments, and cardiovascular surgical instruments are basically monopolized by imported products.
External driving factors for medical device import substitution
1. The incidence rate of diseases in our country is mostly on the rise, especially for orthopedic diseases involving high-value orthopedic consumables, which tend to increase with age.
The sub-sector with the highest proportion of medical devices in China's medical insurance catalog is orthopedic consumables. According to the 2020 China Health Statistics Yearbook, the incidence of orthopedic diseases among people over 60 years old in China was generally high in 2019, with the highest incidence being bone density and bone structure diseases, accounting for 83.2%. China is currently in an aging phase, and according to data from the seventh national census, the population over 60 years old in China has reached 264 million. Therefore, vigorously promoting localization has a positive impact on saving China's medical insurance funds.
Comparison of the incidence rates of orthopedic diseases among different age groups in 2019
Source: Compiled by Frost & Sullivan
Driven by information security demands
Article 49 of the 'Basic Medical and Health Care and Health Promotion Law of the People's Republic of China' states: 'The state shall promote the informatization of national health care, advance the application development of big health data, artificial intelligence, etc., accelerate the construction of medical and health information infrastructure, formulate technical standards for the collection, storage, analysis, and application of health data, and use information technology to promote the popularization and sharing of high-quality medical and health resources. People's governments at or above the county level and their relevant departments shall take measures to promote the application of information technology in the field of medical and health care and medical education, and support the exploration and development of new models and business forms of medical and health services. The state shall take measures to promote medical and health institutions to establish and improve systems for the exchange and security of medical and health information, use information technology to carry out telemedicine services, and build an integrated online and offline medical service model.' The above measures will become the focus of domestic hospital informatization construction during the '14th Five-Year Plan' period. Domestic tertiary hospitals and qualified secondary hospitals should complete the construction of information platforms during the '14th Five-Year Plan' period, laying the foundation for the construction of internet hospitals and smart hospitals, information interconnection and interoperability, and the application of new-generation information technology, striving to break the 'information silos' as soon as possible. On the other hand, the interconnection, interoperability, and open sharing of medical and health information pose higher demands on information security and privacy protection. Personal information, sensitive information, and privacy information in digitalized results are more comprehensive and precise, and the security of health institution data has become the biggest concern, which is conducive to accelerating the entry of domestic devices into medical institutions.
3. Driven by relevant policies
In recent years, China's medical device industry has been experiencing a rare 'policy-intensive period'. From 'Made in China 2025' to the 'Healthy China 2030 Plan Outline', the localization of high-end medical devices has been elevated to an unprecedented national strategic level. Since 2013, there have been more than 20 policy documents encouraging and supporting the development of the medical device industry, such as the 'Medical Device Registration Management Measures', 'In Vitro Diagnostic Reagent Registration Management Measures', 'Medical Device Priority Approval Procedures', and the 'Pilot Program for the Insurance Compensation Mechanism for the First (Set) of Major Technical Equipment'. These policies cover multiple aspects including research and development, registration approval, production, and application, with the aim of supporting the development and application of domestic medical devices to achieve import substitution. Secondly, the new healthcare reform is driving medical institutions to purchase domestic medical devices. The high prices of foreign brands and the ' Tyrannosaurus clauses' in after-sales maintenance have forced hospitals to shift costs to patients, leading to persistently high inspection fees and widespread complaints from patients. After the introduction of a new healthcare reform plan, policies are forcing public hospitals to curb unreasonable growth in inspection and pharmaceutical expenses, and adopting cost-effective domestic medical devices will become an important means to reduce inspection fees. Thirdly, hierarchical diagnosis and treatment is boosting the application of domestic medical devices. Hierarchical diagnosis and treatment is another important aspect of the new healthcare reform, and actions to improve primary medical service levels are being accelerated. Benefiting from this favorable policy, the demand for cost-effective domestic medical devices by primary medical institutions will grow rapidly.
Driven by continuous policy initiatives, more and more high-quality domestic medical devices are entering the market, and the market share of domestic brands is also expanding continuously. Basic medical devices that mainly relied on imports in the past have been largely localized, and import substitution has gradually shifted from mid- to low-end markets to high-end markets.
Source: Compiled by Frost & Sullivan
The internal driving forces of enterprises in promoting localization
1. The number of core technologies mastered by domestic medical devices is gradually increasing, and the localization rate of most products is showing an upward trend year by year.
