Pharmaceuticals

Tue, 04/07/2009 - 13:23

In this week's Interfax pharmaceuticals guest column, Glenn Hou, head of global consulting company Frost & Sullivan's health care practice in China, observes the opportunities the national health care reform will likely bring to China's medical device sector. Translated from the original Chinese by Sarah Wu.

Glenn Hou, head of global consulting company Frost & Sullivan's health care practice in China

Shanghai. April 7. INTERFAX-CHINA - China's health care reform, involving the four main aspects of improving the rural and urban basic health care systems, the basic medical insurance system and public health care services, will greatly impact on the medical device sector this year as it not only brings about structural changes but also mindset changes to the concept of health care.

With the reform, China's emphasis in health care will switch from being treatment-oriented to one that is prevention-oriented, as such leading to a higher demand for basic medical equipment. X-ray machines, biochemistry analyzers and electrocardiographs are likely to be among the key products on the government's centralized medical device procurement list.

In terms of infrastructure, the country's health care system will be shaped to comprise of two parts, namely the rural health care system spearheaded by county-level public hospitals and backed by health clinics at the township and village levels and the urban health care system that emphasizes on the treatment of common diseases by community health centers and the treatment of major diseases at large public hospitals.

In the rural health care sector, China currently has 39,441 township clinics that are disproportionately equipped. Notably, clinics in southeastern coastal areas are in line with or above Ministry of Health (MoH) standards while in the northern and inland areas, clinics are mostly inadequately equipped. I believe the government's next move will be to equip such clinics with necessary medical equipment for disease diagnosis, basic treatment and patient transfers. Hence in the long run, there will be a large demand for basic medical equipment from these clinics, although there may be a preference for locally-produced low to medium-end products due to their reasonable pricing.

Looking to the urban health care sector, China now has 1,045 grade three hospitals that will be required to focus on major and severe disease treatment, leading to a potential demand for high-end diagnostic and treatment equipment. The need for low to medium-end basic medical equipment will also be huge as the country's 5,151 grade two hospitals and 2,738 grade one hospitals will have to change their treatment focus while 5,774 community health centers will receive government subsidies to purchase equipment to provide a variety of basic health care services.

Amid the current policy and market environment, I see six categories of medical devices showing the greatest potential, notably in-vitro diagnostic devices, low-end medical imaging facilities including corpuscle counter and portable ultrasound systems, medical information technology (IT) solutions including computer-aided diagnostic systems and long-distance medical treatment systems, minimally-invasive and non-invasive devices including stents, capsule endoscopes and insulin pumps, medical consumables including disposable surgery instruments as well as home-use medical devices including blood glucose monitors and sphygmomanometers.

It should be noted, however, that Chinese export-oriented medical equipment manufacturers will face hurdles this year due to the dismal global market conditions. In fact, China's medical equipment exporters, in particular those that export equipment parts and low-end finished products, have already experienced a bleak winter last year with slumping sales. With the international economy showing no signs of improving anytime soon, one should not be expecting a definite rebound this year for medical device exports even with the expected export tax rebate and other government stimulus measures.

Medical equipment manufacturers that focus on the domestic market, in particular large companies with diversified products, may find their path ahead comparatively more stable, but they will face fiercer market competition this year. 

As I see it, China's medical device sector, worth RMB 83 billion ($12.14 billion) in 2008 or only one-eighth of the country's health care market, still has a lot of growth potential. I predict that in the coming three to five years, China, with its huge market potential and preferential policies, will be attracting many large-sized medical equipment multinational companies. These companies, facing immense pressure to improve sales revenue in the global financial downturn, will likely now look towards China as a key market rather than its traditional role as the world's factory.

The above is a personal opinion piece by the author. Its publication in no way implies that Interfax shares the views expressed in the article.