China's COVID-19 policy went through some extraordinary developments in 2022. In December, the Chinese government made a u-turn by abandoning its zero-COVID policy and the related restrictions that had been in place for more than two years since the pandemic outbreak. Instantly, infections surged and patients overwhelmed China’s health systems. Per China’s Chinese Center for Disease Control and Prevention, the tsunami of COVID-19 infections in China peaked in late December 2022, with 80 per cent of the country’s population infected by mid-January. The country is joining other countries in the post-pandemic era.
With the impact of the pandemic receding, the Chinese government is quickly shifting its priority to economic recovery. The following are Omdia’s highlights regarding the mix of upsides and downsides in China’s post-pandemic medtech market outlook.
Economic rebound: The end of the zero-COVID policy immediately influenced the economy, causing economic activities to rebound in January 2023.
China’s manufacturing production returned to growth and the latest data from the National Bureau of Statistics of China shows that the manufacturing purchasing managers’ index (PMI), an index of the prevailing direction of economic trends in manufacturing and service sectors, rose to 50.1 in January, above the 50-point mark that separates growth from contraction.
According to the International Monetary Fund (IMF), China’s recent reopening has paved the way for a faster-than-expected recovery. Hence, the IMF has revised China's growth outlook for 2023 sharply higher from 4.4 per cent in its October forecast to 5.2 per cent.
Pent-up demand: Pent-up demand also could fuel economic growth via consumption in China and boost health-related spending, which was restrained owing to the pandemic. Per the central bank of China, household savings increased by ¥17.84tn (US$2.65tn) in 2022 compared with 2021.
Under COVID-19 restrictions, people reduced their hospital visits and postponed elective surgery procedures to avoid infections. Omdia expects hospital visits to rebound strongly in 2023 thanks to the end of COVID-19–related restrictions, which will spur the growth of the medical device market.
Demographics: The ageing population and rising expectations for quality of life are the biggest factors driving the increasing demand for medical devices.
Per the latest data from the National Bureau of Statistics of China, the country’s elderly population (over 60 in age) reached 280 million by 2022, an increase of 12.6 million compared with 2021. The Organization for Economic Cooperation and Development (OECD) says that China is on the cusp of being classified as an aged society, with 19.8 per cent of its population aged over 60.
Their high numbers will drive demand for a diversity of healthcare and medical devices, including nursing and rehabilitation devices. There will also be a shift from family care to social care owing to the low birth rate.
Health systems are still under-resourced: The Chinese government has been investing in its medical infrastructure even before the pandemic. However, its health systems are still underinvested for a 1.4 billion population (nearly double the size of Europe’s population). China’s health systems are still under-resourced by key measurements, including the number of hospital beds, doctors, and capital equipment, which are well below the global standard.
The country’s health spending share of its GDP also lags. In 2021, 6.6 per cent of China’s GDP was spent on healthcare compared with 9 per cent of the global average.
Healthcare is a pressing political task for the Chinese government to care for an ageing population with higher life quality expectations. Omdia projects the Chinese government will continue to invest in the health sector with annual health spending growth at a CAGR of more than 10 per cent into 2025.
Rising labour costs: The latest population statistics caught widespread attention. It shows that China had its first decline in population in six decades. The workforce (the 16–60 age group) has been shrinking since 2011. In 2022, the 16–60 age group declined to 875 million, a drop of 6.7 million over 2021. Meanwhile, manufacturing jobs are becoming increasingly unattractive to young people who prefer to work in service sectors or the office. Worker shortages have been a pain for many factories in China.
Driven by the labour shortage, labour costs have significantly increased over the years in China. Compared with many developing countries — such as India, Mexico, and Vietnam—China is no longer considered a low-wage country.
Many companies are considering exiting China, particularly those whose products are labour-intensive. In reality, making a decision might be more complex considering productivity, supply chains, and capacity for high output. However, Omdia believes that leaving China would inevitably be a plausible option for some companies.
The downward pressure of price and margin: Volume-based purchases are expanding in scope. Based on the latest developments, private hospitals have joined volume-based bidding. Huge price cuts significantly reduce profit.
The rise in competition among Chinese vendors also contributes to the downward price pressure, particularly in the low-end segments. Also, Chinese vendors are moving up the value chain over time, which increases competition in the mid to high-end segments.
The profitability issue puts manufacturers in a dilemma of choosing between volume and margin.
Economic Outlook
The IMF’s latest World Economy Outlook projects 5.2 per cent and 4.5 per cent year-over-year (YoY) economic growth in China for 2023 and 2024, respectively. This growth projection is still much higher than the growth projection for developed countries and the global average. However, the downward economic growth trendline might be difficult to reverse owing to demographic changes, as mentioned earlier, and political reasons (both geopolitics and domestic politics).
Since December, the government has been aggressively pushing for economic growth and opening to foreign investors. The growth target will not be revealed until the National People’s Congress convenes in March 2023. However, several key provinces and cities in China have announced their growth targets of above 5 per cent for 2023. How the economy turns out largely depends on how effectively and quickly the government implements its growth strategy and regains foreign investor and domestic business confidence.
Omdia Insight
Rising labour costs, decreased margins, and geopolitical factors may cause complexities for medtech companies playing in China.
However, the fast growth of China’s medtech market is largely underpinned by growing demand, underinvested health systems, and continued government investment. On top of that, modernisation and digitalisation will become a theme in China’s health system upgrades, fueling the growth of the Chinese medtech market. Omdia observes that the balance of factors remains tilted toward the upsides. China will remain an attractive market in the foreseeable future for many medtech companies.
