China is the second-largest medical equipment market in the world and has been growing rapidly with double-digit growth in the past five years. Here Omdia summarises the key events and milestones in China in the past year and explores the trends for the year 2022 and beyond.
1. The aging population shall keep driving the growth of China’s healthcare equipment market
Demographic change is the biggest factor underpinning the growth of China’s domestic healthcare market. On January 17, 2021, the National Bureau of Statistics released updated demographics of the Chinese population: The 65+ age group reached 200.5 million in 2021, accounting for 14.2 per cent of the national population.
According to a recent United Nations forecast, the population aged 65 years or older in China is set to rise to 356 million in 2045, or 20.7 per cent of the total Chinese population. According to the OECD criteria, China is on the cusp of being classified as an “aged society” and shall become a “super-aged society” by 2045. One of the impacts of a rapidly aging society is the growing demand for medical services.
As per statistics from the National Health Commission (NHC) of China, between 2014 and 2019, the number of patient visits to hospitals grew at a compound annual growth rate (CAGR) of 5.3 per cent. The total national health expenditure increased by 104 per cent between 2014 and 2020, with a CAGR of 10.7 per cent.
The fast-increasing medical demand owing to aging requires China’s health system to upgrade and drive the fast growth of China’s medical equipment market.
2. Investments shall continue in healthcare facilities construction
The Chinese government realises the pressing need for healthcare services. Therefore, investments have been made to upgrade and expand medical facilities across the country. Between 2016 and 2020, the number of hospitals in China grew at a CAGR of 5 per cent, adding about 1,200 new hospitals every year. Also, the Chinese government issued guidelines urging hospitals to expand their premises and upgrade their facilities to meet new requirements of medical equipment and the number of beds.
These construction efforts were accelerated after the Chinese government re-examined its healthcare system since the breakout of the COVID-19 pandemic. In the latest 14th Healthcare 5-Year Plan released in March this year, the initiatives to improve healthcare infrastructure expand to strengthening infectious disease prevention and control and building state-level and regional-level medical centers. Also, an aging population means that China needs to improve rehabilitation services to the elderly. Accordingly, in June 2021, the NHC issued a document requiring the building of rehabilitation hospitals.
Omdia foresees that demand for medical equipment will experience a surge in coming years because of the upgrade and expansion of medical and rehabilitation facilities. Demand arising from this government-led medical facility construction shall bring $600 billion in revenue for the medical equipment market between 2021 and 2025.
3. The “Health for all” state medical insurances will cover the majority of the Chinese population
By 2020, the state medical insurances covered 95 per cent of the Chinese population, including children. Released in September 2021, the National Medical-Security Plan (2021–25) continues the initiatives of “Health for all” and “Healthy China 2030” and targets universal healthcare coverage.
The National Medical-Security Plan sets several goals. One goal is to maintain the coverage of state medical insurance at least 95 cent of the Chinese population. Another goal is to further decrease the proportion of medical expenses incurred by patients to below 27 per cent of the treatment cost. To achieve those goals, financial subsidies shall continue to increase, and cost containment measures in medical supply purchases shall expand. Universal healthcare coverage enables wider access to medical care in China, thus, further bolstering China’s medical equipment market.
4. China’s healthcare reform shall deepen, and health systems shall present a new outlook
Currently, China’s high-grade hospitals are overburdened with the majority of primary care. Low-grade and grassroots healthcare centers are underutilised.
With health system reform ongoing, a multitiered healthcare system will take shape. High-grade hospitals will focus more on critical care, and low-grade hospitals and community health centers will handle more primary care. China’s health system will shift from overreliance on public hospitals to a system supported by private hospitals and commercial health insurers.
The Chinese government has implemented policies to facilitate the growth of private hospitals. The massive growth of commercial insurance will also help the growth of private hospitals. Between 2011 and 2020, premium revenue for commercial health insurance products grew at a CAGR of 31.57 per cent.
Driven by the ever-increasing medical demand and the boost of commercial insurance, China’s private hospitals will play a much bigger role in medical service, and the providers of health systems shall be more balanced.
5. New technologies like telemedicine, medical Artificial Intelligence (AI), and healthcare robotics will expand their applications in China
China faces challenges arising from fast-increasing medical demand alongside the shortage of healthcare resources. The applications of telemedicine (remote clinical services), medical AI, and healthcare robotics have the potential to improve efficiency and clinical results. Government-led initiatives, including “Internet + Healthcare” and state-level AI strategy, have propelled the new-tech applications in China’s medical sector and will continue to do so.
“Internet + Healthcare” has been a government-led initiative since 2018 to facilitate medical practice supported by digital tools. Laws and policies were issued to support the digital transformation of China’s health system, including health data digitalisation, sharing, and interoperability (data processing, in conjunction with each other) across healthcare providers. After the outbreak of the COVID-19 pandemic, the government stepped up the “Internet + Healthcare” efforts to include telemedicine in state medical insurance coverage, lift barriers for prescribed drugs sold online, and facilitate prescriptions shared to pharmacies by hospitals.
China’s medical AI and healthcare robotics markets are also burgeoning. Startups are mushrooming, attracting large amounts of international venture capital. Omdia estimates, in 2020, China medical AI startups absorbed 33 per cent of global venture capital funding. Some Chinese companies are starting to take the lead in these innovative technologies. One example is SenseTime, a company that is applying computer vision and AI to the merging of data from different scanning technologies (such as CT, MRI, and PET), allowing more precise analysis of medical imaging.
6. More Chinese medical device companies will become global
The Chinese government’s 14th Medical Equipment 5-Year Plan (2021–25) sets a goal to have more than six Chinese manufacturers among the top 50 global medical device companies. Therefore, the Chinese government will continue to support the growth of domestic companies in various forms, including granting subsidies and tax deductions.
Mergers and acquisitions will also accelerate the growth of Chinese companies. Mindray Medical International Co., Ltd., China’s biggest medical device manufacturer by sales revenue, is now the number four ultrasound vendor in the world. Mindray has grown partly through a series of acquisitions of overseas medical technology companies.
One reason why Chinese medical device companies want to expand internationally is that there has been downward pressure on price because of volume-based purchases in the domestic market, which has driven down profits. Mindray recently disclosed that its aim was to increase overseas sales revenues from less than 50 per cent today to 70 per cent in the near future. Increased competition in the international market is likely to become fiercer as Chinese manufacturers step up their focus on international markets.
Omdia’s Healthcare Technology team provides regular insights into the healthcare technology markets in China and around the world.