China is the world’s largest country by population and more than one-fifth of the world’s population live in China. Naturally, the domestic requirement of pharmaceutical products is also very high.

Though like India, China is focusing mainly on its domestic market, slowly it is expanding into the global regulated markets also. API industry in this country was not highly developed till 2003 but since then due to changes in government policy it is steadily growing, through a there was a scandal over the corrupt administration of the good manufacturing practice (GMP) certification in 2007 (source: Rise of Chinese Industry, Dr. Rob Bryant, Chemical Weekly, September 25, 2007).

The current API market in China is not only fulfils the domestic requirement but it plays an important role in the world. At present, China is the world's second largest producer and exporter of chemical APIs. China dominates in the world API market mainly in the field of antibiotics, vitamins, antipyretics and analgesics.

More than 50 per cent of the export values of China’s pharmaceutical trade are from the API industry. In general, in all countries both the in-house and overseas API market offers great growth opportunities for the manufacturers and in China it expects a compound annual growth rate (CAGR) of 18 per cent from 2012 to 2017, whereas the CAGR of global API market is likely to be around eight per cent during this period. Apart from the sustainable development and rapid growth of the Chinese pharmaceutical industry, the long-term use of multiple specialized drugs for an ageing population and the reform of the Chinese medical system have given a boost to the Chinese API market.

In the present article the regulation, government support, types of Chinese API industries, domestic API market, the growth of Chinese API market and its world share are discussed.

Regulation
The safety and environmental protection issues for the API industry have been taken good care of the Chinese Drug Administration. In April 2009 the Chinese government has announced a new health care reform plan. The existing complex, fragmented and multilayered supply chain was simplified. This reform plan offers both opportunity and challenges to API manufacturers.

All API manufacturers in China are required to follow the GMP and guidelines which were prepared and revised by the Ministry of Health of the People's Republic of China in 2010. These manufacturers are also required to reach higher levels of standards and certifications, which are comparable to the standards of developed countries like Japan and Europe. However, unlike India and European countries, there is a lack of transparency in the Chinese legal system (source: Rise of Chinese Industry, Dr. Rob Bryant, Chemical Weekly, September 25, 2007).

Types of API Industries
The API industries may be divided into two basic categories viz. chemical and biotech. Biotech APIs refer to APIs produced through the biotech routes of synthesis and chemical API are produced through chemical processes.

The main biotech APIs include amino acids, polypeptides, proteins, enzymes etc. The key product portfolio of Chinese biotech APIs include heparin, hyaluronic acid, chondroitin sulphate, urokinase, coenzyme A etc. Biopharmaceuticals are effective in treating certain complex diseases such as tumour, diabetes, and other immune related diseases with fewer side effects.

The advancements in biotechnology and the ongoing research of biosimilars are expected to create great potential for growth of the API market globally. The Chinese biotech API market is an emerging market and is also highly fragmented. The generic chemical API segment is considered to be well-positioned to seize these opportunities. The chemical API segment added the largest portion of sales volume with 95.1 per cent of the total market sales volume in 2010 due to the large consumption volume of chemical drugs (Source: China Chemical Industry News).

Domestic API market
Research and development are rapidly increasing with Shanghai becoming one of the most important global centres. Most notably, Novartis is expected to establish a large R&D base in Shanghai that will be a pillar of its drug development.

China's thousands of domestic companies account for 70 per cent of the market, and the top 10 companies about 20 per cent, according to Business China. In contrast, the top 10 companies in most developed countries control about half the market. Since June 30, 2004, the State Food and Drug Administration (SFDA) have  closed down manufacturers that do not meet the new GMP standards. Foreign players account for 10 to 20 per cent of overall sales, depending on the types of medicines and ventures included in the count. But sales of the top-tier Chinese companies are growing faster than in Western ones.

Growth
The availability of a wide variety of raw materials, intermediate products, good public infrastructure (especially in comparison to India), cheap manpower, large talent pool and good infrastructure has made China a preferred sourcing destination for low cost commodity products for a number of pharmaceutical companies. China has registered more than 7,100 pharmaceutical enterprises, through more than 4,000 GMP certification, the State Food and Drug Administration registered more than 1,600 raw material drug production enterprises, access to raw materials for drug GMP certification has more than 3700 months.

The Chinese government has legalized foreign ownership of retail pharmacies in 2003, which banned earlier, though  Janssen has had a supply arrangement in place with Chongqing Huapont since the early 1990s; additionally, supply agreements exist between Boehringer Ingelheim and Hisoar (2008) and Novartis and Zhejiang Huahai (2011) for active pharmaceutical ingredients (API) and intermediates.  Now a good number of joint venture pharmaceutical companies are operating. In recent years, more and more western pharmaceutical corporations, such as GSK, Roche, Novo Nordisk and others, have come to China and set up R&D centres. Due to the liberal policies of Chinese Government ,many world leading pharmaceutical companies have established joint ventures in China.

Global market Share
Today, there many Chinese API manufacturers who produce some of the vast majority of the world’s top-selling APIs with a good choice of multiple sources for many APIs. By 2015, “China is expected to become the world's second-largest prescription drug market,” after only the U.S., said Hubbard. However, till 2009 the Chinese pharmaceutical industry had a low market concentration and weak international trading competitiveness (Source: Barnet Siu; 2010).

According to a report of the China Business Intelligence, in 2011, the gross industrial output value of Chinese chemical pharmaceutical industry  surged by 24.54 per cent Year Over Year (YoY) to RMB460.531 billion. It may be noted that the chemical pharmaceutical industry of China chiefly comprises two sub-sectors chemical API and drug preparation which show differentiated development.

According to a recent report of Nanjing Limu Pharmaceutical Co. Ltd, a leading API manufacturer, China exports its API products to 181 countries and regions. The three main exporting countries include Asia, Europe and North America, where the exports accounted for a total of 87.4 per cent bulk drugs.

China produces more than 1,500 varieties of API products with the capacity approximating 2 or 3 million tons. However, key bulk API products including vitamins and antibiotics witness overcapacity, which has resulted in low-price competition bringing adverse impact on the export of the API.  More than 450 API industries have registered for export in USA and more than 525 in Italy (source: Rise of Chinese Industry, Dr. Rob Bryant, Chemical Weekly, September 25, 2007).

In the first quarter of the previous year, the API export of China increased by 39.53 per cent YOY, with the export value rising 31.31 per cent from the same period of 2010, while the average export price fell 5.89 per cent YOY. In comparison with the chemical API sector, the chemical drug preparation sector of China enjoys higher profitability as a whole, with the gross margin in 2010 hitting 39.6 per cent and twofold of that of API industry.

Yet, chemical preparation industry of China is still in its infancy with the short R&D capability of new drugs, and therefore the production of generics is the mainstream. The report focuses on the market size and development trend of China chemical pharmaceutical industry as well as the market scale of API and chemical preparation on the basis of the outlook for new drug R&D and market development worldwide.