Facing the "domestic substitution" policy, some foreign companies have indicated that localization and domestic production will be one of their response strategies, that is, by launching production in China to achieve "domestic production within China" for foreign brands. In fact, many foreign medical device companies already have certain production lines in China, with the only difference being in the scale of configuration, whether the production models are low-end or high-end, or what kind of assembly tasks they undertake.

In fact, the "domestic production" of foreign brands is precisely one of the intentions of such policies, which aim to encourage the development of China's local medical device industry and force foreign companies to transfer or accumulate more technological processes in China.

But what criteria must be met to be considered "domestic"?

The lack of clear localization standards has troubled foreign enterprises. A foreign medical device company pointed out that even if the product is produced domestically, it may not necessarily be recognized as a domestic product, as the current "definition of (domestic) products involves a large degree of discretion." This issue has also become an obstacle for the group in making the decision to invest in production in China.

In August 2023, the State Council issued the "Opinions on Further Optimizing the Foreign Investment Environment and Intensifying Efforts to Attract Foreign Investment" (referred to as the "24 Articles"). Article 6 requires "the prompt introduction of relevant policies and measures to further clarify the specific criteria for 'domestic production in China'," which indirectly confirms that the criteria for "domestic production" are indeed unclear.  

Yang Yu introduced how to determine whether a medical device product is "domestic". When a medical device product is launched on the market, the enterprise must apply for registration with the drug regulatory authority and obtain a registration certificate. The registration certificate includes information such as the registration location. If a medical device has a registration location within China, once the application is approved, it can be regarded as a "domestic product". In Shanghai, the review of Class II devices (Class I devices only need to be filed, while Class III devices are subject to approval by the National Medical Products Administration) is mostly undertaken by the Medical Device Evaluation Center under the Shanghai Drug Administration. The review includes technical review, system review, etc. System review refers to the verification of all system documents of the medical device product, including determining the registration location and whether the product is domestic.

When the core components are primarily imported and only assembled domestically, or when the domestic production processes are minimal, it is often difficult to successfully apply for registration as "domestically produced in China". According to industry insiders interviewed, some foreign companies have attempted to register their products as domestically produced, but were deemed to have "insufficient evidence of localization". The reasons for this have not been made public.

The specific criteria for "domestic production in China" have not been disclosed: does this criterion primarily refer to the domestic development/procurement rate of core components? Is it related to patented technology? Are there other considerations such as the nature of the corporate brand? According to industry insiders interviewed, this issue "varies from place to place".

The "specific standards for domestic production" required by the "24 Articles" have attracted the attention of relevant enterprises. For example, some foreign-funded medical device enterprises are concerned that simply measuring "domestic production" based on the "domestic development/procurement rate of core components" fails to reflect the fact that medical device products undergo complex division of labor and cooperative production on a global scale. They even point out that "the domestic development/procurement rate of core components for some local enterprises' products may not even be higher than that of foreign-funded enterprises.".

The head of public affairs for the enterprise stated, "Tracing back to the very beginning of a medical device, it's possible that over 90% of its components are produced in China. However, the assembly process in between is not linear. Initially, a Japanese manufacturer might be commissioned by a Russian company to produce a certain product, and the 100 modules of this product could originate from 100 different suppliers, each of which might have their own multiple suppliers... A component might be produced in a Chinese factory and then imported back into China as a part of a larger component. In this process, it might have traveled through more than a dozen countries and entered and exited China several times, showcasing a high level of complexity."

This may also be the biggest difference between the development of "national industry" in the current era of globalization and that of a century ago. The modern industrial division of labor is complex and diverse. Over the past few decades, frequent and close cross-border and cross-domain cooperation has blended various global elements (such as capital, intelligence, manpower, and raw materials). To achieve "domestic substitution" and develop "domestic products" means to identify "domestic products" from this intricately connected network, and even to a certain extent, to separate them. This poses significant challenges both in terms of policy and perception.