China's Diagnostic Imaging System Market: Foreign Vendor Opportunities & Challenges

By Giananthony Rizzo, DRG

The first part of this article examined how China’s healthcare reform, within the context of the 13th Five-Year Plan, affected Chinese diagnostic imaging vendors. While a number of measures have been enacted to bolster domestic industry and domestic consumption, the Chinese healthcare space is largely dependent on foreign vendors, particularly in the supply of higher-end systems, like higher-T MRI, larger-slice CT, and nuclear medicine systems.

With China looking to make the jump to high-income status, the government’s emphasis on domestic industry growth parallels a shift toward a consumption- and service-driven economy. That being said, compared to foreign market leaders, Chinese companies significantly lag behind in global business infrastructure and human capital, product and solutions depth, and market expertise. Given the scale of China’s healthcare reform, foreign companies need to play an active role in healthcare reform; the second part of this article examines the role of foreign manufacturers.     

Foreign Manufacturers’ Role In Healthcare Reform

The National Health and Family Planning Committee’s (NHFPC) policy unsubtly favors domestic systems. More strict procurement policies, such as the implementation of tendering and increased congruency in provincial reimbursement rates, strongly support these measures, given that domestic systems are priced 30 to 60 percent less than foreign systems. As previously stated, though, financial barriers have rarely been deterrents for Chinese healthcare facilities looking to purchase foreign systems — especially more expensive modalities, like MRI, CT, or nuclear medicine systems — which has led to rampant and occasionally superfluous spending.

The Chinese government has prioritized increasing domestic market shares by 15 to 20 percent. Currently, domestic manufacturers hold less than 10 percent of the total Chinese diagnostic imaging systems market. With the rapid contraction of the low-end systems segment, ironically spurred by large government investments in healthcare infrastructure and digitization, a number of smaller Chinese vendors are being eschewed from growing market revenues. As previously mentioned, a number of domestic companies have made the leap into the mid-range market segment, clashing head-on with multinationals’ China-centric systems.

The mid-range segment is the most highly contested segment in China, and is set for logarithmic expansion with healthcare reform. Seemingly, the Chinese government has positioned Chinese companies in prime position to capitalize, while trying to dampen revenues for non-Chinese brands. However, a problem arises when examining the number of Chinese companies able to feasibly make the jump to bona-fide competitor in this segment, supplying a growing healthcare market. Currently, Neusoft Medical and Mindray are ostensibly poised to take full advantage of this new market opportunity, but there is a scarcity of second-tier companies. Outside of the ultrasound and general radiography market segments, only Shenzhen Anke, Ningbo Xingaoyi Magnetism, Top Grade Healthcare, AllTech Medical, and United Imaging have made bleeps on the global radar in terms of developing mid-range or premium systems, and those companies only are active in the Chinese market.

In terms of solutions offerings and portfolio breadth, Chinese vendors lag behind their foreign counterparts. Despite investing 10 percent of its revenues back into R&D, Mindray is only really competitive in the highly-commoditized ultrasound space. Even Neusoft Medical, despite being active in most diagnostic imaging system segments, cannot offer the same depth of solutions or products as multinational corporations. Additionally, post-sale servicing has been undervalued by Chinese companies in the past, a sentiment echoed globally. With so much emphasis on developing a pyramid-structure healthcare system, having a procurement model that assertively favors a handful of companies is overbearing, especially considering some business segments are significantly underdeveloped.

Furthermore, a key barrier for healthcare reform is the stigmatization of lower-tier facilities, an issue that is as much about improving medical device installed base and quality of service as anything else. It goes without saying that foreign companies must be active partners in healthcare reform efforts. China-centric systems — developed using the 20:80 rule (20 percent the functionality of a high-end system to cater to 80 percent of the population), and manufactured in China —  from Siemens Healthineers, GE Healthcare, and Philips Healthcare are more reasonably priced, and thus more competitive in tendering contracts. Importantly, these partnerships allow lower-tier facilities to leverage foreign technology to redirect patients toward their facilities. 

With the exception of Neusoft Medical, a glaring difference between top Chinese and top foreign diagnostic imaging system manufacturers is the former’s lack of solutions in the healthcare IT space, which places them at a disadvantage with ongoing digitization efforts. A number of foreign vendors have become active partners in China’s healthcare digitization. For instance, Carestream Health recently signed an agreement with China's Alibaba Health to create a medical image management cloud platform for the Chinese health care system; Carestream Health, Siemens Healthineers, and GE Healthcare have also been very active in hospital digitization pilot programs, particularly in rural areas.

The government has invested $9.5 billion in electronic medical record (EMR) development, with another $700 million coming from venture funding. By 2020, it is estimated that 80 percent of tier 3 hospitals, plus half of all tier 2 and tier 1 hospitals, will have EMRs in place. While foreign companies are less likely to be active in this market space, they stand to be important players in other healthcare IT segments, like picture archiving and communication systems (PACS), radiology information systems (RIS), or vendor-neutral archives (VNA). Currently, Siemens Healthineers, GE Healthcare, Philips Healthcare, Carestream Health, FUJIFILM, and Agfa HealthCare are market leaders in the U.S. and European healthcare IT space.

The integration of patient information, through all tiers of the Chinese health care system, necessitates diagnostic system interoperability with existing health care IT systems, so that images can later be accessed through electronic medical records (EMR), PACS, or some other form of enterprise viewer from the hospital's central VNA. While Chinese companies have come a long way from analog x-ray systems and B&W ultrasounds, their systems tend to lack the expertise and integration so highly regarded in an increasingly digital healthcare milieu. For China to realize its goal of centralized data sharing and increased collaboration, foreign vendors and their expertise on the global stage are essential for progression.

Solution: Create A Favorable Milieu For Both Domestic And Foreign Vendors

With an estimated 10,000 additional hospitals set to be built by 2025, the installed base, servicing, maintenance, and healthcare IT demands are too cumbersome for the current pool of Chinese vendors to undertake on their own. Even with increased government and venture investment, and an increase in domestic M&A activity, the government’s healthcare ambitions are best served by creating an environment favorable to both domestic and foreign companies.

While Chinese companies have come a long way in the past decade — and have been wrongfully stigmatized, in some ways, as inferior to foreign brands — they still have a long way to go before they can genuinely rival foreign market leaders in this space. The paucity of domestic companies in the market renders them incapable of bearing a major share of healthcare reform initiatives. Foreign companies, in this regard, are needed not only because they introduce high-end technology into the market, but also for the innovative business policies they introduce to the market. Moreover, foreign companies have been active members in bridging the standard of care gap between rural and urban China, through the introduction of rural doctor training programs, nationwide innovation centers, and healthcare digitization efforts. Chinese companies stand only to benefit from their presence, at least in the near future, as the nation undergoes a transition toward an innovative and high value-added healthcare industry.

With a rising middle class increasingly demanding better healthcare, ostracizing foreign vendors will only negatively affect healthcare reform efforts. The Chinese government needs to protect domestic industry and introduce new growth strategies, but it also needs to acknowledge its limitations, and partner with key market players to improve not only the economy, but the standard of living.   

About The Author

Giananthony Rizzo is an analyst on the Medical Device Insights team at Decision Resources Group. His main areas of focus are the global diagnostic imaging systems, contrast agents, and radiopharmaceuticals markets. Giananthony holds a M.Sc. with a specific focus on molecular biology and targeted therapy for head and neck cancer, and a B.Sc. in medical sciences from the University of Western Ontario.