Chinese pharma industry grew at a steady rate in the first eight months of 2005. It generated 285 billion yuan (US$35 billion)in total industrial output value in the period, growing by 25.21% year-on-year; 268 billion yuan in industrial sales value, up 25.01% year on year; and 102 billion yuan in industrial value-added, 25.21% more than in the same period of 2004.

Chinese pharma industry posted a total sales revenue of 267.65 billion yuan for the first eight months, up 25.53% year on year, of which 74.25 billion yuan came from the crude chemical drugs sector, up 29.63% year on year; 72.694 billion yuan from the chemical drug preparations sector, up 23.13% year on year; 18.11 billion yuan from the biomedical sector, up 32.98%; 56.175 billion yuan from the patent traditional Chinese medicine (TCM) sector, up 22.01%; and 19.338 billion yuan from the medical apparatus sector, up 24.24%.

Profits of the pharma industry reached 22.233 billion yuan in January-August, up 17.97% year on year, of which 4.149 billion yuan came from the crude chemical drugs sector, up 18.15% year on year; 7.242 billion yuan from the chemical drug preparations sector, up 21.59%; 5.464 billion yuan from the patent TCM sector, up 18.23%; 677 million yuan from the sanitary materials sector, up 34.83%; 1.941 billion yuan from the biomedical sector, up 39.37%; and 1.551 billion yuan from the medical apparatus sector, dropping by 18.39% year on year. The weight of the chemical drug preparations sector and biomedical sector in the profits of the whole industry rose 0.97 and 1.34 percentage points respectively during the eight-month period, while that of the medical apparatus sector dropped 3.11 percentage points.

Meanwhile, the sales cost of the pharma industry increased 28.98% year on year to reach 181.45 billion yuan in the January-August period. Of this amount, 58.8 billion yuan came from the crude chemical drugs sector, growing by 32.63% year on year; 42.99 billion yuan from the chemical drug preparations sector, up 25.1% year on year; 32.785 billion yuan from the patent TCM sector, up 27.4%; 12.19 billion yuan from the biomedical sector, up 36.37% and; 14.55 billion yuan from the medical apparatus sector, up 27.21%. All the sectors saw their sales costs grow at a higher rate than revenue.

Of the 5,014 pharmaceutical enterprises surveyed, 1,136 enterprises suffered losses, accounting for 22.6% of the total; and the amount of losses totaled 3.315 billion yuan, up 27% year on year.

The pharma industry engaged in US$10.857 billion worth of import and export transactions in 2004, up 20.37% over 2003. These included exports of US$5.723 billion, up 25.27%; and imports of $5.134 billion, up 15.35%. The steady growth of the macroeconomy, accelerated upgrading of the industrial structure, reduction of tariff and further expansion of quotas jointly drove the import of advanced technologies and equipment and raw materials in short supply. At the same time, various favorable policies boosted the growth of exports.

Outlook for the remainder of 2005
Chinese pharma industry is expected to grow steadily for the rest of 2005, at an annualized rate a little higher than in 2004. Despite the optimistic prediction, problems with the medical industry still remain. High investment but low output in the area of pharmaceutical R&D is limiting the development of the industry; most new medicines tested have failed to pass the key test of phase-III clinical experiments; the market monopoly time (ie, the amount of time a drug can only be produced by its initial developer) has been reduced; and the time needed for administrative examination and approval has increased.

There are also opportunities in China's pharmaceutical market in 2005: expansion of the coverage of the national medical insurance scheme will bring new opportunities to many pharmaceutical enterprises, while in the State Catalogue of Basic Medicines for Medical Insurance published in September 2004, the number of traditional Chinese medicines increased by 98%, from 415 to 823; while the number of approved Western medicines has grown 42%, increasing from 725 to 1,031.

