As the medical device industry in China continues accelerated growth, investors seek to capitalize on a roughly $65 billion market that is growing at an annual rate of 21 percent. Under recent changes to the regulatory framework governing medical devices, this will become an industry more accessible to investors in China, although newcomers must be familiar with various compliance requirements in order to succeed in this evolving market.

On March 7, 2014, the State Council of the People’s Republic of China (“PRC” or “China”) announced revisions to the country’s fundamental medical device regulation, the Regulations on Supervision and Administration of Medical Devices (the “2014 Regulations”). The revisions aim to encourage investment and innovation by relaxing the requirements of gaining entry to the market but also increasing government regulation over the entire life-cycle of medical devices in the Chinese market. The 2014 Regulations took effect on June 1, 2014, and replaced the previous version issued by the same authority starting in 2000 (the “2000 Regulations”).

Over the last 14 years, the Chinese medical device market has changed significantly, requiring substantial improvement and adjustment to the regulatory system established under the 2000 Regulations. For instance, under the 2000 Regulations, the classification system was not sophisticated and flexible enough to address the different classes of medical devices and instead focused on uniform industry-entry and pre-market product approvals. At the same time, the 2000 Regulations failed to effectively monitor and control products that had gained entry to the market, and potential legal liabilities were not severe enough to deter violators. In order to adapt to the changes in the market and enhance protection of public health, the 2014 Regulations respond affirmatively and effectively with macro regulatory improvements.

Improvements to medical devices classification-based administration
Under the 2014 Regulations, medical devices are still classified into three classes based on their risk levels, but the big-picture definitions for those three classes are adjusted to allow more accurate classification. Class I medical devices refer to medical devices with low risks. Their safety and effectiveness can be ensured through routine administration. Class II medical devices refer to medical devices with moderate risks, which require strict control and administration to ensure their safety and effectiveness. Class III medical devices refer to those with relatively high risks, which require strict control and administration through special measures to ensure their safety and effectiveness. Further changes to the classification system are foreseeable.

Medical devices in different classes are subject to different levels of scrutiny with respect to product registration, manufacturing, distribution, and use permit. The 2014 Regulations introduced a number of new policies designed to relax industry entry and product access requirements for the purpose of encouraging investment and innovation and optimizing the review and approval process:

Product registration

• The 2000 Regulations required product registration for medical devices of all classes and any changes to the registered medical devices before they are put onto the market. Under the 2014 Regulations, no product registration is required for Class I medical devices and all non-substantial changes to existing registered medical devices. Instead, product filing for record will suffice in such situations.
• In general, product registrations for Class II or Class III medical devices require clinical trials. However, the 2014 Regulations provide exemptions for clinical trials if certain conditions are satisfied, such as demonstrated long-term safety and effectiveness of the same type of medical devices manufactured through the same process and used for the same routine usage, non-clinical evaluation, or data from clinical trials of similar types of medical devices. The China National Food and Drug Administration (“CNFDA”) will publish and maintain a list of medical devices exempted from clinical trials. In addition, in situations where the clinical trial cannot be exempted, pre-trial approval is required only for Class III medical devices, and pre-trial filing for records is sufficient for Class II medical devices.

Manufacturing

• The 2000 Regulations required Class II and III medical devices manufacturers to obtain the Manufacturing Permit before applying for products registration, which left the investment in such manufacturing business uncertain. The 2014 Regulations instead allow a potential Class II and III medical devices manufacturer to apply for product registration, enabling the manufacturers to make more certain investment decisions. 
• For Class I medical device manufacturers, the 2014 Regulations conveniently allow the filing for manufacturing records to be made at the city level CNFDA, not the provincial level CNFDA as required under the 2000 Regulations.
• Although the industry entry threshold is relaxed to some extent, the statutory requirements for ongoing operation, particularly those regulating quality standards, are enhanced. For example, all manufacturers are required to establish and maintain proper quality standards and should stop production if quality standards and conditions are not met. Detailed rules are imposed on product manual and marks. Contracting manufacture is not allowed for certain high-risk medical devices that are on the list to be released by the CNFDA.

Distribution and use

• The 2000 Regulations required Class I medical device distributors to file for records and Class II and III medical device distributors to obtain permits for their distribution businesses. Under the 2014 Regulations, nothing is required to engage in Class I medical device distribution, but Class II must file for records and Class III must obtain administrative permits to engage in medical device distribution.
• Additionally, the 2014 Regulations impose additional obligations on medical institutions using medical devices. Such obligations cover all aspects of use including storage, records of purchase, personnel training, maintaining records for large medical devices that have long shelf lives, reporting potential or suspected safety issues, and requesting Chinese language documents for imported medical devices.

Adverse events monitoring and recall system
In order to enhance supervision of medical devices on the market, the 2014 Regulations added one chapter entitled “Adverse Event Treatment and Products Recall,” which aims to effectively identify problematic medical devices in use and provide statutory remedies to prevent manufacturing, sales, distribution, and use of unsafe medical devices in the market. This new chapter requires that:

• Technical institutions will be established to evaluate the reported adverse events and provide suggestions to the CNFDA authorities. The CNFDA authorities may, based on the evaluation result, release the warning information, order a suspension of production, sale, import, and use of the reported medical devices, or take other measures.
• Provincial level CNFDA will have the right to re-evaluate any defective medical devices, and if the safety and effectiveness of such product cannot be ensured through such re-evaluation, the provincial level CNFDA can revoke any registration certification of the medical devices in concern, and stop the manufacturing, import, distribution, and use of such devices.
• Medical device manufacturers, distributors, and users should monitor the adverse events of the medical devices produced, operated, or used, and if any medical device adverse event or a suspected adverse event is discovered, it must be reported to the technical institutions monitoring such adverse events. Any other entity or individual that discovers such an event also has the right to report the event to such institutions.
• If any medical device manufacturers or distributors discover that the medical devices produced or distributed by them fail to comply with the compulsory standards or the technical requirements for the products, or have any other defects, they shall immediately notify the other parties involved, and recall all products in the market and take remedial measures. The recall and treatment shall be reported to the relevant CNFDA or hygiene authorities.

Enhanced liabilities
Finally, to deter violations of the 2014 Regulations, more severe administrative sanctions than those in the 2000 Regulations have been enacted.

For example, if any entity engages in medical device-related manufacturing or distribution business without proper permit, administrative penalties of up to 20 times the value of the products manufactured may be imposed, whereas before the penalty only was up to five times the value. Moreover, under “severe circumstances,” both the entity and its responsible executive officers will be barred from applying for any new licenses or permits for five years and may be even subject to criminal liabilities.

Conclusions
The revisions in the 2014 Regulations demonstrate the Chinese government’s resolution and efforts to maintain a comprehensive and effective regulatory framework for the medical device industry in China. On the same day of the release of the 2014 Regulations, CNFDA also issued a series of accessory rules, either in official regulation or in drafts seeking public comments, covering medical device registration, products classification, and distributor inspection criteria.

Under the 2014 Regulations and its accessory rules, the medical device industry in China will be more accessible to interested investors, but understanding the operational compliance framework will become more important as an element to success.