PharmaceuticalsMedicines
China is the fastest growing pharmaceutical market in the world. It grew at an average rate of 10-12% in 2001. China is the ninth largest pharmaceutical market in the world, with nearly $7 billion in sales in 2001. China’s changing healthcare environment is designed to extend basic health insurance to a larger portion of the population and give individuals greater access to products and services. Following this period of change, the pharmaceutical industry is expected to continue its expansion.

Medicines
The pharmaceutical market in China is dominated by its non-branded generic industry that operates with basic technology and simple production methods. Domestic pharmaceuticals are not as technologically advanced as western products, but nonetheless occupy approximately 70% of the market in China. Domestic companies are mainly government owned and fraught with overproduction and losses. The Chinese government has begun consolidating and upgrading the industry in an effort to compete with foreign firms.

It is estimated that most hospitals derive 25 - 60% of their revenue from prescription sales, hospitals remain the main outlets for distributing pharmaceuticals in China. This will change with the separation of hospital pharmacies from healthcare services and with the growing numbers of retail pharmacy outlets. Retail pharmacy outlets are expected to grow in number once the government finally introduces its system to classify drugs as over-the-counter (OTC). The government is now encouraging development of chain drug stores, but the full effect might not be seen for several years.

Dietary Supplements
The dietary supplements sub-sector has doubled from $3 billion in 1998 to a total sales volume of $6 billion in 2001. Experts estimate that the industry will reach $10 billion in annual sales by 2010, and will continue as consumers seek products with curative weight loss and other health enhancing effects. Over 3,000 domestic manufacturers of dietary supplements produce more than 4,000 different types of products. Domestic manufacturers fail to develop product branding and credibility and rely heavily on advertising to generate sales. As such, most domestic products, due to loss of credibility amongst consumers, tend to have short life cycles. High quality imported products only account for 10% of total sales. Companies report that complicated product registration, expensive and time-consuming certification requirements, and inexperienced and inefficient distributors are common obstacles in China.

WTO
In accordance with World Trade Organization (WTO) regulations, China has committed itself to cutting tariffs, liberalizing its domestic distribution practices, and restructuring its regulatory environment. Over the next three years, China will allow foreign enterprises to import products and engage in distribution services. Furthermore, China has also implemented new drug administration laws designed to streamline product registration and protect Intellectual Property Rights (IPR). These new laws will likely have a negative effect on market growth and profitability during the transitional period, but over the next 5-10 years this market should be able to provide the returns it is capable of.

Intellectual Property Rights
Since China’s accession to the WTO, many laws have been revised to address IPR protection requirements in TRIPS. China has agreed to six years of “data exclusivity” and has committed itself to implementing a patent linkage system. The SDA has worked to crack down on counterfeiters but without greater resources and stricter legal consequences these actions alone will not be enough to curb this rampant problem.

U.S. Position in the Market
Imported and locally produced foreign joint-venture medicines account for 30% of the market, with U.S. products well regarded for their high quality and reasonable prices. The drug distribution system in China is inefficient and adds considerably to the retail costs of medicine. Many U.S. companies complain of strict import regulations, low profitability, complex licensing procedure, hospital bidding, and reimbursement schemes.

Key Contacts

Ministry of Health (MOH)
Address: No.1 Nanlu, Xizhimenwai, Xicheng District
Tel: (86-10) 6879-2290
Fax: (86-10) 6879-2295

State Drug Administration (SDA)
Address: A38 Beilishilu
Tel: (86-10) 6831-3344
Fax: (86-10) 6831-5648

General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ)
Address: No. A10, Chaowai Dajie, Beijing
Tel: (86-10) 6599-3922
Fax: (86-10) 6599-4421

People’s Liberation Army (PLA)
Bureau of Drugs & Medical Instruments
Address: 22 Fuxing Rd, Beijing 100842
Tell: (86-10) 6821-6117
Fax: (68-10) 6821-6628

U.S. Commercial Service Contact Information in China

Beijing Office:
Tel: (86-10)8529-6655
Fax: (86-10)8529-6558/9
Marilyn Taylor
Sun Shuyu

Shanghai Office:
Tel: (86-21)6279-7930
Fax: (86-21)6279-7639
James Golsen
Lynn Jiao

Guangzhou Office:
Tel: (86-20)8667-4011
Fax: (86-20)8666-6409
Li Shuquan

Chengdu Office:
Tel: (86-28)8558-3992
Fax: (86-28)8558-3991
Misha Cao