China’s Medical Equipment Market Sizzles

The Chinese healthcare and medical equipment market is on a growth spurt that has Western OEMs salivating over its sales potentials, and priming their supply chain for profit opportunities in the world's most populous nation. Danger looms in the $357 billion market, however, and failure to understand the challenges of China's evolving healthcare industry could lead to missed opportunities and losses for medical equipment vendors, according to a research firm.

Researcher and market consultancy McKinsey projects the Chinese healthcare sector will nearly triple in value to $1 trillion by 2020 (from $357 billion in 2011) on demographic changes, increased investment under the country's latest 5-year plan, and the increased involvement of the private sector in healthcare delivery. The mouthwatering growth has attracted Western multinationals in droves, but according to McKinsey, an inevitable shakeout in the industry could leave many late starters and losers disappointed.

The supply chains of healthcare services providers and medical equipment vendors, including large swaths of the electronics component and manufacturing sectors, could also take a hit if the companies back losers, or are unprepared for the evolution of the market. While the McKinsey sales projection makes sense and seems realistic based on steps being taken by China to transition its health industry into a Westernized model, the Chinese system is also quite peculiar to the country, and failure to successfully navigate its quirks could result in huge losses.

McKinsey expects consolidation in the Chinese medical equipment and healthcare delivery industry, and says “multinationals will find it harder to compete” as local players jockey with them for a larger share of the market. The researcher went on to say:

    Medical-device and -equipment companies, such as GE Healthcare and Philips, have built China businesses that now boast annual revenues of more than $1 billion and are still expanding rapidly. This steady growth of China's market stands in stark contrast with those of the United States, Japan, and Western Europe. Especially in the United States and Europe, many companies have resorted to rounds of downsizing, shrinking their R&D and manufacturing footprints, as well as their commercial operations.

    It is therefore not surprising that multinationals are ramping up their investments in China, tapping into the unmet needs of its huge population, its manufacturing and emerging R&D ecosystem, and the government's support for the biomedical industry.

OK, I understand that McKinsey sees some concerns in China for healthcare service providers and medical equipment vendors, but I also believe a different set of dynamics is playing out in this market. This is one of the few industry segments where China is offering medical equipment manufacturers the opportunity for local sales growth, as opposed to jostling with them for chances in the international market.

It's possible many companies will fail in China, but the handful that succeed in getting a piece of the market will be divvying up a large and fast-growing industry segment. I see opportunities here for increased semiconductor sales and medical equipment manufacturers, as well as the potential for contract manufacturing service expansion.

If China delivers on the promise everyone expects in healthcare services and medical equipment, local and Western companies will benefit from the continued opening of its economy.

28 comments on “China’s Medical Equipment Market Sizzles

  1. dalexander
    November 13, 2012

    @Anna, I just checked the census at 1.4 billion for China. I also understand that the middle class is appeariing and growing rapidly in China. How do you think the traditional medicine business will be impacted with the introduction and implementation of Western technology becoming pervasive throughout China? The traditional approach to medicine is more than just a medical issue. It is also a philosophical approach that borders on the spiritual. Do you think new tech in medicine will be universally accepted? Payback time or break even on capital equipment could also be extensive. Will the import of our tech end up driving up Chenese health care cost as it has in the US?

  2. Shelly
    November 13, 2012

    Undoubtedly, with the living standard enhance and people increasingly emphasizing health, the medical equipment will offer great investment opportunity to vendors, including foreign vendors, because they hold the advanced technology which is an important requirement for medical equipments.

    November 14, 2012

    I can only imagine as the earning power of the population increases that the role of traditional medicine will decrease.  However, I am no expert so it would be interesting to hear from others on this subject.

  4. SP
    November 14, 2012

    China has taken the best advantage of the communist government and such a large population. Its going to become one of most developed economies. But when it comes to professional ethics not sure how satisfied the customers would be.

  5. mfbertozzi
    November 14, 2012

    @SP: well, I believe the message from Anna is right. On one side, We need to hold a “neutral” approach, avoind to be prevented, but on the other side, only way from them to demonstrate how is realistic their presence within medical market, is to fit 100% regulations in the matter. It seems for telecom market, it is not happend and several concerns about equipment are still not open. Am I wrong?

