The second largest market after Japan in the Asian region, the pharmaceutical industry in the People's Republic of China is currently passing through a phase of intense activity. The ongoing efforts in the R&D front as well as in policy are directed towards a single goal: make the industry, which currently ranks 10th globally, to number one in the world in the coming decades.
Observers feel it won't be such a difficult task. The sheer size and enormity of the population in this country itself offers great promise of growth in terms of volumes to make China a pharmaceutical giant in the coming years.
According to reports, the major thrust area where the industry and the policy makers dwell on, is drug discovery. The industry wants to reposition itself into a research based one by shedding the present image as a mostly generic driven market. This, it is hoped, would give it a competitive edge to move fast in the path of expansion and also would help to win rapid global acceptance.
Recently, the Ministry of Science and Technology has launched a dozen R&D projects in the hope of making significant technological breakthroughs and setting up new industries in three to five years. Developing new drugs and modernizing the production of traditional Chinese medicines are among the ambitious programmes.
Driven by Generics
Through years of development, China has become increasingly prominent in the production and sales of bulk drugs or active pharmaceutical ingredients in the world.
At present, there are more than 6,700 drug companies in China. They together produce about 1,300 types of synthetic medicines. Of which 97 per cent, however, are copies, analysts say.
The average growth rate of drugs sales in China has reportedly reached 20 per cent in recent years, as the country has the world's biggest population and is rapidly turning into an ageing society.
The profit rates of pharmaceutical enterprises have been reaching for the high. All the pharma-related enterprises in China turned out a profit of 4.402 billion yuan, which comprises 23.5 per cent growth from manufacturers and 250 per cent from traders in 2001.
In views of regions, 20 of the total 31 reported positive profit. Inner Mongolia and Gansu stopped loosing money; Jiangxi posted the highest growth rate of 233 per cent, followed by Tianjin, Jiangsu and Zhejiang.
External trade is picking up quickly, especially compared to the -7.3 per cent in the same period a year earlier.
Exports and imports of pharmaceuticals have also witnessed rapid growth over the past years. The United States is the No.1 buyer of China's pharma products, which swallowed 740 million dollar worth products from China in 1999, 22 per cent of the country's total exports, according to Statistics Bureau.
Pharmaceutical companies in China including JV subsidiaries with overseas companies can import pharmaceutical products or ingredients into any part of China.
Foreign pharmaceutical companies have a large presence in China with almost all of the leading multinational drug manufacturers now being represented. In fact, about 40 per cent of Chinese pharmaceutical companies have joint venture projects with foreign companies. The large presence of foreign joint ventures, however, is a result of strict restrictions on direct imports of foreign drugs into China.
Imports of pharmaceuticals are restricted by price considerations, strict import regulations and complex licensing procedures. The Chinese government was imposing a tariff-of about 9.6 per cent-on imported pharmaceuticals, plus a 17 per cent VAT charge, customs clearing charges and drug inspection costs. In 2003, the Chinese government lowered the average tariff on pharmaceutical products from 9.6 per cent to 4.2 per cent.
Only those drugs which appear on the provincial and municipal reimbursement lists are covered by the national medical insurance system - which naturally favours locally manufactured products. 80 per cent of drugs sold in China are sold through hospital pharmacies.
China's commitment to greater protection of intellectual property rights with its entry into the World Trade Organization makes the situation much harder for the domestic pharmaceutical industry. China's revised drug law went into effect 1 December 2001 after the amendment to the former drug law was officially launched in October 1998. The new law clearly stipulates that China's medicine manufacturers must operate in accordance with the GMP standards as per the WTO principles. At present, there is only one fifth of the total number of pharmaceutical manufacturers passed the drug GMP certification.
The establishment of medicine chain stores has become a common practice throughout the country. Beijing now has over 1000 chain stores. Foreign drug companies will be able to acquire an even larger share of the Chinese market than they already have. China's State Drug Administration estimates that foreign companies will control 70 per cent of the Chinese pharmaceutical market after WTO accession, analysts predict.
Also, they may be able to gain total control over their distribution networks and not have to rely on the complex-and costly-Chinese supply network.
Traditional Medicine
Although traditional Chinese medicine may be less affected by the WTO accession, China still needs to do more to establish scientifically the efficacy of traditional Chinese herbal medicines. It is also imperative that China develop medicines that both meet global needs and conform to international standards.
The Chinese government has now decided to nurture its own large pharmaceutical companies, while reducing the number of small companies. It has formulated an "Action Plan for the Modernisation of Chinese Medicine" to boost the quality of Chinese medicine and enhance China's ability to compete in world markets. It is also promoting business-to-business e-commerce as a way of developing a nation-wide pharmaceutical marketing network.
Ultimately, now it is being realized to the Chinese companies that they will be able to compete effectively if they develop their own technological capabilities.