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China’s disposable medical equipment market

China’s disposable medical equipment market is worth US$10.3 billion, with year-on-year growth of 9.4% in 2010. The segment accounted for 42% of the domestic healthcare equipment & supplies available in the market-space. Moreover, China is the largest exporter of low technology based medical device equipment (including disposable product portfolio) globally. Its exports are valued at US$1 billion, with year-on-year growth of 15% in 2010. Syringes constitute the largest and fastest growing export product, registering an annual growth of 21%. Traditionally, export markets (US, Japan and Germany) were the core drivers of the disposable medical equipment segment in China which has been shifting drastically towards domestic stakeholders. In 2010, central and local governments procured approximately US$6.5 billion worth of disposable medical equipments with an allocation of over US$55 billion for enhancing healthcare infrastructure across urban and rural China (addition of 53,000 facilities in the next two years). China has one of the fastest aging populations in Asia with 111 million people above 65 years of age in 2010. Also, the domestic demand for disposable medical equipment is enhanced by lifestyle related diseases (obesity, diabetes, chronic respiratory ailments, etc) attributed to the fact that one third of global smokers reside in China.
The disposable medical equipment segment is price sensitive and highly fragmented with approximately 2,450 manufacturers. Zhejiang is the flagship production hub, with Hangzhou, Ningbo and Wenzhou functioning as core cities hosting 95% of disposable medical equipment manufacturers. Although China is the largest exporter of disposable medical equipment in Asia, it faces steep competitive pressure from Taiwan, which is attributed to local currency appreciation and rising labor cost as seen in the last 12-18 months (US$120 as compared to US$95 per month in Vietnam). Higher OPEX has translated into bankruptcies across the domestic syringe segment, with a reduction in production capacity to 4 billion (2008: 10 billion) units per annul in 2011. The negative outlook of the anti-dumping lawsuits filed by India, Russia and Ukraine will further hamper the competitiveness of domestic syringes and other disposable medical equipment manufacturers enhancing OPEX by 30% in form of taxation.
One of the biggest barriers for international manufacturers in the domestic market-space is the highly unstructured and fragmented distribution network for low-end technology centric disposable medical equipment. A majority of hospitals have non-centralized purchase programs (slightly changing due to new reforms related to the ‘Healthy China 2020’ initiative). Agents and sole-proprietor based distributors are the standalone option, with a high breach of contract and poor code of conduct.
A majority of domestic manufacturers are slowly shifting towards the mid level (R&D centric)disposable medical equipment segment to enhance global branding and improve operating margins on a long-term basis. An example is the reduction in national annual production of low end medical catheters to 2 billion units, and aggressive investment in cardiovascular intervention plastic catheters, attributed to higher surgery cases (10 million per annul). Imported mid level disposable medical equipment enhances overall surgery cost structure reducing affordability for a majority of the middle class households in China. Thus, the national government offers tax rebates to domestic manufacturers focusing on the mid level market-space.