  6. SP
    November 14, 2012

    @mfbertozzi , I guess you are correct. I guess everything in China must be done under the full control of government. One way that is correct in order to control such a huge population and still have good infrastuctures. But the Western world where freedom is more a right, dont know how they would take it in business sense. BUt one thing is clear no one can deny China being one of the biggest controller in terms of manufacturing.

  7. Daniel
    November 14, 2012

    Anna, it's already proven that China is a leader in terms of Hardware manufacturing and they are still growing with software. So there is no surprise that, any type of industry can be get flourished in China. But the only problem is, eventhough they have a large population, none of the companies may not be able to sell much of the products in local market.

  8. mfbertozzi
    November 14, 2012

    @SP: many thanks for sharing your vision, speaking for myself, is really fascinating. After all, we are still discussing a matter strictly related to the culture of civilitations.

  9. SP
    November 14, 2012

    so true!@mfbertozzi


  10. Anna Young
    November 14, 2012

    These questions are the ones China healthcare service providers and medical equipment makers should be asking. The population figures alone can be deceptive as not all of the people will use Western healthcare services. However, I believe that a majority of Chinese people are already using modern healthcare services. This is not new to China. It has always co-existed with alternative and traditional health services and I believe it will remain so. I believe, though, that a greater percentage of the population will begin to use modern healthcare in future. This is because many of the younger folks are not growing up with traditional healthcare.

    New technology-based medicine is already well accepted in China and has been for generations. There have been modern, West-educated doctors in China for years and they are quite respected.

    As to the payback on investment in China, OEMs appear to be quite optimistic about this and perhaps too optimistic, hence the McKinsey research warning. It's a big and fast-growing market and there are opportunities for sales growth. There will also be missteps and the possibility, as you well noted, that some Western IP will get borrowed, stolen and not get adequate compensation.

    Answering your last question is quite easy. Yes, Chinese healthcare costs are bound to go up.

  11. Anna Young
    November 14, 2012

    SP, We are right to be concerned about professional ethics in China but we can also go overboard by focusing on this issue alone. It is a growing economy and there are numerous changes taking place in all areas of the country. We don't know how things will play out eventually but it seems to me most of the changes occuring are moving the country in the direction of Western developments. They are being transformed by the rest of the world and are also transforming the rest of the world.

  12. Anna Young
    November 14, 2012

    Jacob, Actually many Western companies are already selling hugely to the Chinese medical equipment market. Healthcare isn't one of those areas where you want to be treated with a coin toss. If anyone is going to treat me, I want to be sure they know what they are doing and that the equipment they are using works, has been certified and, preferably, from a reputable company. There aren't many companies in China making such equipment and it will take time for local ones to achieve the same level of efficiency and effectiveness. Companies like GE have taken advantage of this.

  13. Anna Young
    November 14, 2012

    mfbertozzi, The culture of civilizations you referenced is, happily, not developing in isolation. Cultures borrow from, influence and impact each other in various ways. China is influencing the West even as it is being changed by the West.

  14. mfbertozzi
    November 14, 2012

    Good point Anna, exactly; as you have perfectly outlined within your article, it is really important to avoid any skepticism in advance, holding a neutral approach; I really guess civilizations' merge output will be the mix of the best part of each one.

  15. bolaji ojo
    November 14, 2012

    Douglas, Legend has it China has 5,000 years of recorded history. I bet they'll find a way to navigate through the next 5,000 years and even make some money. Let's hope in good health 🙂

  16. dalexander
    November 14, 2012

    @Bolaji, I was considering the history of the elderly who believe that traditional herbal medicines are all they need to stay healthy. This is a quote from China Daily Nov 14th. It concerns the increase of Medical Check-ups in China. Liu Qi, 27, an en­gi­neer with the CITIC Groups in Xi’an, Shaanxi’s pro­vin­cial cap­i­tal, says the com­pany is likely to skip med­i­cal check­ups this year be­cause of fi­nan­cial con­straints. In his home­town at Ankang city in Shaanxi, his par­ents don’t go for med­i­cal check­ups. “They think it un­nec­es­sary,” Liu says.

