In a regulatory overhaul, Chinese authorities pass new rules governing medical devices

Medical device makers will soon face stricter regulation in China, as lawmakers passed new rules governing sales and manufacturing of medical equipment. The rules provide a major overhaul to outdated legislation and increase punishment for the most serious corporate malpractice violations, Reuters reported.

Effective in June, the rules categorize devices according to their level of potential risk, with the highest risk products receiving the most scrutiny. New regulation also raises fines for illegal manufacturing or selling of medical equipment to 20 times the value of the goods, Reuters reported. The original rule, established in 2000, set a cap on the fine at 5 times the value of the goods.

"In recent years we've seen some issues of illegal behavior, and the legal foundation for striking back has not been clear enough. To resolve the problem, we needed a complete revision of the existing legislation," government officials said in a Q&A published on the State Council website, as reported by Reuters.

The new rules come at a critical moment, as medical device companies are eyeing China's fast-growing market for potential growth: The country's medical device sector may double to more than $50 billion by 2020, according to the research firm Global Data, and its population of 1.4 billion attracts international investors. Big names like Medtronic ($MDT) and Covidien ($COV) have launched major R&D efforts in China during the past year, and smaller outfits are also jumping on the bandwagon. France's Acerde, a med tech imaging company, inked a development contract in February with a "China-based player" to expand its global reach.

While the country's medical device industry seems ripe for expansion, it faces its own share of problems: U.S. regulatory authorities fined AGA Medical and Biomet millions of dollars for corporate malpractice in China, and Germany's Siemens AG ($SI) faced a lawsuit in the United States over its Chinese operations. The case was dismissed last year, Reuters reported.

Chinese authorities are also trying to crack down on the industry internally and rope in a rapidly growing market. Earlier this month, the country's main regulatory agency uncovered 10 websites that were publishing false medical device information and selling fake products, Xinhuanet reported. The State Food and Drug Administration forwarded its discoveries to authorities and awaits government response.

- read the Reuters article

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