Chinese medical market tough nut to crack for processors

Shanghai — China's medical device market is booming, but regulatory walls and concerns about intellectual property are keeping foreign processors largely on the bottom tier of the supply chain.

One complaint frequently heard among global plastics companies at the recent Medtec China trade show in Shanghai was that onerous standards — often stiffer than those in Europe and North America — effectively keep components makers out of the lucrative final-assembly and OEM business.

"Some products that don't require a clean room to be made in America require a clean room in China," said J.Y. Goh, marketing manager at Singapore-based injection molder Univac Precision Products Co. Ltd.'s Suzhou plant.

Catheter maker Optinova AB must deal with extremely high tolerances demanded by Chinese regulators.

"They are higher than in Europe. Sometimes they aren't really relevant," said Asa Mattson, director of consumer care at the Aland Islands, Finland-based company.

Vaguely worded and rapidly implemented regulations were a bugbear cited by Michael Lou, sales and marketing director at the Suzhou factory of Wayne, Pa.-based Tekni-Plex.

Noting the particularly strict standards on phthalates, Lou observed dryly: "If everyone complied with this regulation, every factory must be shut down."

While U.S. regulations typically distinguish between a medical device's design and its manufacture, Chinese law leaves manufacturers legally exposed for a poorly designed product.

For foreign-owned processors, the usual tactic is to ship individual components to a manufacturer, typically a major multinational. This customer then assembles the final product and submits to the Chinese Food and Drug Administration for approval or exports it.

"Due to regulatory limitations, we cannot provide fully assembled products," said Bill Pan, the Suzhou-based Asia sales director of MedPlast Inc., a Tempe, Ariz.-based medical molder and contract manufacturer.

"We can only supply components," he said. "We can provide fully assembled products in the United States and Europe. The [CFDA] medical regulator in China is more critical than those in the U.S. and Europe."

Some processors perform basic assembly. For example, Bethel, Vt.-based GW Plastics Inc. puts together a disposable breathing apparatus that will be used with a nebulizer.

The complaints are backed up by the European Chamber of Commerce in China.

"Many devices that do not need clinical trials in Europe or other main markets need to undergo very expensive and time-consuming trials in China," the chamber wrote in its annual China position paper released in mid-September.

The chamber advocates for harmonizing Chinese regulations on risk classification and clinical reports with international regulations.

Still, despite its challenges, the long-term boom in the Chinese medical market is drawing foreign companies in.

The market rose from 120 billion yuan ($18.1 billion) in 2010 to 308 billion yuan ($46.4 billion) in 2015 and is estimated to reach 600 billion yuan ($90.4 billion) in 2019, according to Medtec show organizers. The show was held Sept. 20-22 in Shanghai.

"It used to be that no Chinese manufacturer would pay Western prices for products because there was always a Chinese molder who would do it cheaper," said Benjamin Bouchard, vice president and managing director-China for GW Plastics.

"But now the Chinese medical OEMs realize that they have to have a quality product and a good reputation, and that comes from companies like us," he said. "We're seeing the Chinese medical devices market as a big opportunity."

Nothing sets off alarm bells in some companies more than a potential customer asking for help to reverse engineer an existing product.

"In the early years of this show, people would come up to us with a product and say, 'Just build that for me.' We'd say, 'No, no, no, no!'" Bouchard said. "We absolutely cannot allow the knowledge we learned from working on one product to migrate to another product."

One processing executive, who asked not to be identified, bluntly blamed would-be intellectual property thieves for limiting his company's China medical business: "There's an awful lot of copying of existing products. We'll no-quote on a lot of things. We're very careful about that."

The company is so cautious that it keeps mold fabrication stateside.

"We have some technology and ways that we make the tools that we don't share," the executive said. "[Our medical business] isn't growing as fast a pace as we'd like to see, but it's growing."