Not so fast

Restraints on China’s medical equipment boom


Shenzhen-based Aibaoda Technology used to sell earphones, microphones and loudspeakers. Tus Data Asset developed blockchain technology and electronic devices. But they both changed direction this year to supply medical equipment – that is, until mid-April when they were named and shamed for the poor quality of their products.

The Covid-19 crisis has seen a number of other firms join the gold rush to sell medical goods – partly because of the surge in international demand, but also because of the subsidies, loans and tax breaks on offer to bump up manufacturing capacity.

But in a sign that the stampede into medical goods had gone too far, China’s Ministry of Commerce announced on May 12 that detection reagents, surgical masks, hazmat suits, ventilators, infrared thermometers and non-medical masks could no longer be exported through the so-called “market procurement trade”.

The term refers to deals struck in designated zones with fast-track customs clearance. Supporting transactions worth less than $150,000, the idea is to reduce red tape for specialist goods shipped in smaller amounts. Apart from speedier export approvals, the scheme also exempts vendors from customs duties and supports less-than-container load (LCL) shipments.

First introduced in Yiwu (see WiC9) in the province of Zhejiang in 2014, similar arrangements are on offer at 14 wholesale hubs across the country, including Guangzhou’s Huadu, Suzhou’s Changshu and Shandong’s Linyi.

Lately, however, the zones have become a popular channel for the export of substandard medical supplies, because the streamlined procedures offer an opportunity for less onerous inspection and oversight.

At least 194 countries have bought medical equipment from China through the market procurement trade since March, lifting the value of China’s medical exports to Rmb134.4 billion ($18.91 billion) as of May 16.

While the average daily exports tripled to Rmb3 billion between April and mid May, complaints from overseas customers saw Chinese authorities seize 11.2 million faulty medical items as a result of random checks, as more factories repurposed their production lines to cater to overseas demand (see WiC490).

Of these cases, 89% of the bogus stock were facemasks and 9% flawed Covid-19 test kits, according to customs officials.

The Ministry of Commerce says the suspension of the fast-track channel is meant to improve quality control of the medical goods that are heading abroad. The changes follow high-profile cases of complaints from recipient countries (see WiC489). Last week Canadian leader Justin Trudeau said his government wouldn’t pay the full price for another eight million substandard medical masks sourced from China. Spain also wants a refund for its entire order of 640,000 rapid turnaround tests after finding they identified people with the virus in only 30% of cases.

In other cases, the European Safety Federation, a trade association for personal protective equipment suppliers, has warned of forged or invalid certificates of accreditation from bodies in Europe and China.

To weed out more of the substandard suppliers, the authorities had already issued tougher export controls on medical goods at the end of March. Manufacturers were asked to prove that their products meet the standards of the domestic market, on top of those of the recipient countries. It turned out that of the 102 Chinese firms with accreditation for sales in the European Economic Area, only 21 had licences to sell their products inside China. On April 10 the Chinese government also announced that it would subject 11 categories of medical goods to more stringent customs checks.

The enforcement of stronger oversight has already seen a number of would-be manufacturers departing the trade, especially in the simpler production processes, like mask-masking.

“The business of mask-making equipment has fallen off a cliff. In the past machines costing more than Rmb20,000 were immensely sought-after, but now they are not wanted even though their prices have dived to Rmb4,000-5,000 a unit,” a trader in Yiwu told China Business Journal.

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