China's top health authority calls for more homegrown med tech

Global med tech companies could soon face mounting competition in China, as the country's top health authority is calling for a new set of initiatives to promote homegrown products and jumpstart the domestic industry.

The Chinese health ministry will lay out new incentives for local hospitals to use Chinese-made medical devices, a move that counters "unreasonable increases" in healthcare costs and reduces the burden on patients, the ministry said in statement posted on its website, as reported by Reuters. A push for local products could also complicate business for foreign med tech outfits, as global device makers now dominate three-quarters of China's estimated 212 billion yuan ($34.51 billion) medical device market.

"We want to strongly advocate health ministry organizations to use domestically-made medical devices, especially pushing top level class III hospitals to use domestically-made products," Li Bin, the head of China's National Health and Family Planning commission, said in the statement (as quoted by Reuters).

The government action could deal a crushing blow to medical device companies looking for a piece of China's rapidly growing device market. The country's medical device sector is set to double to more than $50 billion by 2020, according to the research firm Global Data, and McKinsey & Co expects annual growth rates at around 20% for the next few years.

Big names like Johnson & Johnson ($JNJ), Medtronic ($MDT) and Stryker ($SYK) already have established footholds in China, but are tailoring their approach to meet local demand. Last year, Stryker snatched up Trauson Holdings for $764 million, getting its hands on an established local brand and expanding its presence in the country's emerging market. In May, J&J announced that it would introduce plates and screws manufactured at its Suzhou facility, bolstering its local presence. In July, Medtronic teamed up with China's LifeTech Scientific to manufacture and distribute cardiac devices for the country's cardiovascular sector.

Meanwhile, local companies with a domestic focus could give bigger, foreign-based operations a run for their money. Shanghai's Kinetic Medical enjoys a nearly 50% share in China two years after filing its IPO and touts its patient-specific technologies as superior to those of multinational rivals. Chinese medical device maker Mindray scooped up $152.5 million in net revenues during the second quarter, a 3.4% gain year over year. The company saw slower sales at home, but said it would turn to private hospitals to boost profits and improve its bottom line.

"Private hospitals will account for 20% of all national healthcare services in China by 2015, compared to the current level of 9%," chief investment officer May Li said during the company's Q2 earnings call. "This segment will be an important strategic focus for us going forward."

Special Reports: Med tech M&A gets much, much bigger during the first half - Stryker tries out Trauson | Blockbusters and bloodlettings: A look at 2013's hot M&A start - All eyes on China

- read the Reuters article

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