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China’s burgeoning market for medtech, estimated at $70 billion in 2021,1 could more than double this decade if the government’s Healthy China 2030 plan stays on track. The plan projects 9 percent annual spending growth through this decade.2 This is significant. That growth would lift China’s healthcare spending as a percentage of GDP to almost equal footing with some developed economies in Europe and would lift China’s medtech market to about 20 percent of the global market by 2030.
China could remain the world’s most appealing growth market for medtech. The growth pace, however, has slowed, and uncertainties facing business leaders are likely to continue. While multinational medtech participants in China and domestic companies in this critical industry continue to deliver essential healthcare goods and services, they need to rethink—and, in most cases, restructure—their commercial operations in response to the new market dynamics.
The old model was geared for rapid (even sprawling) expansion
Many multinational companies (MNCs) and domestic companies in China’s once surging medtech market thrived under a commercial model that valued multiple layers in the sales force and sprawling networks of numerous distributors; financial rigor was secondary. The old model came into fashion when annual growth rates for the industry averaged 15 percent in the first decade of this century and more than 10 percent in the second decade (Exhibit 1).
This model needs to be reexamined. Medtech companies could look to redeploy resources with financial discipline in ways that sustain growth, improve efficiency, and deliver better products and services to customers and patients. They are operating in a new pricing and competitive landscape that has more diverse stakeholders and requires more discipline and innovation.
In some areas, domestic companies are markedly improving their performance across their operations. China’s 134 listed medtech companies generated $44 billion in 2021 revenues, an impressive CAGR of 36 percent since 2019—nearly triple the market’s overall rate of growth. More than five Chinese medtech companies have obtained the FDA’s breakthrough designation, which helps expedite the development, assessment and review of novel medical devices that can potentially provide more effective treatment or that diagnose life-threatening or irreversibly debilitating diseases or conditions.
Policy reforms have shifted the old model
Overall GDP growth in China slowed to 3.0 percent in 2022 and is expected to rise only modestly to 4.5 to 5.5 percent in 2023.3 The government paid high prices for medtech equipment and services, which were a factor in attracting many of the world’s leading MNCs to China in the last two decades. However, after years of generous criteria for payments, recent reforms in the government’s procurement and medical insurance programs have shifted much of the old model. For example, the price for drug-eluting stents used in cardiac surgery was cut by more than 90 percent after reforms in 2021, decreasing to $100 from a previous range of $1,400 to $2,100.4 As a result, hospitals face significant cost constraints, especially for less differentiated, commoditized products.