Brief Introduction to Pharmaceuticals Industry in China

Released date: June 2006

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Guangzhou CCM Chemicals Co., Ltd.

Guangzhou, P. R. China

Updated in Dec 2001

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Pharmaceutical Industry is really a large topic to discuss. We must admit that we can not cover this industry comprehensively with this short massage. There must be a lot of matters in which readers are interested but we forgot/could not put in. We wish our dear readers feel free to exchange idea with us.

Our aim is to provide the readers with some basic information about what happened to this industry in the past, how it acts at present, and, as we wish, how it will go in the future. Hopefully readers can find something useful in this article or deduce some useful conclusion after reading. One thing we want to emphasize is that China is no longer a silent audience in the world pharmaceutical field. They are becoming an important actor instead. On the other hand China is really a vast reservoir to tap……

1. Brief History

The Chinese chemical pharmaceutical industry started in 1950s, shortly after the communist Party took over the power. Some of the today’s top domestic drug producers, such as Northern China Pharmaceutical Group, Northeast General and Shandong Xinhua, were founded then as national key projects. Under the government guidance, which was, Life-saving drugs first, then bulk pharmaceuticals’, China started production of six categories of basic chemical drugs: antibiotics, sulfonamides, antipyretics, vitamins, drugs for epidemics and anti-TB drugs.

By the 1960s, China was manufacturing steroids including contraceptives, anticancer, cardiovascular, cold and asthma drugs, X-ray contract agents and others. In spite of the ten-year cultural revolution (1966-1976), which almost destroyed the Chinese research base and obstructed the development of manufacturing technology, China was producing almost 1200 chemical drugs by the middle of the 1980s. By that time China had already set up pharmaceuticals industry system that could basically satisfied the domestic demand.

When Den Xiaoping led China on the path towards a market economy at the beginning of 1980s there were only about 500 bulk pharmaceuticals producers and 2000 wholesale dealers. However, deregulation of labor and industry markets resulted in massive expansion. Lured by high profits and taking advantages of regulatory loopholes, huge numbers of pharmaceuticals factories were established and millions of people rushed into pharmaceuticals distribution chains.

Today, China has the large number of licensed pharmaceutical producers, no less than 7,000. Of these, over 1700 are joint ventures with foreign firms, and over 1,000 produce Traditional Chinese medicine. In addition, there are about 16,500 licensed pharmaceutical wholesalers, public and private.

Under the old management systems, the Chinese government set production volume for the manufacturers, guaranteed salaries, took away all the profits and controlled pension, medical and educational funds, leaving manufacturers simply as production machine. The manufacturers were serious short of funds for bringing production technology up to date and gathering funds for R&D in new drugs. But in recent years, with the reform in economical systems, more and more have been obtaining right to run the factories in the market economy. They became more flexible in operation than before. At the same time, the pharmaceuticals market, like other industries, has been becoming much more crucial and competitive than before, especially that more foreign enterprise entering into the Chinese market to tap this huge and potential reservoir. It is estimated that, by end of 1997, pharmaceutical sector suffered losses in 21 out of 30 large Chinese cities. However this in return provided opportunities for newcomers with cash to begin the production of low-cost bulk chemicals as well as preparations.

2. Pharmaceutical Nowadays

1) Overall Industry nowadays

The Chinese pharmaceutical industry developed fast in the past few decades. At stated above, by 1998, there are over 7,000 pharmaceutical manufacturers (including over 1,700 joint ventures), 16,500 medicine distributors and 110,000 pharmacies in China. By 1998, the total production value of pharmaceutical industry reached to RMB 163 billions, referring to medicine machines, traditional Chinese medicines (TCM), pharmaceutical reagents, bulk pharmaceutical and medicine preparations.

Table 1. Production value of Pharmaceutical Industry in China during 1990-1999

Year	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999
Production value, RMB	39.20	50.20	63.40	74.60	86.20	106.00	125.10	140.00	163.00	186.00 (estimation)
% increment		27.92	26.36	17.63	15.54	16.05	18.02	11.91	14.00	13.99 (estimation)

2) Medicine Preparation, Which Medicine is Good to Sell in China?

In 1998 and 1999, the total sales value of medicine preparations reached to RMB77.69 billions and RMB90.50 billions, respectively. The medicine preparation include those made by domestic manufacturers and those imported, of antibiotics, angiomyocardiac medicine, vitamins, hormones, digestion medicine, anti-tumors, …etc.

Table 2. Sales value of medicine preparations in the past ten years

Year	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999
Sales value (RMB billion)	15.14	17.67	20.81	23.13	37.29	46.40	53.20	60.78	77.69	90.50
% increment		16.68	17.81	11.15	61.19	24.44	14.65	14.24	27.82	16.48

Among the medicine sold in China, antibiotics still accounts to large percentage. The next comes to anigomyocardiac medicine, digestive system medicine, nerve system medicine, etc.

According to the statistics in 6 large cities in China, the consumption structure of medicine is shown as follows:

Table 3. Medicine consumption structure in the 6 big cities in China during the 1^st half 1999

Classification of medicines	Consumption value (RMB million)	Percentage
Anti-infection (mainly antibiotics)	676.69	33.57%
Angiomyocardiac medicine	252.10	12.51%
Digestive system medicine	174.85	8.67%
Other medicines	132.94	6.59%
Balance medicine for water, energy, Eletrolyte	124.52	6.18%
Nerve system medicine	125.66	6.23%
Biological pharmaceuticals	117.16	5.81%
Metabolism medicine	110.58	5.49%
Anti-tumor medicine	89.07	4.42%
Specific medicine	81.56	4.05%
Blood system medicine	46.92	2.33%
Vitamin	35.88	1.78%
Spiratory system medicine	33.72	1.67%
Diuretic medicine and dewatering medicine	14.23	0.71%
Total	2,015.88	100.00%

Note: 6 big cities: Shanghai, Nanjing, Hangzhou, Wuhan, Chengdu, Chongqing

3) Medicine Preparation, Who Share the Market?

Before China opened its market to the world, the domestic manufacturers occupied the whole market. Yet after1980s when foreigners entered China as a probe to this reservoir, the situation changed. The Chinese people began to accept the medicines made by foreign companies. Once in a time, the imported medicine occupied nearly one third of Chinese market. More Chinese people realized that the imported medicine are too high to afford. But at the same time, more and more foreign companies began to build joint ventures in China in order to lower the selling price and to share more market in the future.

At the moment, the medicine from domestic manufacturers shares about two third of the market while the medicine imported and the medicine from joint ventures (or wholly owned foreign companies in China) shared the rest one third of the market.

It should be pointed out that although the value of imported pharmaceuticals increased over the past ten years, the relative value percentage of imported pharmaceuticals to the total pharmaceuticals sold in China kept dropping in the past five years. It is almost a trend that the market share of imported pharmaceuticals are shrinking The major reason is that China is reforming the healthcare insurance systems. The government or insurance companies do not reimburse some of imported medicines. Another factor is that the products from joint ventures replace more and more imported pharmaceuticals.

Table 4. The market share of imported pharmaceuticals, pharmaceuticals from JVs, and pharmaceuticals from domestic manufacturers (by value) during 1994-1998

Pharmaceutical source	1994	1995	1996	1997	1998
Imported	15.81%	22.00%