China’s elderly population currently amounts to over 240 million. Further, 85 million people in the country live with disabilities and 20 million are users of temporary disability aids.
This growing and substantial population of senior citizens and persons with disabilities has resulted in an increasing demand for rehabilitation products and services.
It makes the disability aids industry one among China’s fastest growing sectors, catering to potentially the largest domestic market in the world.
With China’s new plan to facilitate the industry’s development to service the growing internal demand, we look at how foreign firms can benefit from investing in the country’s disability aids industry.
Profiling China’s emerging disability aids industry
Disability aids refer to products and services that improve, compensate, and replace certain human functions. It includes a wide range of products such as wheelchairs, hearing aids, and assistive devices and services such as rehabilitation and elderly care.
China started paying attention to the country’s needs for disability aids in the 1990s, when the government included the industry in its national five-year plan for the first time. Five-year plans charter the major economic goals that will be pursued by the government within that period.
In its 11th five year plan, for the period 2006 to 2010, China aimed to extend access to disability aids to its rural regions where 70 percent of its people with disability live. Falling within this period was the 2008 Beijing Olympics, which accelerated the use and development of disability aids in China. Official statistics show that the number of accessibility-related projects carried out in Beijing reached 14,000 between 2001 and 2008.
The country’s disability aids industry was valued at 430 billion yuan (US$63 billion) in 2015, including 330 billion yuan (US$48 billion) in goods and 100 billion yuan (US$15 billion) in services. According to the deputy director from the Ministry of Civil Affairs, the industry’s annual growth rate averaged at 15 percent in recent years. The State Council aims for its market value to surpass 700 billion yuan (US$102 billion) by 2020.
Private enterprises have played a more significant role in this industry. There are eight disability aids companies listed on the National Equities Exchange and Quotation (NEEQ). However, the China Disabled Persons’ Federation (CDPF), which is a public organization, also plays an important role in providing disability aids to people with special needs in the country.
China’s campaign for a barrier-free environment
In August 2012, China issued new regulations to encourage the improvement of accessibility and construct a barrier-free environment in China. The regulations required all newly-built roads and buildings to have barrier-free facilities constructed. The Ministry of Transport also issued a guideline to build barrier-free facilities at all public transits by 2020.
In the years between 2012 and 2018, China renovated around 2.1 million houses to meet the new regulations, though 3.3 million houses still await renovation. However, many of the newly built barrier-free facilities have suffered from quality issues, either being poorly designed or defective. For instance, some sidewalks in Chinese cities are full of obstructions and cannot be easily used by those who are visually challenged. Some barrier-free facilities in Beijing’s hospital, shopping malls, and subway stations simply do not work.
While there is little involvement of foreign companies in building barrier-free facilities in China, technological innovations provides such scope for participation. For example, the development of artificial intelligence (AI)-based technology in the barrier-free field offers an ideal platform for multinational firms (MNCs) to enter the Chinese market.
Recently, the Chinese technology giant Tencent introduced AI functionalities on its online platform WeChat – picture-to-speech, speech synthesis, and OCR recognition. The Chinese search engine Baidu is releasing an algorithm that can help pathologists identify breast cancer into the open source domain while Alibaba Health has cooperated with three Chinese hospitals to launch an AI medical laboratory to facilitate medical resources distribution.
National policy to promote manufacturing, development of disability aids
In October 2016, China’s State Council issued ‘Several Opinions of the State Council on Accelerating the Development of the Assistive Device Industry’ to promote the development of the disability aids industry. The plan lists out goals, development priorities, and policy support for the industry. It encourages more cooperation between local and foreign enterprises in trade, investment, technology exchange, and the capacity-utilization of the disability aids industry.
Under the policy, China invites established foreign companies to set up research and development (R&D) centers in the disability aids domain – together with the Chinese businesses. For example, the US automaker Ford has entered into a joint venture with Zotye, a new Chinese firm, with a view to manufacturing self-driving cars; they have already established a new manufacturing plant. Meanwhile, German automaker Volkswagen has an agreement with Didi – their interest lies in autonomous vehicles, robo-taxi services, and China’s ride-sharing market.
