China's huge potential dominates Asia prospects

February 16, 1994

Contemplating an underequipped national health-care network of62,000 hospitals and 200,000 clinics is sure to whet the appetitesof most medical imaging marketers. Toss in a roaring economy growingat double-digit annual rates and people get excited about

Contemplating an underequipped national health-care network of62,000 hospitals and 200,000 clinics is sure to whet the appetitesof most medical imaging marketers. Toss in a roaring economy growingat double-digit annual rates and people get excited about China.

Imaging vendors considering Chinese business should preparefor a roller coaster ride, however, said GÕoran S. Malm,president and CEO of GE Medical Systems Asia. The China marketslowed during the latter half of 1993 as the central governmentcooled inflationary pressures. This year, foreign vendors faceabout a 10% net increase in product cost brought about by changesin the Chinese currency exchange system and a new value addedtax.

"You see this all the time in China. There are enormousjumps and then it has to be pulled back. But all the time thereis a positive trend," he said. Malm spoke with SCAN duringthe International Congress of Radiology meeting in Singapore lastmonth.

China offers by far the greatest market potential for imagingsystems in the Asia/Pacific region. It is a vast country of wellover one billion people and only about 1000 CT systems installednationwide. The government, eager to upgrade health services,would like to see that number rise to about 20,000 systems, Malmsaid.

The number of Chinese hospitals and clinics can be deceiving.While some hospitals are enormous 4000-bed institutions, GE estimatesthe average hospital size to be more like 70 beds, he said. Thebulk of China's small institutions will not be buying MRI andCT. They are looking for inexpensive x-ray and ultrasound equipmentwith fewer features than are standard in more developed markets.

"There is a two-tier market in China," Malm said."On the one hand, you have the elite, most advanced hospitals.These can afford international cooperation and training, suchas shows like this (ICR). That is the growing market for importedequipment."

The second tier is composed of the bulk of hospitals demandingsimple and inexpensive imaging equipment. There is a void betweenthe premium and low end of the market, he said.

Of the 62,000 Chinese hospitals, only about 20,000 are consideredpotential CT customers and even fewer--perhaps 1200--might bein the market for MRI systems, he said.

There was a boom in China last year for CT, according to NobuhikoIto, GEMS Asia vice president and general manager for marketing.The key factor determining how 1994 will shape up is when thecentral government will inject credits into the system, he said.

GE ANTICIPATES FASTER GROWTH for MRI this year in China, but thatgrowth depends on the government's encouragement of the use ofthis modality through greater reimbursement for procedures, Itosaid.

Like much of the Chinese legal and administrative system, hospitalpurchasing patterns are in transition. Chinese hospitals havebecome an unusual combination of social and business institutions,Malm said. Hospitals are now using more private funding sourcesto finance equipment purchases. Some hospitals have become entrepreneurialto the point of engaging in businesses outside of health care.

"Hospitals have the aim of investing in equipment. Theyhave to have more private ingredients in order to purchase,"he said.

Quotas on purchases of large equipment, such as MRI, are alsoin transition, he said. Originally, the Chinese system requiredmost hospitals to abide by a national quota from the Ministryof Health. Over the last two years, provincial governments havebeen able to set their own quotas, with hospitals obtaining purchaseapproval under either the national or provincial quota system. The notion of equipment quotas itself may be on the way out,however.

"Based upon comments from the (health) ministry, we believethat the quota system will disappear as an institution,"Malm said. "Then it will come down to affordability; whetherhospitals can invest in equipment or not."

Affordability is a factor of both access to funds and equipmentpricing. Prices of most goods rose this year with imposition ofa 17% value added tax that replaced lower sales tax, Malm said.

Domestic prices were also impacted by unification of the exchangerate for the Chinese yuan. Unification did away with the two-currencyexchange system of foreign exchange certificates (FECs) for foreignersand the renminbe for the Chinese, Ito said.

FECs, used for some investments, were obtainable at a preferential,officially set rate of 5.7 for $1 (U.S). The renminbe traded ata less favorable unofficial rate of 8.7 per $1 (U.S.). Now onlythe 8.7 rate is available, raising the price of foreign goods,he said.

Selling scanners in China is hampered by the need for trainedradiologists and technologists, Ito said. When an imaging equipmentsale is made, vendors usually must provide training of local personnelin the use of that system.

GE produces CT systems locally through GE Hangwei Medical Systems,a Beijing-based joint venture with the government (SCAN 9/8/93).The vendor intends to produce ultrasound equipment next throughthis venture, although CT is the priority at present, Malm said.

GE Medical Systems has invested time and resources in buildingup its presence in Asia generally, Malm said. The vendor has adirect marketing presence in all major markets. It operates fourmanufacturing facilities in Japan, Beijing, Seoul and Bangalore,India.

As it is elsewhere in the world, GE is strongest in the high-technologyMRI and CT modalities in Asia. It intends, however, to build astronger regional presence in both ultrasound and x-ray, he said.

Central to GE's Asian drive in ultrasound is the vendor's newtechnology revealed at December's Radiological Society of NorthAmerica meeting in Chicago (SCAN 12/15/93). GE showed the Logiq500 at the ICR, a lower cost version of the Logiq 700 system highlightedat the RSNA meeting. Internal training on the Logiq architectureis under way. GEMS Asia hopes to launch the 500 in the regionlater this year, Malm said.