EU Set to Launch China Probe on Medical Device Procurement

(Bloomberg) -- The European Union is set to launch an investigation into China’s procurement of medical devices, risking new tensions with Beijing months after opening a probe into the the country’s electric-vehicle subsidies.

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The EU inquiry, which seeks to address concerns that Beijing’s policies unfairly favor domestic suppliers, may be announced as early as this week and could result in the bloc curtailing Chinese access to its tenders, according to people familiar with the matter.

The probe will initially focus on information-gathering from companies and member states before authorities start talks with Beijing on fair and open markets, the people said, asking not to be identified because the investigation isn’t yet public.

Shares in Siemens Healthineers rose as much as 1.2% and Philips as much as 2.1%, after Bloomberg reported news of the probe.

The move risks raising the stakes in EU-China relations, after the bloc last year launched an anti-subsidy investigation into electric vehicles made in China that could see new tariffs introduced by July. The probe arrives on the back of skepticism about Beijing’s use of massive public support to critical sectors and a broader European economic security strategy that seeks to toughen the bloc’s export controls and investment screenings.

The investigation would constitute a first outing for the EU’s so-called International Procurement Instrument, or IPI, a 2022 law that’s meant to promote reciprocity in access to public procurement markets.

The push by Beijing for domestic hospitals to use more local equipment can be traced back to a 2015 state council decision. Over the past two-to-three years, provinces, including Anhui, have adopted further measures that help Chinese firms improve their chances of supplying hospitals. The moves are part of a broader “Made in China” plan to boost domestic industries in key sectors by 2025.

Beijing’s focus on local and state-oriented procurement in medical technologies has increased in recent years, as authorities across the country included strict domestic product requirements for many categories of device. The shift turned a €1.3 billion ($1.4 billion) trade deficit in these goods for China in 2019 into a €5.2 billion ($5.5 billion) surplus just one year later, according to data cited in an EU report published earlier this month.

The EU’s access to China’s procurement market has long been a grievance for it, with the issue raised by both European Commission President Ursula von der Leyen and the bloc’s trade chief Valdis Dombrovskis during trips to the country last year. Other issues include opaquely defined market-access terms, the transfer of industrial data out of China and invasive requirements imposed on cosmetic firms.

German Chancellor Olaf Scholz arrived in China over the weekend to warn officials there to promote free trade and equal business opportunities, aligning Europe with a similar message US Treasury Secretary Janet Yellen expressed just a week earlier.

Talks over the past 12 months have seen little movement, the people said. And in a situation where distortions in the Chinese market are becoming more acute and discrimination against foreign firms more extreme, the EU has to react, the people said.

China’s medical technology market was valued at €135 billion ($145 billion) in 2022, according to Merics, a research institute focusing on China. Major European manufacturers operating in the industry include Siemens and Philips.

The EU argues that Beijing has been pushing market-distorting measures and practices to implement its “Made in China” policy and its target of achieving 85% domestic market share for Chinese companies producing “core medical device components” by 2025. The target is 70% for higher-end devices. It also claims the Chinese government discriminates against imported products and has, at times, imposed stringent requirements on foreign firms, including investment obligations or technology transfers to Chinese entities.

Earlier this week a senior official with China’s Ministry of Commerce visited Brussels and expressed strong dissatisfaction about a different set of EU anti-subsidy investigations — those looking into the country’s wind turbine suppliers — according to a statement, which said the EU’s probes undermine the level playing field. The official also raised concerns over an EU report pointing to “significant state-induced distortions” in China’s economy.

If an investigation, which needs to be concluded within nine months, were to prove the EU’s concerns over medical devices, the bloc could adopt measures to curtail China’s access to public tenders. Under the provisions of the IPI, those steps could mean score adjustments or the exclusion of non-EU bidders altogether. Bidders would also be limited in how much they can subcontract from businesses subject to IPI measures, or face a charge. Contracting authorities may decide not to apply some of the IPI measures in exceptional circumstances, such as when there are no other bids.

Should a dialog with Beijing lead to tangible corrective actions, the people said, the probe can be suspended at any time.

--With assistance from Debby Wu and Cagan Koc.

(Updates with stock moves in fourth paragraph.)

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