China's medical device market is the second largest in Asia, valued at more than $1.3 billion in 1997. Rising incomes, increased healthcare access, and steady economic growth are expected to cause China’s medical device market to grow 20% over the next three years.

China has experienced a surge in imported medical devices – currently over half of its medical device market – due to weak domestic technological capacity. The market contains more than 200 foreign medical device companies, led by the U.S. (controlling 17% of local manufacturing), Japan (14%), and Europe (10%). The U.S. holds a 35% share of foreign imports, with its sales totaling $227 million in 1997. Over the past four years, total U.S. medical equipment exports to China have maintained average annual growth of 18% (although figures can be highly variable depending on the market segment).

Recent regulatory reforms and market changes in this, one of Asia’s most complex markets, have changed the landscape considerably. Understanding its regulatory requirements and the underlying bureaucracy will prove to be a major advantage in penetrating the market.

BUREAUCRATIC REFORM

Since the 1998 National People's Congress meeting, significant bureaucratic jurisdictional changes have occurred governing medical device registration, safety testing, and distribution. Previously, the Ministry of Health (MOH) and the State Pharmaceutical Administration (SPAC) jointly managed domestic medical products’ commercial production. In addition, SPAC also reviewed imported medical devices for approval. Now that SPAC has been dismantled, the State Economic and Trade Commission (SETC) manages medical devices that are manufactured domestically, and a newly-established State Drug Administration (SDA) controls imported medical device registration and monitoring. The SDA's specific responsibilities include:

• Developing, revising, and enforcing legal standards for medical devices, in vitro diagnostic reagents, and sanitary material products.

• Creating medical device product catalogs for classified regulation.

• Registration, testing, and administration of all medical devices, including Class III or "high risk" devices.

• Issuance of product registration certificates and production licenses.

• Quality system and safety certification of medical device products.

• Regulating medical device advertisements.

The newly established Ministry of Labor and Social Security (MLSS) is taking over such programs as China's National Health Insurance (NHI) system and the current Cooperative Medical System (CMS), responsibilities previously held by the MOH. The MOH's future size and jurisdiction are uncertain: while some believe its staff may be cut by as much as 50%, the ministry may be put in charge of developing a separate health insurance system for rural areas.

Officials disagree whether the SDA or the MOH should be responsible reporting medical device safety to the State Council. The majority of officials consider it the SDA’s jurisdiction, preferring that the MOH keep its oversight over hospital management of medical devices. The MOH's responsibilities in this area include:

• Control over "large" equipment purchases (MRIs, CT Scanners, X-Ray Apparatus and other expensive electromedical devices and diagnostic instruments);

• Setting hospital fees; and

• Exerting a strong influence over purchasing policy (often encouraging hospitals to buy domestically-manufactured devices and restricting "surplus" equipment purchases).

It is hoped that bureaucratic reform will allow a more efficient and streamlined process for medical device regulation.

PRODUCT REGISTRATION

Medical devices were not required to be formally registered for sale in China until late 1994. Since then, however, several regulations on the import and sale of medical devices have been implemented. Before a medical device may enter the Chinese market, it must first obtain a registration certificate from the appropriate government organ (see below for a list). The government officials should decide 40 working days after receiving the application whether or not to approve the product. The following is a comprehensive overview of procedures that foreign medical device companies must follow to gain registration approval for their products in China.

Product Classification and Regulatory Oversight

Medical devices in China are separated into four classes, indicating increasing levels of risk. Following is a list of classes and the government bodies responsible for approving products in each class:

• Class I: Device’s safety and effectiveness are sufficiently provided through conventional management or general controls.

Registering Imported Medical Devices

The following documents must be submitted in order for imported medical devices to be registered and approved:

1. Certificate of Free Sale (CFS) qualifying the applicant and manufacturer for legal production and distribution.

2. Letter of Product Manufacture Recognition or Notice of Production (to show product approved to enter the market)

3. Product Safety and Quality Standard Documentation

4. Product manual (operation instructions).

5. Additional "Product Quality Guarantee" letter from the manufacturer.

7. Product testing report (if required by SDA).

8. If the manufacturer registers its device through an agent, it must submit a letter of entrustment, along with a Chinese translation.

• Foreign medical device companies may also find it useful to include a brief history of the device in the application. This includes information on when the device first received FDA (or the manufacturer’s government’s) approval, a summary of the product refinements and enhancements since approval, and a description of the device's properties, manufacturing process, intended uses, packaging and sterilization method.

Registration certificates are valid for up to four years, provided that the documentation approving the company to enter the market from the company's country of origin does not expire within that time. To renew the registration certificate, the original registration certificate must be submitted with new copies of the documents listed above.

Registering Devices Manufactured in China

Domestically-manufactured Class II and III medical devices follow a two-stage approval process in China: 1) Trial/Pilot Production Registration, and 2) Production Permit Registration. For pilot production registration, 5 to 9 sets of documents are required, while only two sets are required for production permit registration. After registration is complete, the registration department keeps only one copy of the documents and the rest are returned to the applicant.

A. Trial/Pilot Production Registration Requirements

8. Specifications and design description

9. Source of raw materials, spare parts, and fittings

B. Production Permit Registration requirements

Class I devices that are manufactured domestically only require production permit registration approval for their record-keeping method (how product standards are entered into the records). In this case, only one set of documents for this procedure needs to be submitted.