In December 2017, the Ministry of Civil Affairs announced it will establish pilot zones for the disability aids industry in 12 municipalities: Shenzhen, Shijiazhuang, Jiaxing, and Lanzhou. These pilot zones will benefit from specialization and increased efficiency. The respective municipal governments will provide infrastructure support, such as the construction of industrial parks as well as financial and fiscal incentives to attract foreign companies.
In addition, China’s Ministry of Commerce encourages the disability aids industry to hold more expos and fairs. Such events could open up opportunities for foreign enterprises in the industrial segment and facilitate the exchange of ideas and/or development of new businesses with Chinese manufacturers. Responding to the government directive, the Care and Rehabilitation Expo China, which has been held for 11 consecutive years, will be open to foreign exhibitors for the first time in 2018.
Absence of trained local workforce
The disability aids industry is under-supplied by qualified professionals in China due to its slow development. Few Chinese universities offer programs and courses in rehabilitation to students, while the majority of Chinese hospitals have no rehabilitation center.
As a result, China trains only 15 million rehabilitation workers each year, which is four times less than the market demand. China needs an additional four million rehabilitation doctors and 11 million geriatric nurses to fulfill its growing demand for rehabilitative care.
Low purchasing power
Disability and poverty are interconnected in China, creating a vicious circle. Around 40 percent of China’s poor population comprise of people with disabilities. The absence of easy to navigate barrier-free environment or inaccessible assistive technology limits their work choices, offering little chance to move out of poverty.
Disability aids are unaffordable for many Chinese with special needs. In fact, most high-tech assistive devices are imported as China does not locally manufacture them, resulting in higher costs. For instance, an imported prosthesis costs 400,000 yuan (US$59,000), which is too expensive for most Chinese families.
China’s medical insurance coverage also includes only few assistive devices and only those that are produced by local firms. While there are thousands of assistive devices in the world, China’s medical insurance covers only around 20 types of these products.
Prospects and challenges for foreign investors
The plan issued by the State Council prioritizes investment by domestic companies. It pushes for local businesses to develop the capability to produce higher-end products in China’s disability aids industry.
At present, China’s disability aids companies primarily focus on the manufacture and sale of products. The new plan encourages these companies to build capabilities in supplying the whole production chain in the long term.
To materialize these goals, the government encourages foreign companies to set up R&D centers in China, which allow domestic firms to learn from foreign players.
In October 2016, China’s Central Government and State Council issued the Outline of the Healthy China 2030 Plan, which advised local businesses in the industry to catch up with international standards by 2030. If the plan’s outline is realized, China will prioritize the development of its locals industry and may undermine foreign companies’ attempts to compete for the country’s market share. As both the plan and outline emphasize independent innovation of disability aids, foreign companies should be concerned about their intellectual property protection when entering this segment.
As things stand, there have been no significant legal claims concerning IP infringement in the disability aids industry in China. The Global Times argues that foreign companies usually keep secure their knowledge about advanced technologies when forming joint ventures with Chinese firms. On the other hand, criticisms abound that China aims to gain access to cutting edge medical innovation by any means to meet its “Made in China 2025” targets.
The “Made in China 2025” plan was unveiled as a grand strategy in 2015 to lift the country’s technology industries up the global value chain, replace imports with local manufactures, and rival Western tech giants. It has since become a geopolitically contested issue with the US wary of China’s ambitions – an argument put forth to justify the trade war scenario.
Overall, the country’s disability aids industry will grow fast due to China’s demographic situation and governmental supports.
Although the new plan emphasizes domestic participation and innovation, foreign companies can benefit from its ambitious scope in the short term, by offering higher-end products and services in disability aids. That said, foreign companies should make their IP protection a foremost priority when entering this segment, to avoid misappropriation or IP infringement in the long-term.
China Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices in China, Hong Kong, Indonesia, Singapore, Russia, and Vietnam. Please contact email@example.com or visit our website at www.dezshira.com.