Currently, China has become a major manufacturing country, accumulating substantial technical experience and cultivating numerous industrial talents. This has laid a solid foundation for the soaring development of the medical device industry, which relies on high-end precision manufacturing. The talent introduction plan with generous benefits has also attracted many overseas talents who possess core technologies back to China. Our domestic medical equipment has gradually broken through multiple technical barriers, and diagnostic and therapeutic devices and consumables such as electrocardiographs, ultrasound diagnostic instruments, and cardiac stents have either started or achieved import substitution. Import substitution will remain the main theme of China's medical device development in the next decade, but this process needs to be accompanied by innovation and upgrading of domestic proprietary technologies.
Most high-end medical devices in China rely on imports, leaving significant room for import substitution. Approximately one-third of domestic medical device categories have an import substitution rate of less than 50%. However, due to the relatively low import substitution rate, the prices of imported exhibits for most categories are high. From 2015 to 2020, the sales of imported medical device products accounted for about one-third of the overall medical device market. Currently, the import substitution of low-value consumables in China has been basically completed, and the high-value consumables industries such as balloons, staplers, and IVDs have also entered a golden period of import substitution.
The 'import substitution' strategy in high-end markets has achieved minimal results. In recent years, with continuous improvement in the quality of domestic equipment and consumables, although some high-value consumables, especially orthopedic products from domestic brands, have surpassed imported ones and achieved a certain degree of 'import substitution', the vast majority of enterprises are still concentrated in the markets for low-value consumables and low-end diagnostic and treatment equipment. In high-end fields such as ultrasonic therapy devices, electrocardiogram equipment, high-grade physiological recorders, and magnetic resonance equipment, foreign brands still maintain a market share of around 90%. International brands such as Roche, Abbott, Siemens, Philips, GE, etc., occupy the high-end medical device market mainly in tertiary hospitals. In contrast, domestic brands have only gained a higher market share in primary healthcare institutions below level two by virtue of price advantages and policy support.
2. The adjustment of the enterprise's business model enables curve overtaking through license-in
In recent years, with the intensifying competition in the medical device industry and the volume-based procurement policy under healthcare insurance control, mature businesses are facing growth pressure. At the same time, the medical device industry has fragmented and discrete manufacturing characteristics, with significant differences between various sub-sectors. Product technology evolves rapidly, and new technologies have a disruptive impact on old ones. If companies cannot possess new technologies or further expand their market share, it will be difficult to maintain stable growth. Therefore, in order to break through corporate ceilings and seize high-potential sub-markets, relevant medical device companies can only embark on the fast track of development through accelerating mergers and acquisitions and license-in (permission to introduce new technologies).
3. The price advantage of domestic products promotes import substitution
Taking the winning bid prices for thoracic and abdominal aortic stents in major first- and second-tier cities in China as a reference, the price of domestic stents is about two-thirds that of imported stents, providing a clear price advantage. In the clinical use of medical consumables, terminal prices directly affect patients' willingness to use them. At the same time, considering the pressure on medical insurance expenditures and hospitals' strict control of 'consumption ratios' since 2017, the price advantage of domestic consumables has further accelerated the process of import substitution for arterial implantation devices. Compared to imported products, the greatest advantage of domestic stents is cost advantage, which provides important support for domestic medical device enterprises in market competition. However, in the process of winning by price, some domestic devices still have gaps with imported products in terms of technical level and product quality. With the continuous improvement of R&D capabilities and acceleration of technological innovation by medical device manufacturers in China, the gap between the quality and performance of Chinese aortic stents and imported products is continuously narrowing. In the future, domestically developed aortic stents in China will achieve a balance between price and quality, gradually completing import substitution.
Comparison of consumable price advantages
Source: Compiled by Frost & Sullivan
In recent years, with the technological progress of medical device enterprises in China, the maturation of supporting industrial chains, and the promotion of national policies such as healthcare reform, hierarchical diagnosis and treatment, and support for domestic equipment, China's medical device industry is expected to embrace a golden decade of rapid development. Import substitution is the main theme of device development in the next decade. Looking back at the successful experiences in sub-sectors that have already achieved import substitution, more areas in China will realize import substitution in the next five to ten years.
