Blood money

Over 600,000 Chinese citizens receive blood dialysis – a number that is is expected to rise substantially in the coming decades as the population ages.

Almost all dialysis machines in China are foreign made. The only domestic firm to hold significant market share is SWS Medical Group and it is planning to go public on Shanghai’s STAR Market.

SWS is not a start-up. It was founded in 2001 by Gao Guangyong, a former salesperson who was disappointed in the quality of the domestic medical devices he was being asked to flog. Instead he set up his own company called Chongqing Shanwaishan, which has gradually built up a reputation for high quality blood purification technology.

This company became today’s SWS and is planning to raise about Rmb1.2 billion in a listing that would value the Chongqing-based firm at more than Rmb2 billion.

The relatively small fundraising size underlines its current market share. Five foreign brands dominate – Fresenius, Braun, Nikkiso, Baxter and Nipro – accounting for over 80% of machine sales in the domestic blood market.

SWS has five different types of machines – including one that treats Covid-19 patients with kidney and liver problems. Over a thousand hospitals across China use their products and since 2013 SWS has also run its own haemodialysis centres.

“Through independent research and development, integration of international and domestic advanced technologies, and advanced intelligent production technology, we aim to become the world’s premier blood purification brand,” the company’s prospectus says.

At present just 19% of Chinese patients who could benefit from haemodialysis actually receive the treatment, according to 36Kr.com.

Yet by 2030 it is predicted that some three million Chinese will require regular dialysis due to the increased incidence of diabetes, high blood pressure and other illnesses. SWS’s products can also assist in the treatment of multi-organ failure and poisoning.

As China boosts its budgets for medical care the demand for dialysis machines is likely to skyrocket. Under the health ministry’s Made in China policy launched in 2018, Beijing wants 70% of medical devices in county-level hospitals to be domestically made. To facilitate this the government has mandated there also be equipment performance evaluations to ease public fears that local products might not be up to scratch.

Some more affluent provinces have gone further in their drive to buy local: legislating to make sure that healthcare organisations purchase domestically when it comes to devices such as respirators. Insurance companies are also playing a role in steering procurement: with improvements in locally made heart stents, many insurers now refuse to cover the cost of more expensive imported ones, for example.

In general, demand for medical devices in China is booming, growing at around 20% a year. In 2020 the market was worth Rmb800 billion, according to Deloitte.

“China now accounts for about 20% of the global medical device market. This fast-growing industry is expected to continue on an upward trajectory, supported by multiple drivers including an aging population, rising incomes, and the continued enhancement of health services in hospitals and clinics throughout China,” the consultancy said in a report earlier this year.

Of course, none of this means SWS is a sure bet. In its prospectus it notes that its machines are dependent on foreign parts and that global supply is currently erratic. The company also notes that healthcare provision in general is fraught with risk – a machine could be used incorrectly, a patient could die from other causes – all of which could bring trouble for SWS.

The media coverage of the IPO also noted that SWS’s 10 dialysis centres are underused, possibly because the public feels safer going to hospitals than standalone dialysis clinics.

Additionally SWS has invested heavily in expansion in recent years – meaning that in 2018 and 2019 it made losses. In 2020 it reported a profit of Rmb21 million.

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