China industry body quizzes medical device makers over pricing
* Industry sources surprised by level of detail sought in survey
* No indication regulators about to launch formal pricing probe
* Commerce Ministry commissioned survey last month
* Similar survey under way in auto sector
* China medical devices market worth $20 billion
By Megha Rajagopalan
BEIJING, Aug 22 (Reuters) - A Chinese industry group is collecting information on the pricing and business practices of foreign and local makers of medical equipment for the government in a survey that sources said was unusual in the amount of detail it sought.
Two industry sources who have seen the questionnaire said it was unclear if regulators were about to investigate China's $20 billion medical devices market following multiple probes into corruption and possible price fixing in the pharmaceuticals sector.
But one of the sources, an executive at a foreign biotechnology firm, said the questions on pricing led him to believe one of its aims was to determine if companies were setting minimum prices for vendors, which could violate China's 2008 anti-monopoly law.
The survey was commissioned last month by the Commerce Ministry's anti-monopoly bureau, said Xu Shan, deputy director for international cooperation at the government-backed China Association for Medical Devices Industry (CAMDI).
Xu said she was not aware of any formal investigation into the sector. While the association's survey did not ask questions about corruption, Xu said regulators would likely focus on such practices at some stage.
"In the future, there will be even stricter rules," Xu told Reuters in a telephone interview, declining to elaborate on what those rules might be.
"The rules should likely not be restricted to price fixing, but will also target commercial bribery," added Xu.
The association represents some 3,000 companies that make medical equipment or healthcare items - from magnetic resonance imaging (MRI) scanners to bandages. The survey was sent to all association members but not all had responded, Xu said.
Lawyers have said Chinese industry bodies frequently seek information from companies as a precursor to a formal probe.
The China Automobile Dealers Association, for example, said last week it was collecting data on the sale of foreign cars for the National Development and Reform Commission (NDRC).
The NDRC is responsible for enforcing anti-trust rules on pricing and has spearheaded many of the recent probes that have spanned milk powder to jewellery as well as medicines.
Xu declined to say what information the medical devices survey sought on pricing.
The sources who have seen the questionnaire said it asked about the value of imported goods, the price at which companies sold to distributors and whether they planned to raise or lower prices. It also requested information on product volumes and quality, sales techniques, workforce size and production costs.
"This is certainly not common," said the Beijing-based executive from the biotechnology firm. "I have been working in this industry for 10 years and have never encountered anything like this."
The executive said his company regarded much of the requested information as trade secrets, adding it had not answered the questions directly.
"We've told them to go ask the customs department about prices for the goods we import. They haven't pressed the issue yet," said the executive, who declined to be identified because his company did not want to draw the ire of regulators.
Foreign firms have an advantage over China's many small medical device companies because of better technology and customer preference for foreign brands. Local firms have more success in low-end segments where they can compete on cost.
Three foreign giants - Siemens, General Electric Co unit GE Healthcare and Amsterdam-based Philips - dominate 70 percent of China's high-end medical market, according to the state-run China Industrial Economy News.
A spokesman for Philips in China said he didn't believe the company had received the survey. Siemens and GE declined to comment.
The Commerce Ministry did not respond to a faxed request for comment.
CHINA FOCUSED ON COSTS
China has committed to making healthcare affordable for its 1.37 billion people but faces an estimated $1 trillion bill by 2020. That has thrown the spotlight on costs.
"It's true that for medical devices, the cost to manufacture in China is very small," said Damjan Denoble of market access consultancy Rubicon Strategy Group. "There's an assumption that there's such a huge difference that it angers Chinese authorities."
An industry source who works with Chinese regulators said the various investigations into pharmaceutical firms had "really scared" foreign medical device firms.
Chinese authorities have visited the offices of numerous foreign pharmaceutical firms in the past month while police have accused British drugmaker GlaxoSmithKline of bribery. GSK has said some of its Chinese executives appear to have broken the law.
The NDRC is also probing 60 foreign and local pharmaceutical firms over pricing. That investigation has yet to conclude.
The medical devices industry, by contrast, has historically attracted less scrutiny because there is less direct competition between local and foreign players, the industry sources said.
"Factory pricing has always been an issue, with the Chinese government believing that foreign companies are jacking up prices way beyond tariffs and taxes," said the source who works with regulators, declining to be identified because he was not authorised to speak to the media.
One company that has had to fend off corruption accusations in China is Siemens.
A former compliance officer for Siemens in China sued the company in a New York court in January, accusing it of firing him after he tried to expose a kickback scheme involving medical equipment sales to hospitals in the country.
Lawyers for Siemens have sought to dismiss the suit. Siemens declined to comment.