BB Marktstudie Medical Device Market in China 070215

Author:Osec Business Network SwitzerlandStampfenbachstrasse 85, Postfach 492CH-8035 ZürichPhone +41 44 365 51 [email protected]

Market Report

Medical Device Market in China 2007

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

Page 1

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.


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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)

1,170.92 1,457.57 1,096.19

1,501.371,736.13 2,301.28

919.60

1,130.231,531.171,004.06

1,353.621,274.63

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

2003 2004 2005

Year

Valu

e (U

SD m

illio

n)

Q1 Q2 Q3 Q4

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

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

6,203.27

4,595.95

5,677.55


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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)

120.04 72.84211.2

140.01128.21

43.56 122.46

142.88108.79

162.6

0

100

200

300

400

500

2003* 2004 2005

Year

Prof

it (U

SD m

illio

n)

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

-5

0

5

10

15

20

-20 0 20 40 60 80 100 120

Market Value in 2005 (USD billion)

Gro

wth

in C

AGR

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

373.77 412.4

466.39


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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)

4,061.955,171.55

6,096.27

10,567.519,196.76

8,082.80

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

2003 2004 2005

Year

Am

ount

(USD

mill

ion)

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


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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.


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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)

1,2271,517

2,020

2,777

3,679

1,852 1,910

2,554

3,283

3,786

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2001 2002 2003 2004 2005

Year

Impo

rt a

nd E

xpor

t Val

ue (U

SD

mill

ion)

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

23.6%

33.2%

37.5%

32.5%

3.1%

33.7%

28.5%

15.3%

0

100

200

300

400

500

600

700

2001 2002 2003 2004 2005

Trad

e D

efic

it (U

SD m

illio

n)

0%

5%

10%

15%

20%

25%

30%

35%

40%

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

28.8%

18.8%18.5%

4.0%

3.0%

2.6%

2.5%

2.1%

2.0%

2.0% 15.7%

United States Japan Germany the NetherlandsFrance Singapore Britain South KoreaIreland 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.


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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

Type of cardiovascular diseases Prevalence (million people)

Incidence (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.

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

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

Others, 12.00%Pulmonary HeartDisease, 8.20%

Myocardial Infarction,10.90%

Other Coronary HeartDisease, 10.80%

Stroke, 48.30%

Hypertensive HeartDisease, 9.80%

Source: www.moh.gov.cn


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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)


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

0

50,000,000

100,000,000

150,000,000

200,000,000

1993 1998 2003 Other Chronic Disease Heart Disease Hypertension

CAGR of 11.4% CAGR of 0.8%

CAGR of -2.1%

CAGR of 6.9%

CAGR of 2.7%

CAGR of -1.5%


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• 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)

Condition Bed Fee Drugs Operation Treatment and Examination Total

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. 14Table 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


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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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

49,59835,00031,28727,96725,00016,000

70,28399,597

141,136

200,000

0

50,000

100,000

150,000

200,000

250,000

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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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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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)

Number of Discharged

Patients Average Stay (days) Average Expense Operation

Fee Bed Fee

Treatment and

Examination Fee

Medicine

19,667 13.3 600.00 168.37 34.84 175.71 255.51

National- Level

Hospital 14.9 National Hospital 1,483.51 N/A N/A N/A N/A

Province- Level

Hospital 13.7 Province Hospital 882.44 N/A N/A N/A N/A

Prefecture- Level City Hospital

14.2 Prefecture Level City Hospital 571.07

N/A N/A N/A N/A

County- Level City Hospital 6.0 County Level

City Hospital 113.94 N/A N/A N/A N/A

County- Level

Hospital 5.3 County Hospital 102.47 N/A N/A N/A N/A


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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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


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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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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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

Biliary Tract; 105,680; 91%

Vermiform Appendix and SmallIntestine; 8,500; 8%

Cancer; 453; 0%

; Diagnosis and Acute Abdomen ; 5710%

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

Rectal; 60; 0%

Pancreas and Spleen; 135; 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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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.


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• 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.


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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


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• 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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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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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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* 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


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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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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/


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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


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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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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 Coincidence Rate (%)

≥85 ≥90 ≥95

Coincidence Rate between Preoperative and Postoperative Diagnosis (%)

≥95 ≥95 ≥98

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 Severe Illness Cases (%)

N/A ≥80 ≥84

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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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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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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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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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)

5.94

43.32

76.30

94.00

109.02

124.04137.83

0

20

40

60

80

100

120

140

160

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)

2.13

4.80

7.60

11.13

14.26

17.56

0

2

4

6

8

10

12

14

16

18

20

2000 2001 2002 2003 2004 2005

Basic Medical Insurance Funds Revenues

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


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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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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)

2,053 2,033

2,132

2,22351

56

63

75

1,900

1,950

2,000

2,050

2,100

2,150

2,200

2,250

2,300

2,350

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)

56.79 59.21 65.00 69.87

1.25 1.501.43

1.76

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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• 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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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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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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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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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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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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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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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:

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.

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’.

The definition of design and manufacturing defect is ambiguous, making identification of the scope of product liability coverage difficult.

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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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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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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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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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 Medical Treatment Health Administration Teaching and Research Section Office:

Internal Medicine: Digestive System Respiratory System Angiocarpy Circulatory System Nervous System Urinary System

Surgery Abdomen Chest Heart Urinary Neurosurgery Orthopaedics Trauma Orthopaedics Gynaecology and Obstetrics Emergency Room Paediatrics Department Ophthalmology Department Otorhinolaryngology Department Stomatology Dermatology Department Infection Department Physical Therapy Department Convalescence Department Anaesthesia Department Oncology Department Interventional and Radiology Department House Calls Traditional Chinese Medicine

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


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

Head nurse or director

Approval from Equipment Management

Diversion

Designate supplier

Approval from head of hospital

Supply and stock into Housewares

Check and Accept by Division


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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

Approval from District Board of Health

Equipment Management Committee (Head office)

Approval from District Board of Finance

Equipment Management Division arranges for

purchasing plan

Hospital monthly biding purchase

Decide on supplier

Division check and accept

Contract and install


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7.5 Risk Management Flow Chart


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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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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.

BB Marktstudie Medical Device Market in China 070215

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