The Chinese medical device market: Market drivers and investment prospects

Abstract

The economy in China has experienced rapid growth and been remarkably successful ever since the reforming and opening-up policy. Like China’s economy, the Chinese medical device market is developing rapidly; this paper identifies important parameters controlling this market. Regression analysis shows that the number of hospital visits, aging population and the number of hospitals have a positive relationship with medical device revenues. Therefore, they are the main drivers of the Chinese medical device market. Disease profile is another important market driver. Analysis of the main market drivers, illustrates that the Chinese medical device market offers significant investment opportunities.

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APRIL 2016 I VOLUME 22 I NUMBER 2 33
INTRODUCTION
e global medical device market is highly centralized.1
e market share of the developed countries accounted
for more than 80% of the global medical device market
share (US: 42.4%, Europe: 33%, Japan: 11%) in 2011.2 With
superior know-how in technology and/or management,
international companies are typically larger than domes-
tic companies and have a competitive advantage due to
the economies of scale.3 According to Charles Hill and
Vernon’s product life cycle theory, the developed countries
will export their production and technology from their
relatively saturated market to the developing countries
due to the market pressures and other competition in their
established markets.4–6 Despite China only accounting for
3% of the global medical device market share,2 this study
shows that the developing countries’ medical device mar-
kets are experiencing rapid growth, especially in China.
Article
The Chinese Medical Device Market:
Market Drivers and Investment
Prospects
Weifan Zhang
is a Lecturer of Finance at the University of Sussex.
Rebecca Liu
is a Lecturer at Lancaster University.
Chris Chatwin
is a Professor in Engineering at the University of Sussex.
ABSTRACT
The economy in China has experienced rapid growth and been remarkably successful ever since the reforming
and opening-up policy. Like China’s economy, the Chinese medical device market is developing rapidly; this paper
identies important parameters controlling this market. Regression analysis shows that the number of hospital
visits, aging population and the number of hospitals have a positive relationship with medical device revenues.
Therefore, they are the main drivers of the Chinese medical device market. Disease prole is another important
market driver. Analysis of the main market drivers, illustrates that the Chinese medical device market oers
signicant investment opportunities.
Journal of Commercial Biotechnology (2016) 22(2), 33–39. doi: 10.5912/jcb741
Keywords: China, medical device market/industry, market drivers, investment, aging population
Correspondence:
Weifan Zhang, University of Sussex, UK. Email:
zhangweifan@yahoo.co.uk
Increasing medical expenditure, rising healthcare con-
sumption and health awareness improvements are all pos-
sible factors in promoting the development of the Chinese
medical device market. e Chinese government’s health-
care reform has injected additional “power” into the devel-
opment of the medical device market. In fact, by the end
of 2011, the Chinese medical device industry output value
was 688.42 billion yuan, total percentage of GDP is 1.40%.
Figure 1 shows the Chinese medical device industry out-
put value and its total percentage of GDP, its value contin-
ues to climb from 2001 to 2011. In 2011, the percentage of
medical device industry output value accounted for 1.40%
of Chinese GDP. Although the output value of the medi-
cal device industry is currently a limited proportion of the
national economy, Figure 1 shows a rising trend year by
year except 2008.
China’s high-end medical device market is depend-
ent upon imports and dominated by foreign companies’
products, especially for the diagnosis and treatment
devices. Table 1 shows the Chinese medical market
trade statistics according to the China Chamber of
Commerce for Import & Export of Medicines & Health
Products (CCCMHPIE) in 2010. e overall trend of the
Chinese healthcare market shows that export value is

Journal of CommerCial BioteChnology http://www.CommerCialBioteChnology.Com 34
higher than import value; hence the export value of the
pharmaceutical and medical device industry is higher
than the import value. However, only the import value
of medical diagnosis and treatment devices is higher
than the export value, which took a 29.05% share of total
import volume in China. By comparison, medical dress-
ings, disposable products, health protection and recov-
ery products, dental equipment and materials, total only
6.8% of import volume, which is only one-quarter of the
import volume of the medical diagnosis and treatment
sector.
