Asiatic Sourcing Blog

Obamacare May Boost Already Booming China Manufacturing of Lab Instruments

An already booming Chinese Lab Instrument and Apparatus Manufacturing industry may see an even greater boost with the implementation of the Affordable Care Act (ACA), better known as Obamacare, which has gone into effect as of 01 January, 2013.

This industry supplies the sectors of healthcare, food production, and education with specially made instruments.

IBISWorld Report

A recent report released by IBISWorld reveals that the Chinese industry that manufactures lab instruments and other relevant apparatus has been enjoying a large, steady rise. The industry has seen a 15.7 percent annual growth over the last five years ending with 2012. That equates to around $3.5 billion in additional revenue.

As of today, large manufactures in this industry control the market in China with the four biggest making over 39 percent of the revenue. Smaller manufactures can’t compete due to the difficulty in raising enough capital so they are forced to produce low quality products.

However, the growing profitability is causing more foreign companies to eye China as fertile ground for establishing branches. The implementation of Obamacare is also likely to thicken the pot, so to speak, by adding more incentive.

Medical Device Tax

One area of Obamacare that went into effect the first of the year is the Medical Device Tax. This addition places an excise tax of 2.3 percent on a variety of medical devices the enactment of which is expected to severely cripple those who design and manufacture such items in the United States.

Various US companies within this industry are voicing their fears of this additional burden. NeuroPace and AdvaMed representatives have both commented on the damaging effects of this policy which is expected to cripple, if not kill, companies involved in the medical device industry.

Exodus to China?

With the medical device industry anticipating a $20 billion or more hit from the Medical Device Tax, eyes may turn to China sourcing in order to set up shop there. A full 80 percent of companies in the United States that are involved in this industry operate with less than 50 employees so many of those may not be able to continue business under the new tax law. That’s a lot of businesses to sink.

On the other side of the coin, those seeking to remain stateside will have to pass on the extra cost to their customers via higher prices on their products, so sectors which require such devices may seek to buy from China instead. The fact is doing business in China is becoming easier and more lucrative with each passing year. China products are also being made with increasingly better quality which is drawing more attention from foreign buyers.

Only time will tell how large and devastating an effect the Medical Device Tax will have on Lab Instrument and Apparatus Manufacturing industry in the US, but those who have a keen eye and a lot of courage and capital may want to get a jump on the possible exodus to China that Obamacare is sure to create.

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