In all other cases, the following documents must be submitted:

1. Trial Production Registration Certificate

2. Report on the Perfection or Change of the Product in Production Technology during the period of trial production

3. Product Standards

4. Manufacturer's Current Quality System

5. Product for Test Report provided by the Quality Surveillance Agency, designated by the SDA

6. User quality feedback and original investigation data from major users

To renew the production permit registration certificate once it has expired, the company must submit the following additional documents:

Registration Numbers

In January 1997, SPAC's "Provisions Governing the Registration of Medical Device Products" that took effect. The 1997 regulations established a unified registration system for all of China, and assigned each medical device product a unique registration number. This number must be displayed on the upper right corner of the product data plate and product outer package, and on the first page of the introduction leaflet.

• Sample registration number for imported medical devices:

11 = Registration number
2222 = Registration serial number

• Sample registration number for domestically manufactured devices:

1 = Abbreviated name of the registration department (national, provincial, autonomous region, or municipality)
2 = Registration category (pilot production or production permit)
33 = Last two digits of the registration year
4 = Product classification
55 = For pilot production registration: Year in which the pilot production terminates

For production permit registration: Code of product variety
666 = Registration serial number

Penalties for Violating Regulations

In addition to registration regulations, the government has also set up a system of penalties for manufacturers that violate product registration requirements. If a party does not agree with the penalty, it may apply for reconsideration. If after reconsideration the party still disagrees with the decision, it may bring a suit before the people's court within 15 days after the reconsideration notice was submitted. Following is a list of violations and sanctions currently in effect:

Conduct that will result in a warning:

Conduct that will result in a fine of 10,000 RMB (about US$1,200):

Conduct that will result in fines of 10,000 to 30,000 RMB (about US$1,200 to US$4,300):

SPAC's 1997 testing regulations are in the process of being replaced with new product testing standards regulated by the SDA, which will strengthen medical device clinical and category testing. Indeed, the U.S. Department of Commerce has stated some of the current regulations violate WTO standards. While the SDA gradually gains comprehensive regulatory control over the testing process, loopholes are forming in the monitoring system that offer the chance to "negotiate" product standards with Chinese ministries.

In fact, a large part of the inspection process is currently under loose and ill-defined regulations. A "sliding scale" exists for registration and testing fees, allowing registration fees alone to reach as high as $10,000 to $15,000 per product. In addition, the SDA has the right to perform quality spot checks on Class III devices, and to conduct its own evaluation of imported medical devices. Foreign importers may be required to submit to additional testing outside of the normal SDA/SACI process. Companies, for example, whose products require extensive re-calibration during their operation may have to undergo periodic inspection by the Chinese government agency responsible for weights and measures.

SACI’s October 1997 regulations stipulate that the following types of imported medical devices must undergo separate inspection tests:

• Medical diagnostic X-ray equipment.

• Hemodialysis equipment.

• Hollow fiber dialysis equipment.

• Extracorporeal blood circuit for blood purification equipment.

• Electrocardiographs.

• Implantable cardiac pacemakers.

• Ultrasonic (Ultrasound) diagnosis and therapeutic equipment.

The current system calls for clinical tests to be conducted when:

• New types of biological material are used;

• The product will be implanted into the body for a long time;

• The biological and medical mechanism of the product is still in the initial stages of research; or

• Similar products are not found on the market.

The device is exempt from clinical verification when it has met all of the following conditions:

• The medical device is nonimplantable;

• Treatment equipment does not use ultrasound, microwave, laser, X-ray, gamma ray and other radiological particles as the therapeutic source;

• In structure, mechanism, major function(s) and performance index, the product is the same/similar to a product on the market that has been proven to be safe and effective; and

• No death or serious harm can be caused if the product should malfunction.

Period and quantity requirements on clinical study and verification are illustrated in the following chart:

Source: Guide to the Implementation of the Provisions Guiding the Registration of Medical Device Products, SPAC, October 30, 1996.

Quality System Inspection

If the product is manufactured in China, a quality system inspection of manufacturing facilities must be conducted during the production permit registration process, in addition to clinical verification and studies. Typically, the product must have a quality system verification period of at least 6 months after pilot product registration. The quality system inspection can be done in a few different ways:

The third-party inspection mentioned above can be exempt under the following conditions:

In addition, a single registration (production permit registration) can be applied for directly when the first two conditions hold and the medical device is a disposable product that has already been implemented with the production license system.

OTHER REGULATIONS AFFECTING MEDICAL DEVICES

Intellectual Property Protection

China’s medical device registration process awards the first company to complete the registration process, without preference to companies with prior use or ownership claims. As registering companies must provide detailed technical specifications and product manuals and confidentiality is not assured, domestic companies may obtain, copy, and register a foreign manufacturer’s product, or simply pirate them.

The government, recognizing this problem, is attempting to combat it with several new laws. Manufacturers and retailers that violate these laws are held liable for damages and can be punished severely. Its 1993 Product Quality Law, for example, prohibits producers and sellers from the following:

Some additional revisions are underway. For example, a new law to protect business secrets is being implemented. In addition, the State Intellectual Property Office (SIPO) is currently revising the Patent Law, which will cover domestic and international property rights, and provide additional benefits to new fields, such as microelectronic technology and biological engineering. SIPO expects to receive 100,000 patent applications a year through the year 2000, and believes that this figure will increase to 150,000 annually by 2010.

Marketing Regulations

Finally, China's Advertising Law prohibits medical device manufacturers from including the following in advertisements:

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