More specically, Table 2 illustrates the trade sta-
tistics for medical devices in China in 2010. e total
export value of medical devices reached USD 13.86 bil-
lion in 2010, while the total import value reached USD
7.3 billion. North America and Asia are the main export
target areas for China, which accounted for 29.23% and
33.7% of the total export volume; the U.S. and Japan are
the main export target countries, which absorbed 27.91%
and 10.39% of the total export volume respectively.
Europe and North America are the main exporters to
China, which accounted for 39.01% and 31.41% of the
total import volume. Germany and the U.S. are the main
importing countries, which provide 17.34% and 30.71%
of the total import volume.
For the Chinese medical device market, with growth
from many sources of demand, medical diagnosis and
treatment devices still have a great growth potential.
China now has a fee-for-service healthcare system
nanced largely by payments from patients, employ-
ers and health insurance companies.11 However, many
patients especially high income people are willing to
pay more money by themselves on their treatment, espe-
cially for cancers, heart disease, cerebrovascular disease,
etc., which needs to use high-tech medical diagnosis
and treatment devices or high-grade drugs, which is
not aordable for low income people. For example, the
average fees for CT whole body scan is nearly 2500 yuan
(about USD 400) in China, this is not a small expendi-
ture for low income people; they always choose the most
economic ways to treat their diseases. However, China’s
health institutions especially the Tier-3 hospitalsi have a
strong demand for high-end diagnostic devices due to
i ere are three levels of Chinese hospitals: Tier-3
Hospitals (6%) tend to be the best and highest level (rst
class) hospitals, which may oer the most comprehensive
medical treatment; complex clinical diagnosis, advanced
scientic research and R&D abilities, which are provincial
and municipal hospitals in big cities; Tier-2 Hospitals
(34%) are providing comprehensive medical services, basic
teaching and research functions, which are municipal
hospitals in smaller cities as well as district and county
hospitals; Tier-1 Hospitals (25%) are grass-roots healthcare
institutions, providing basic medical services, which are
the primary healthcare facilities in small towns; Other
healthcare institutions account for 35% of total medical
institutions.
Figure 1: China’s medical device industrial output value and its total (% of GDP).
Source: National Bureau of Statistics of China7, 8

APRIL 2016 I VOLUME 22 I NUMBER 2 35
the rising number of visits and inpatients, changed dis-
ease proles, etc.
Data
e improvement of medical and health services has
greatly increased the market capacity for the Chinese
medical device industry. e important medical device
industry drivers are (1) demographics, the percentage of
the global and Chinese population above 65 years old
is growing. (2) unmet clinical needs, the trend of using
new medical devices or products to address diseases or
medical needs that previously were simply not treated is
increasing. (3) procedure penetration, there is a tendency
among doctors to use more medical products and pro-
cedures. (4) pricing, positive pricing trends have gener-
ally been favourable in the medical device industry.
Medical products are not selected on the basis of price.
(5) geographic reach, the market potential for the highly-
populous less-developed countries (including China) is
very compelling.12 Studying the market growth drivers of
the Chinese medical device market provides information
for eective investment in China.
Data for medical de vice industry revenues from 20 00
to 2012 was collected from the China Statistics Yearbook
on High Technology Industry.13 Other data such as the
number of hospital visits and number of hospitals were
collected from the China Health Statistical Yearbook.14
Data on 65+ population was collected from the China
Statistical Yearbook.15 In this study, datasets contain
every mainland Chinese province and city except Hong
Kong, Macao and Taiwan. Data on the number of hos-
pitals does not include other health institutions such as
Grass-roots Health Care institutions,ii Specialized Public
Health Institutionsiii and other healthcare institutions.
e detailed data are shown in the Supplement Table A.
