A recent report issued by the U.S.-China Economic and Security Review Commission (USCC)[1] highlights why the Chinese market is central to the business strategy of many U.S. companies that manufacture and market pharmaceuticals, medical devices, and other healthcare products.  The Congressionally-mandated report[2], issued in November 2014, addresses in detail the opportunities and challenges surrounding access to China’s growing medical device and pharmaceutical market.  It also provides specific recommendations for Congress to help U.S. companies gain access and compete.

The report’s key findings and conclusions were based, in part, on a April 2014 hearing in which the USCC examined China’s healthcare sector, drug safety, and U.S.-China trade in medical products and biopharmaceuticals.[3]  Hearing witnesses included, among others, the U.S. Food and Drug Administration’s (FDA) country director for China, senior executives for AdvaMed, PhRMA, and healthcare policy experts from the Council on Foreign Relations and the Asia Health Policy Program at the Shorenstein Asia-Pacific Research Center of Stanford University.

Regarding China’s healthcare sector, several report findings demonstrated the potential for significant growth and commercial opportunities in the medical products market.  Such key findings include:

  • China is undergoing an “epidemiologic and demographic transition” that is exploding China’s demand for healthcare as China’s population is ageing, contracting more chronic diseases, urbanizing, and getting wealthier.
  • Biopharmaceutical products represent a growing net export from the United States to China, increasing by 28 percent every year for the last ten years to $1.4 billion in 2013.
  • China’s healthcare spending is projected to increase from $357 billion in 2011 to $1 trillion in 2020.  China’s over-the-counter and branded generic market is forecast to expand from $23 billion in 2010 to $369 billion in 2020.  That would make China the second-largest pharmaceutical market after the United States.

According to the report, from the vantage point of U.S. companies that manufacture and market drugs, medical devices, and other healthcare products for the U.S. and global markets, the commercial opportunities in China relate primarily to the research and manufacturing capabilities of the companies doing business in China.  For example, access to these facilities would allow drugs, medical devices and components to be studied and sourced in China relatively inexpensively.

U.S. companies’ ability to tap into these areas of potential growth is complicated, however, by numerous market access barriers.  The report also found that U.S. drug and device makers continue to have restricted market access and limited opportunities to market and sell their products in China.  Some specific barriers, as reported, include:

  • U.S. company concerns about being targeted by enforcement actions in view of China’s recent anticorruption drive, discriminatory use of its antimonopoly law, excessive data transfer and clinical trial requirements for new drug approval.
  • Deficiencies in China’s intellectual property laws, and state interference in tendering, pricing, and reimbursement, which in combination can cause delays up to eight years for state-of-the-art U.S. drugs making them prohibitively expensive for many Chinese patients. 
  • Proposed amendments to China’s Medical Device Law, published in March 2014, which could impose hundreds of new requirements on foreign device markets, including indigenous standards for serial number tracking.

Recognizing the importance of the Chinese market to U.S. medical and pharmaceutical producers, the USCC made specific recommendations to Congress aimed at reducing barriers so  U.S. companies can expand their business.  For example, the USCC recommended that Congress:

  • Adopt measures to make greater use of “track and trace” technology, by urging U.S. negotiators to demand that China harmonize with internationally recognized standards for medical devices and active pharmaceutical ingredients, and making the use of serial numbers mandatory at all times.
  • Direct the Office of the U.S. Trade Representative (USTR) to review the interest of U.S. healthcare goods and services providers in the Chinese market, Chinese market barriers, and opportunities to promote human health in China in ways that promote U.S. consumer and business interests.

As U.S.-China healthcare and pharmaceutical trade grows, the USCC recommendations may play a significant role in related policy debates in 2015.  Many Chinese healthcare industry policies and measures could violate international trade and investment rules of the World Trade Organization (WTO), and could be addressed in formal WTO dispute settlement, WTO Government Procurement Agreement (GPA) negotiations, U.S.-China bilateral investment treaty (BIT) negotiations, and various U.S.-China trade and economic dialogues, all which would be led by USTR.

KDW’s International Trade and Government Relations Groups specialize in advocacy before USTR and Congress on international trade and market access issues, supply chain compliance, and anticorruption laws.  If you have any questions concerning the USCC’s report, recommendations, or other related issues, please contact Jennifer McCadney (jmccadney@kelleydrye.com) for further information.

[1] USCC is charged with monitoring and providing recommendations to Congress regarding the national security implications of U.S.-Sino trade and economic relations.

[2] Available at:  http://www.uscc.gov/Annual_Reports/2014-annual-report-congress.   See pages 127-182 and 229.