Government investments boost China’s medical device market

It has been 12 years since China’s health system reforms began. Some moves have greatly changed the landscape of the healthcare sector. Going into 2022, the Chinese government continues to invest in its health systems.

Government loans encourage hospitals to upgrade medical equipment

In September 2022, the State Council (the executive body of China’s highest state authority) announced a loan incentive policy of CNY1.70 trillion (US$246.40 billion) as part of its economic stimulus package. The package is designed to upgrade and renovate equipment in public buildings, universities, and medical facilities. Around CNY200 billion (US$29 billion) of the total package was earmarked for medical facilities.

Chinese hospitals are encouraged to upgrade their medical equipment through discounted loans, for which they pay an interest rate of only 0.7 per cent within two years. The country’s zero-COVID policy since 2020 has hampered hospitals’ daily business. Patient visits and surgical procedures have reduced massively (compared with 2019, patient visits declined by 11.2 per cent in 2020 and are estimated to decline by 30 per cent in 2022). This low-interest rate would significantly save purchase costs for cash-strapped hospitals, particularly private and small public hospitals.

The loan incentive policy was applauded by medical device makers, as major beneficiaries of the government initiative. According to GE Healthcare, the initiative propels China’s medical device market. Mindray, China’s top medtech company, estimates that CNY20.0 billion (US$2.9 billion) of its sales revenue will stem from loans incentivized by government subsidies.

Investments in county-level hospitals drive upgrades in medical capacity

Hospitals located in counties are the backbone of China’s health systems, providing healthcare services for more than half of the country’s population. Improving the medical capacity of county hospitals has been a crucial part of China’s health system reforms since 2009.

In May 2022, the State Council released a document laying out guidelines to accelerate infrastructure construction in counties. Upgrading the infrastructure of public medical facilities is a key part of the plan; the government has allocated funds and urged county hospitals to upgrade their equipment.

This move is a continuation of a government project to strengthen county hospitals. In November 2021, the National Health Commission (NHC) released a five-year plan (2021–25) called the “1000-county Project” to enhance the capacity of county hospitals. The 1000-county Project is designed to address the lack of healthcare resources in counties and to better meet the medical needs of people in less-developed areas.

In April 2022, the NHC released the first list of 1,233 county hospitals for facility investment. According to the plan, these hospitals will be upgraded to grade-three hospitals by 2025 (grade three ranks at the top of China’s three-level hospital grading system, representing the highest criteria of equipment and medical capacity).

According to NHC, there are 17,294 hospitals located in counties across China. Upgrading medical facilities in counties will significantly boost the country’s medical device market.

Intensive care unit capacity expands in response to COVID-19 case surge

In early December 2022, the Chinese government announced a major easing of its zero-COVID policy. COVID-19 cases grew rapidly after the abrupt loosening of pandemic-related restrictions. As a result, under-resourced hospitals have faced big challenges with the surge of COVID-19 patients. One of the restraints in China’s health system is the insufficient capacity of ICUs. According to the NHC, China has 3.6 ICU beds per 100,000 people, compared with 33.9 beds in Germany and an average of 12 in selected 22 OECD countries.

In response to the Covid cases outbreak, the NHC urged hospitals that treat COVID-19 patients to upgrade 10 per cent of their hospital beds to ICU beds. The demand for ICU-related medical devices, such as ventilators, life monitors, infusion pumps, and defibrillators is expected to surge amid the wide COVID-19 pandemic outbreak in China.

Medical infrastructure construction moves ahead apace

Improving access to healthcare is a key objective of China’s 14th Healthcare Five-Year Plan (2021–25). Guided by the plan, China has significantly increased its investment in medical facilities. The 14th Healthcare Five-Year Plan sets targets to strengthen infectious disease prevention and control, build state-level and regional-level medical centers, and stipulate that public hospitals upgrade facilities and expand their premises.

This initiative continued in 2022. According to the National Statistics Bureau, from January to June 2022, cumulative investments in the health sector’s fixed assets increased by 34.5 per cent on a year-on-year (YoY) basis. This growth is also fueled by the government funds allocated to public health in 2022, amounting to a 33.4 per cent growth over 2021.

Omdia estimates that between 2021 and 2025, the size of China’s healthcare equipment market, driven by medical facilities and infrastructure investments, will reach US$600 billion.

Omdia insight

Because of China’s COVID-19 case outbreak and the economic stimulus package, the surging demand for medical devices is boosting the Chinese medical market in the short term. The country’s aging demographic, rising expectations, and under-resourced health systems are the underlined factors continuously driving China’s medical device market growth.

China’s health spending has been growing at a CAGR of more than 10 per cent between 2017 and 2021. However, its health spending share per GDP is still low, at 6.5 per cent compared with the OECD average of 8.8 per cent. The country’s medical resources (including hospital beds, medical staff, and medical equipment) remain subpar compared to most OECD countries.

Healthcare is a pressing political task for the Chinese government to take care of an aging population with higher expectations of life quality. Omdia projects the Chinese government will continue to invest in the health sector. Fueled by economic recovery, growing medical demands, and continued government investments, Omdia estimates the Chinese medical device market will maintain its robust growth rate of nearly 10 per cent into 2025. Healthcare will become an economic driver with growing importance for China.

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Sally Ye is the Senior Analyst — Healthcare Technology at Omdia.

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