Health-Care Reform, China Style

As the government makes improvements through a stimulus bill, Chinese consumer preferences show a real opportunity for foreign medical device makers

By Shaun Rein

Lawmakers in Washington continue to struggle over President Obama's proposed reforms of America's health-care system. On the other side of the world another country has gone much farther, much faster, in addressing the need for change to its health-care system. As part of its $586 billion stimulus package, China has unveiled an aggressive plan to revamp its health-care coverage, providing a counterpoint to America's struggle with reforms.

China's reforms are designed to address needed improvements to health-care infrastructure and coverage for an aging population and 800 million rural residents as well as to spur domestic consumption to offset the effect of dwindling exports. While younger Chinese are still spending (as I wrote in BusinessWeek in March), savings rates among older folks are running as high as 50% as they worry about skyrocketing health-care costs.

In March, China's State Council announced an allocation of $123 billion toward health-care reform. Under the plan, by next year 90% of China's citizens will be covered by a universal health-care system and health-care facilities will be upgraded, including construction of 30,000 hospitals, clinics, and care centers across the country. Instead of focusing on large magnet hospitals (where queues to see rock-star-like doctors regularly top eight hours) the government plans to build local clinics to treat smaller problems and act as hubs directing traffic to bigger hospitals.

New facilities need equipment and new patients mean more demand for implants, monitoring devices, and diagnostic machines. For foreign medical device companies, China's reforms could prove to be a boon by offsetting lagging demand in developed markets. While the U.S. medical device market has been hit by the financial crisis, China's is estimated to almost double in size between 2006 and 2014 to $28 billion a year, making it a potential growth driver for foreign firms.

A Preference for Foreign Medical Devices

As China's population becomes wealthier, patients are demanding better quality care. With fattier diets and problems with smoking and pollution, Chinese are increasingly afflicted by the same diseases that are prevalent in the developed world: cancer, cerebrovascular disease, and cardiovascular disease. The number of cardiac patients in China is growing at a 20-30% annual rate, with the market for cardiovascular stents increasing by 40% annually. Patients are often able to pay for expensive treatments, despite a fledgling insurance system.

My firm, the China Market Research Group, recently conducted what we believe is the most extensive research into China's health-care sector by interviewing hundreds of doctors, hospital staff, and consumers. We found that there is a clear preference for foreign medical devices. Patients want foreign products, even if they are more expensive, because they trust the quality over local ones. The majority of respondents also said that they were willing to pay 20% or more for Western device brands because they believed them to be more reliable.

The "Made in China" brand perception is hurting local producers even if they are technically getting better. This leaves room for foreign companies like Medtronic (MDT), Philips (PHG), or Siemens (SI) to shape the market for higher-end products like stents and MRIs.

Business Exchange

Track and share business topics across the Web.