Investors set sail toward China's rapidly growing device market

Amid rapid growth in China's medical device sector, investors are looking to cash in on the market with a string of M&A deals.

As Reuters reports, the country's relaxation of foreign ownership rules last year and a growing aging population have prompted private equity firms such as TPG Capital and IHH Healthcare to invest in Chinese devicemakers and hospitals. Last year, China healthcare mergers and acquisitions increased twofold to $18.5 billion. China's medical device market is expected to pass the $55 billion mark this year, coming in second only to the U.S., according to Access China Management Consulting.

One of the driving factors for medical device investment in China is the country's hundreds of millions of elderly patients. About 223 million people aged 65 or older are predicted to live in China by 2030, Reuters reports, a lucrative prospect for companies manufacturing medical imaging, patient monitoring and life support products.

China's policy shift regarding devices has also prompted investors to cash in their chips and back new initiatives in the country. In 2014, the Chinese government laid out new regulations to fast-track the approval of medical devices and allowed full foreign ownership of hospitals, delivering a big win to the industry.

Device heavyweights such as Medtronic ($MDT), Boston Scientific ($BSX) and Johnson & Johnson ($JNJ) are capitalizing on the trend, inking deals and laying out plans for growth in China. In 2013, Boston Scientific said it was aiming for 30% annual sales increases in China over the next 5 years with a focus on new acquisitions. In July 2014, Medtronic teamed up with LifeTech Scientific to manufacture and distribute cardiac devices for China's growing cardiovascular market, strengthening its footprint in the country.

But devicemakers could face some stumbling blocks in the years ahead as China looks to local operations to drive domestic growth. In August 2014, the Chinese health ministry laid out new incentives for local hospitals to use Chinese-made medical devices, a move that counters "unreasonable increases" in healthcare costs and reduces the burden on patients, the ministry said at the time.

Although global devicemakers dominated three-quarters of China's estimated 212 billion yuan ($34.51 billion) medical device market, local companies are nipping at their heels. Shanghai's Kinetic Medical boasts a nearly 50% share in China two years after filing its IPO and bills its patient-specific technologies as superior to those of multinational rivals. Chinese devicemaker Mindray has said that it would turn to private hospitals in the country to boost profits and improve its bottom line.

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