  17. Ariella
    November 14, 2012

    @Anna very intersting. Do you know if anyone has done a census for healthcare in China to ascertain whether western methods have grown more popular than traditional ones?

  18. Daryl
    November 14, 2012

     I am sorry but I have to be a little cynical here.   China only needs to purchase one of something and then they can counterfeit “it” to death.   “IP” means nothing to the Chinese.  They compete straight-on with no legal constraints.    A great advantage for the Chinese but bad for anyone else trying to compete in their market.  

  19. Barbara Jorgensen
    November 14, 2012

    Anna: for awhile, I kept wondering how the Chinese health system differs so much from ours that demand for medical electronics wouldn't skyrocket. Then the term “alternative medicine” penetrated my foggy brain. Of course there is a risk that OEMs might not thrive in a market that incorporates acupuncture, herbs and spiritual beliefs into its healthcare. That moves the debate beyond “should we build equipment for this market” to “is there demand for this equipment?” Great blog, well done — I learned something new today!

  20. garyk
    November 14, 2012

    Anna, McKinsey sees some concerns!!!!!! What about counterfeit Medical Equipment. Taking over all the manufacturing in the world. Question, is China the only country that can make manufacturing equipment? Is China the only country that manufacture product? Why is the USA starting manufacturing operation only in China? Are GE Healthcare and Philips USA company's?


  21. Anna Young
    November 14, 2012

     Hi Ariella, No I have not come across a census of that sort. I will be glad to read one if any of EBN readers have. The researches mainly focus on the increase in ageing population and the need for medical equipment to cope with various medical demands.

  22. Anna Young
    November 14, 2012

    Daryl, I share your concern. IP infringement is a significant issue in China. International companies are bound to contend with tough competition from locally manufactured counterfeit devices. However for now, the government's action is helping to move electronics medical equipment industry forward.

  23. Anna Young
    November 15, 2012

    Barbara good point. I think despite the alternative medicine, electronic medical equipment is good thing for China. Undoubtedly, the medical equipment will be tailored to local market's condition that is incorporating various forms of alternative health care provisions.

  24. Anna Young
    November 15, 2012

    They will have to smuggle the counterfeit medical equipment into the US and the EU to sell them and also patronize dubious healthcare practitioners. It's tough enough getting medical equipment certified by regulators in the US, try having them even manufactured overseas as contract manufacturers have discovered. The hurdles run in the hundreds.

  25. mfbertozzi
    November 19, 2012

    @Anna: well, speaking for myself, this is another fascinating topic to share; possible concerns about the different Eeastern or Western approach to healthcare could be approached as you have pointed out; an additional piece of the puzzle, in my opinion, is about how long process for collecting needs for a giving market will take before producing that finalized equipment; in case we are speaking about a quite long timeframe for doing that, maybe Chinese medical equipment can lose a competitive position within the market. Is only my individual opinion?

  26. Daniel
    November 19, 2012

    Anna, no wonder that initially they will accept technology/product with warm heart and then they will start duplicating it. Recently I had read some allegations from Volkswagen that their Chinese counterpart had copies/duplicated some technology from them and introduced a new car with the same technology. It can happen to medical equipments too.

  27. Daniel
    November 19, 2012

    “In case we are speaking about a quite long timeframe for doing that, maybe Chinese medical equipment can lose a competitive position within the market.” Mfbertozzi, would you think Chinese people's will spent time and money to come up with some new technology or products. I don't think so because they are expertise in duplicating/copying technologies. Once while visiting China my my technical expert from China told me that “I can get a duplicate of anything and everything from China, except parents '

  28. mfbertozzi
    November 20, 2012

    @Jacob: well, thanks for the post, it is a good topic to discuss and honestly, I have forgotten to mention it; in fact, we have assisted till a recent past to a sort of attitude in copying products, but I would like to be positive in the future. After all, I think the medical sector could act as another chance for bringing on the market some innovations, without any “duplication”. Who knows?

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