ii Grass-roots Health Care institution includes community
health centre and station, sub-district health centre,
village clinic, outpatient department, and, clinic
(inrmary)
iii Specialized Public Health Institution includes Chinese
Centre for Disease Control and Prevention (CDC),
specialized disease prevention and treatment institution,
health education centre, maternal and child health
centre, emergency centre, centre for blood collection &
Table 1 China’s import and export structure of medicines and health products, 2010. (Unit: million USD)
Trade name Export Value
Export value
growth rate
annually (%)
Share in
total export
volume (%)
Import
Value
Import value
growth rate
annually (%)
Share in
total import
volume (%)
Total 39,733.10 24.87 100 20,464.36 23.98 100
1. Traditional Chinese
Medicine
1,944.47 22.78 4.89 687.95 22.61 3.36
2. Pharmaceuticals 23,930.02 28.17 60.23 12,440.84 20.53 60.79
3. Medical Devices 13,858.61 19.83 34.88 7,335.57 30.45 35.85
3.1 Medical
dressings
4,687.51 11.95 11.8 207.77 25.63 1.02
3.2 Disposable
products
1,922.27 15.42 4.84 880.76 27.73 4.3
3.3 Medical
diagnosis and
treatment
4,543.60 25.56 11.44 5,944.73 30.34 29.05
3.4 Health protection
and recovery
products
2,416.41 30.87 6.08 149.37 83.83 0.73
3.5 Dental
equipment and
materials
288.82 16.51 0.73 152.94 21.37 0.75
Source: CCCMHPIE, 20119

Journal of CommerCial BioteChnology http://www.CommerCialBioteChnology.Com 36
MethoDs anD eMpirical analysis
In the real economic environment, one variable is
aected by several factors. Multiple regression analysis
has been selected as the research method in this study.
Assume the regression equation is:
𝑌
𝑖 = 𝛽0 + 𝛽1𝑥1 + 𝛽2𝑥2 + ⋯ + 𝛽𝑖𝑥𝑖 + 𝜇𝑖 (1)
where 𝑌 is the dependent variable, 𝑥 are the explanatory
variables, 𝜇 the stochastic disturbance term, and 𝑖 the 𝑖th
observation.16 Using the data in Supplement Table A, we
set: 𝑌 = medical device revenues, 𝑥1 = number of hospi-
tal visits, 𝑥2 = 65 + population, 𝑥3 = hospital quantity.
From Microso Excel we obtained the following regres-
sion result:
supply, centre for health supervision and centre for family
planning service.
Ŷ𝑖 = − 1026663.83 + 370.46𝑥1 + 6119.01𝑥2 + 3.70𝑥3
𝑡 = (−7.6946)(6.1616)(1.5722)(0.2008) (2)
𝑅2
= 0.9928𝑅
ˉ2
= 0.9904
where Ŷ2 = estimator of 𝑌𝑖, 𝑅
ˉ2
= adjusted 𝑅, 𝑡 = 𝑡 value,
used for 𝑡 test.
Regression shows that the number of hospital visits,
65+ population and hospital number together explain
99% of the variation in medical device revenues. e
estimated value of the coecients of the: number of
hospital visits, 65+ population and hospital number are
370.46, 6119.01 and 3.70, respectively. e detailed data
are shown in the Supplement Table B.
Hypothesis testing (the 𝑡 test) assumes 𝐻0:𝛽𝑖 = 0,
(𝑖 = 1, 2, 3). Regression illustrates that the 𝑡 of
𝛽
ˆ1 = 6.1616, 𝑡 of 𝛽
ˆ2 = 1.5722, 𝑡 of 𝛽
ˆ3 = 0.2008. e 𝑡
test of signicance decision rules is shown in the
Table 2 China’s import and export markets of medical devices in 2010. (Unit: million USD)
Country Export Value
Export value
growth rate
annually (%)
Share in
total export
volume (%) Import Value
Import value
growth rate
annually (%)
Share in
total import
volume (%)
Total (All countries) 13,858.61 19.83 100 7,335.57 30.45 100
Asia 4,669.96 12.87 33.7 1,938.77 29.28 26.43
Europe 3,631.06 18.53 26.2 2,861.38 34.38 39.01
North America 4,051.03 24.48 29.23 2,303.79 25.81 31.41
1. U.S. 3,867.61 24.72 27.91 2,252.64 26.48 30.71
2. Germany 778.06 14.72 5.61 1,271.74 35.43 17.34
3. Japan 1,440.07 -13.5 10.39 1,113.90 26.99 15.18
Source: CCCMHPIE, 201110
Figure 2: The growth rate of Chinese population from 1980 to 2010

APRIL 2016 I VOLUME 22 I NUMBER 2 37
Supplement Table C. If we assume αiv=0.05, degrees of
freedom (df ) = n–4 = 13–4 = 9v. According to percent-
age points of the 𝑡 distribution (Supplement Table D),
𝑡𝛼/2,𝑑𝑓 = 𝑡0 .05/ 2(9) = 2.262. erefore, 𝑡1 = 6.1616>𝑡0 .05/ 2(9),
which is signicant, so reject 𝐻0, which means that
the number of hospital visits has signicant impact
on medical device revenues. 𝑡2 = 1.5722 < 2.262 and
𝑡3= 0.2008<2.262, so accept 𝐻0:𝛽2 = 0 and 𝐻0:𝛽3 = 0,
which are insignicant.
