Profits of Chinese pharmaceutical companies rose only to 7.7 percent to 18.1 billion yuan (US$2.3 billion) in the first half of 2006, about 10.6 percentage points less than the same period last year and almost 30 percent of the country's pharmaceutical companies reported a loss for the period, according to a report of the National Development and Reform Commission.

Operational and management costs for the pharmaceutical industry increased 22.7 percent in the first half, mainly due to enforcement of strict quality parameters in manufacturing.

The report said earnings increased only 1.1 percent to 4.5 billion yuan in the traditional Chinese medicine sector while chemical medicines sector posted a 7 percent drop to 5.3 billion yuan.

Price cuts enforced by the Chinese Government to regulate prices of about 400 medicines and rising material costs are said to be the reasons for the slow down of Chinese pharma. In August this year, the regulator had capped retail prices of about 400 medicines causing an estimated 4.3 billion-yuan decrease in retail prices. Industry laments that retail prices of some drugs are now almost equal to their production costs.