Healthcare Reform Creates New Competition in Medical Device Market
In April 2009, the Chinese government released a plan for the reform of ’s healthcare system. According to this plan, the Chinese government will invest 850 billion RMB ($124 billion) on healthcare in the next three years, in order to provide universal medical services to the country’s 1.3 billion population by 2011. The overwhelming majority of the investment will be devoted to primary level public healthcare services in impoverished regions in Central and
The Chinese Premier, Mr. Wen Jiabao, disclosed that the plan covered five aspects, and one of the aspects was to rebuild thousands of clinics and hospitals in the next three years, especially in rural areas. It was estimated that the expenditure on medical devices will reach 100 billion RMB ($15 billion) in the next three years.
In , most township hospitals and county hospitals are lacking basic medical devices, such as black and white ultrasound imaging equipment and analogue X-ray equipment. According to the plan, 29,000 township hospitals and 2,000 county hospitals will be upgraded. IMS Research believes that many local medical device manufacturers who supply low-end equipment will benefit greatly from the plan.
On the other hand, some multinational medical device manufacturers, who had previously focused on high-end medical device markets, have also changed their strategies to generate more business from the huge mid-tier and low-end rural market. In 2007, Siemens Medical in initiated a five-year program with assistance from the China Ministry of Health. With total investment of $10 million, the aim of this program is to upgrade medical devices in hospitals in rural areas. In December 2008, GE Healthcare founded a joint venture with the Shinva Medical Company, a local Chinese medical equipment supplier, to mainly produce low-end X-ray equipment for the rural market. Similar strategies have been adopted by other multinational players, such as Philips Medical and Carestream, to compete in this mid-tier and low-end rural medical device market.
Despite this new focus, IMS Research believes that the multinational medical device suppliers will struggle to compete with the local suppliers in terms of cost and sales channels. Market research analyst, Owen Tang commented: “Local medical device giants, such as Wandong, Shinva and Mindray have already focused more on the rural market. Since mid-tier and low-end medical devices are mostly purchased via government bidding, local products may be preferred if prices are low and the quality good. It has also proven quite hard for multinationals to expand business in rural areas as distribution channels cannot easily be set up”.
The healthcare reform plan is kicking off a new round of competition in the medical device market in . Both local and foreign manufacturers have their own advantages and disadvantages. Who will win, and how will this affect the market? InMedica (the medical research group at IMS Research) will be following events closely over the next few years.
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