e regression model is based on several assump-
tions, one of the assumptions is that “ere is no exact
collinearity between the 𝑥 (explanatory) variables”.
Insignicant 𝑡 values but a high overall 𝑅2 is one of the
signals for multicollinearity.16 Aer correlation using
Excel we obtained 𝑟12 = 0.9644, 𝑟13= 0.9423, 𝑟23= 0.9831,
which means three explanatory variables are highly cor-
related. us, we regress 𝑌 on 𝑥 individually. Detailed
data are shown in the Supplement Table E.
Ŷ𝑖 = − 609743.60 + 553.34𝑥1
 𝑡 = (−17.23)(26.49)𝑅2
= 0.98 (3)
e regression (equation 3) shows that the num-
ber of hospital visits variable is highly signicant, and
𝑡𝛼/2,𝑑𝑓 = 𝑡0 .05/2 (11) = 2.201. 𝑡1 = 26.49>𝑡0. 05/ 2 (11), there-
fore reject 𝐻0. e same with equation (2)’s results, which
means the number of hospital visits has signicant
impact on medical device revenues.
Ŷ𝑖 = −1748 0 2 8 .05 + 19391.36 𝑥2
 𝑡 = (−14.20)(16.73)𝑅2
= 0.96 (4)
e regression (equation 4) and 𝑡 test
(𝑡2 = 16.73>𝑡0. 05/2 (11) = 2.201) illustrates that the 65+
population variable was statistically insignicant,
whereas now it is highly signicant.
Ŷ𝑖 = −1897611. 31 + 114. 02𝑥3
 𝑡 = (−9.98)(11.61)𝑅2
= 0.92! (5)
𝑡3 = 11.61>𝑡0 .0 5/2 (11) = 2.201, and regression equation (5)
shows that hospital number now has a signicant impact
on medical device revenues, whereas in equation (2) it
had no eect on medical device revenues.
According to equation (3), there is a positive linear
correlation between the number of hospital visits and
medical device industry revenues, which means every
one million change in the number of hospital visits will
iv α (0 < α < 1) is known as the level of signicance.
v n means number of observations.
cause a positive change of 553.34 million yuan (RMB) in
medical devices revenues.
e huge population and aging population are one
of the factors for the growth of China’s pharmaceutical
market,17 as well as the medical device market. According
to equation (4), the regression shows that every one
million change in 65+ population will cause a positive
change of 19391.36 million yuan in medical devices
revenues. It is clear that the 65+ population is the most
important driver of the medical device market. From the
year of 1990 to 2010, the Chinese population increased
from 1.14 billion to 1.341 billion. However, the popula-
tion growth rate declined since 1990.18 Figure 2 shows
the trend of Chinese population growth rate from 1980
to 2010, the detailed data are shown in the Supplement
Table F. e total population increased slowly, but the
population growth rate decreased year by year since 1990
due to the decrease in fertility and mortality.19 e reduc-
tion in population growth rate speeds up the growth in
the aging population. An important need of the “aging
society” is high quality healthcare, because the elderly
are experiencing increasing rates of chronic diseases,20
someone in their 80’s is very likely to have four or ve
chronic diseases. erefore, the medical device market
in China is set to expand.
Equation (5) illustrates that the number of hospi-
tals has a positive linear correlation with medical device
revenues.
