China's medical equipment market adds new variables

Source: forbes.cn last week, the national health and Family Planning Commission of China (hereinafter referred to as the "health and Family Planning Commission") shook its fingers at foreign medical equipment manufacturers: from now on, the Chinese government will adopt a clear policy aimed at domestic manufacturers rather than foreign manufacturers The health and Family Planning Commission clearly announced: "vigorously advocate the use of domestic medical equipment by health and family planning institutions, and focus on promoting the use of domestic medical equipment by tertiary grade A hospitals." In order to explain the reasons for the implementation of this policy, the health and Family Planning Commission pointed out that these measures are essential for "effectively curbing the unreasonable growth of medical expenses and effectively reducing the burden on patients" Although there is room between the lines (foreign enterprises can freely claim that their special products have unique value, and Chinese hospitals can make purchase decisions based on these advantages within a certain range), the tone and direction of the announcement of the health and Family Planning Commission should attract the attention of foreign medical equipment companies If the policy is successfully implemented, foreign medical equipment companies operating in China will face a more complex situation First of all, is China's Hospital's preference for domestic products in line with China's WTO obligations? At present, the answer seems to be yes, because China can find a reasonable reason for this discriminatory policy, that is, the procurement of its public hospitals conforms to the exclusive terms of the government procurement authority (GPA) under the WTO framework GPA can be seen as a corner of the existing WTO rules, which contain various discriminatory policies set by the government for the purchase of domestic goods (often produced by local companies) The so-called "buy home" policy has aroused great dissatisfaction with China's trade policies in other industries, which face domestic procurement restrictions set by China's central government If the GPA exclusion clause does provide an umbrella for China to discriminate against foreign medical equipment manufacturers, it will intensify the call for China to modify its GPA clause Critics of China point out that talks have been going on since 2007, but their efforts have yielded little In addition to the issue of trade agreements, this initiative of the health and Family Planning Commission will also accelerate the current trend of foreign multinational medical equipment manufacturers to acquire Chinese medical equipment companies or establish joint ventures with them, as well as the trend of more transfer of medical equipment production capacity from their own country to China If these strategies are successful, they should enable foreign enterprises to continue to participate in the public bidding of Chinese hospitals, just to prove that they are domestic products, so that they will not be subject to the discriminatory policies of the health and Family Planning Commission Almost every large multinational medical equipment company that focuses on China's domestic market has expanded its production capacity in China in the past 10 years At present, the balance of China's market share is seriously turned to foreign enterprises Novotek therapeutics estimates that foreign entities (whether they are made in China or not) account for 74% of the Chinese medical device market In this regard, a sentence in the notice made by the health and Family Planning Commission deserves attention: "we should focus on promoting the application of domestic medical equipment in the third class A hospitals." This is important because China's open bidding - initially for drugs and now for equipment - is moving to a "top-down" and "left to right" approach "Top down" public bidding means that China's largest hospital (i.e the "third tier a hospital" mentioned above) will increasingly speak and negotiate on behalf of smaller hospitals in China In the future, it will be of great significance to win in the public bidding of large-scale third class A hospitals, not only because of the large demand of that hospital, but also because other smaller hospitals will be forced to follow the footsteps of larger hospitals The "left to right" public bidding of Chinese hospitals involves the influence of these policies on the provinces In other words, if Zhejiang Province purchases some kind of equipment for operations that can be reimbursed to the government, then the neighboring provinces of Anhui and Jiangxi may do the same It is becoming more and more important to integrate the market and concentrate the sales points to a few large public hospitals, which can significantly improve the benefits of medical device manufacturers In 2009, when the US economy was worsening, people who criticized China's trade policy found new reasons, because China's government has increasingly stressed its so-called "indigenous innovation" policy Although this has been a thorn in Sino US trade negotiations since 2006, the 2008 financial crisis has made American industry more dissatisfied with those parts of the Chinese economy that they are banned from participating in sales (that is, the "buy home" part) Nowadays, under the double influence of population aging and fiscal tightening, the profits of pharmaceutical and medical equipment companies in developed economies are under great pressure, and the Chinese market has become increasingly important This means that medical device companies must pay attention to the impact of changes in the Chinese market on the industry's ability to successfully enter China, such as those brought about by the health and Family Planning Commission last week The integration pressure brought by the inclination of domestic products and the expansion of public hospitals' bidding scope will require foreign companies to improve their production and sales capacity in China at a faster speed than many expected With regard to China's overall attitude towards foreign multinational enterprises, there are many uncertainties that will continue to cause concern In this situation, now medical equipment companies have another layer of complexity to overcome