Key indicators

Chemical medicine production, Jan-Aug 2005
(unit: 1,000 tons)

	Current month	Cumulative total	Cumulative change y-o-y (%)
Jan	101.3	101.3	24.1
Feb	129.9	229.4	16.4
Mar	125.9	364.4	11.8
Apr	104.3	400.8	10.6
May	117.6	516.7	14.7
Jun	123.8	641.8	17.2
Jul	101.6	697.3	12.8
Aug	105.7	832.1	18.4

Medicine exports, Jan-Aug 2005

	Cumulative quantity (tons)	Change y-o-y (%)	Cumulative value (US$m)	Change y-o-y (%)
Jan	32,158	31.0	292.028	29.1
Feb	60,147	24.7	553.345	22.2
Mar	94,434	21.8	879.635	19.3
Apr	127,647	19.0	1,207.851	18.0
May	160,834	17.4	1,502.448	16.6
Jun	195,544	15.2	1,831.086	15.3
Jul	229,919	15.2	2,150.328	15.6
Aug	263,812	15.9	2,465.231	17.2

Medicine imports, Jan-Aug 2005

	Cumulative quantity (tons)	Change y-o-y (%)	Cumulative value (US$m)	Change y-o-y (%)
Jan	3,486	37.2	170.927	39.1
Feb	5,542	12.6	304.872	11.6
Mar	8,811	23.2	505.002	17.5
Apr	11,937	21.1	732.045	21.2
May	14,674	24.7	905.591	22.0
Jun	17,890	29.0	1,130.171	26.1
Jul	20,335	27.6	1,337.267	27.0
Aug	23,158	26.2	1,543.421	27.0

Major players, government policies
There are now more than 5,000 enterprises in China's medical and medical industry. The industry's total employment reached 1.17 million by the end of April 2005.

The State Food and Drug Administration (SFDA), China's watchdog for the drug and food processing industry, has issued rules subjecting medical institutions to registration management for making prescription preparations. According to the registration rules, which took effect as of August 1, 2005, applicants for making prescription preparations not available on the market for their own clinical use shall be limited to those with business licenses and preparation-making permits for this purpose. Those without such permits or licenses may register to subcontract the making of preparations to other medical institutions that do have the requisite permits and licenses, or certified pharmaceutical enterprises.

But no applications shall be filed by medical institutions for preparations in the following categories: preparations that are available on the open market; preparations with active ingredients not approved by the SFDA; bio-preparations other than allergens; traditional Chinese medicine injections; compound preparations with both TCM and chemical ingredients; narcotic, psychoactive, poisonous and radioactive preparations; and any other preparations not in conformity with applicable state regulations.

China's Ministry of Health is taking firm measures to curb soaring pharmaceutical prices. The ministry has decided to ban hospitals from raising drug prices and requiring patients to pay the added costs, and this policy will be implemented soon. The Chinese government formerly granted subsidies to hospitals according to the number of patients they received. Later, instead of getting subsidies, hospitals were allowed to raise drug prices by 15% above cost before selling them to patients in order to make a reasonable profit.

However, the latter policy resulted in soaring prices for medicines, and doctors sometimes sold to patients medicines that were either unnecessary or needlessly expensive. In recent years, the profits from drug sales have reached 60% of total annual profits at some large hospitals. For small and medium-sized hospitals, the percentage is even higher. In China, many medicines are sold for 10 times the out-of-factory price.

China plans to introduce CGMPs (current good manufacturing practices) for the manufacturing of drugs, following the success of the application of GMPs (Good Manufacturing Practice regulations). CGMP rules, based on GMP regulations, will improve the quality and consistency of Chinese drugs. China has already set a timetable for the GMP certification of TCM drinks and tablets, medical gases, and outside-the-body diagnostic agents; now domestic medicine manufacturers will have to face more stringent standards. Incomplete statistics show that 3,700 drug manufacturers had obtained GMP certification by the end of October 2004.

(Sources include the State Food and Drug Administration, the State Development and Reform Commission, the National Bureau of Statistics and the General Administration of Customs.)

(Asia Pulse/XIC)