Other driving forces such as diseases cannot easily
use quantitative method to assess their impact. China
now belongs to the upper middle income countries;21 of
the top ten leading causes of death in the middle income
countries, seven are chronic disease-related deaths,
which accounted for 91% of total deaths.22 e higher
burden of chronic diseases in low – and middle income
countries is manifest in China,23 which means these dis-
eases will cost a great deal. Although digestive diseases,
respiratory diseases, infectious and parasitic diseases are
the top ten leading causes of death in low – and mid-
dle income countries, we need to focus more attention
on cancers, cardiovascular diseases and cerebrovascular
diseases, which account for the top three percent of total
deaths in China.22 e top three leading causes of death
in middle-income countries are cardiovascular diseases,
cerebrovascular diseases and respiratory diseases,23 –25
there were 2.8 million deaths from cardiovascular dis-
eases in China in 2003.24 Cancer caused the highest mor-
talit y and has maintained the rst posit ion among the ve
leading causes of death (cancers, cardiovascular diseases,
cerebrovascular diseases, diseases of the respiratory sys-
tem and injury, poisoning & external causes) in China.
e major risk factors causing cancers are tobacco con-
sumption, chronic infections, diet and lack of physical
activity, etc.26 Cancer is a leading cause of death globally,

Journal of CommerCial BioteChnology http://www.CommerCialBioteChnology.Com 38
accounting for 7.6 million deaths in 2008.27 Nearly 70%
of cancer deaths occurred in low – and middle-income
countries. It is predicted that deaths from cancer will
increase, with an estimated 13.1 million deaths in 2030.28
Cancer is a big problem for society worldwide as well as
for China. With the gradual increase in the number of
patients and mortality, the demand for diagnosis and
treatment devices will inevitably increase. Good market
prospects indicate that medical devices for these diseases
have great investment potential.
DISCUSSION
is study suggests that the Chinese medical device mar-
ket is not only driven by the three variables (number of
hospital visits, 65+ population and number of hospitals)
but is also impacted by the diseases and the government
healthcare policy. e purpose of medical devices is to
assist with: patient stratication, diagnosis, prognosis,
treatment and treatment planning; the macroeconomic
variables such as population structure; disease proles
and economic level can aect the demand for medical
device services. Disease proles aect the development
of medicine as well as medical device capabilities and the
total medical device market. erefore, diseases should be
one of the elements driving medical device investment.
If the incidence or mortality from the disease is
low, the demand and frequency of use of the appropriate
diagnosis and treatment equipment will be relatively low,
the investment payback period for such medical devices
will be long for hospitals; in such a scenario, it is di-
cult for hospitals to recover the cost of medical devices
throughout their entire life cycle. So only the large gen-
eral hospitals will consider purchasing such medical
devices. Small and medium-sized hospitals do not have
the capacity to buy such equipment. us, the market
demand for medical devices with low disease incidence
is relatively small; investment risk is large and does not
have nancial investment value. If the incidence or mor-
tality of the disease is high, the demand and frequency
of use of the appropriate diagnosis and treatment equip-
ment will be relatively high, the large general hospitals
will be very motivated to purchase such medical devices
as well as small and medium-sized hospitals because the
investment payback period for such devices will be short.
e medical device market has sustainable growth
because of the general demographic trends, especially
the growth of the aging population and the continued
prevalence of diseases.29 For the Chinese medical device
market, the growth of hospital visits, aging population,
number of hospital and diseases show that the market has
great investment opportunities. e main medical devices
companies’ (such as GE, Philips and Siemens) investment
activities and/or mergers and acquisitions in China give
good indicators of how the market is developing.
e limitation of this study is that appropriate
explanatory variables are hard to nd, three explana-
tory variables made the sample size too small to perform
regression analysis. Other market drivers like disease
and policy are hard to assess through regression analysis.
e multicollinearity oen happens in multiple regres-
sion analysis, the adjusted results reported herein are
more reliable.
CONCLUSION
According to the regression analysis, the number of hos-
pital visits, 65+ population and number of hospitals are
the main drivers of the Chinese medical device market.
Diseases are another driving force. Analysis of the prev-
alence of diseases shows that cancers are the big chal-
lenge for the whole medical area, the health care system
is experiencing huge pressures from both changing and
increasing demands.30 erefore, signicant opportuni-
ties exist in the Chinese medical device market due to the
growth of the number of hospital visits, 65+ population,
number of hospitals and diseases.
DECLARATION OF CONFLICTING
INTERESTS
e authors declare that there is no conict of interest
FUNDING
is research received no specic grant from any fund-
ing agency in the public, commercial, or not-for-prot
sectors.
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