The market of domestic drugs in Chinese hospitals by value was 50.89% in 2001, 51.15% in 2003 and 54.04% in 2004, according to figures from China Transmedia Business Information Co., Ltd., released in December.

Separately, a local survey of drug consumption in Hangzhou's 22 hospitals by Shanghai Technology Intelligence Institute, says the same thing. It shows that market share of domestic drugs in those hospitals by value was 46.53% in 2002, 49.00% in 2003 and 54.98% in 2004. At the same time, the market share of joint venture drugs decreased in those hospitals to 21.14% in 2004 from 28.90% in 2001.

Policy factors are the main reason that the consumption of domestic drugs has been on the rise in China, according to Frank Li, president of China Transmedia Business Information Ltd.

"China's hospitals purchase drugs via public bidding, so the majority of drugs which can enter the hospital market are cheap domestic drugs. At the same time, the government has announced 17 rounds of price cuts on drugs, which help to increase drug consumption of cheap drugs," Li told Interfax.

Also, the government set quotas for drug consumption value in hospitals. Normally, the medical insurance bureau has a quota on consumption value of basic medical insurance drugs, and the health bureau has a quota on drugs not covered by insurance. "In order not to exceed the quota, cheap generic drugs and old drugs are used. The consumption of domestic drugs was on the fast increase in the last quarter of a year," Gan Rongfu, a senior researcher from Shanghai Technology Intelligence Institute told Interfax.

Another obvious reason is that prices of domestic drugs are cheaper. "Many joint venture drugs are used to treat some difficult diseases, and though their prices are high, their volume is quite small," Li said.

The strengthening marketing efforts of domestic companies also stimulate the increase of domestic drug consumption, according to Xu Dan, a physician in No.2 Hospital attached to Zhejiang University. "When domestic drugs have similar efficacy to foreign drugs, doctors often use domestic drugs," she said.

But a business insider who declined to be named told Interfax, "In fact, when domestic companies make promotions in hospitals, many of them use cash directly," he said. "Though joint venture and foreign drug makers do not use cash, they provide doctors opportunities of academic study, going abroad, and so on. These are similar measures," he added.

The Chinese government will gradually set price caps for all prescription drugs, an official with China's National Development and Reform Commission (NDRC), said in a meeting during the Seventh Chinese Physician in November. The NDRC is also planning to set up a category of low priced commonly used drugs, to encourage the production and marketing of low priced drugs in China.

"These new policies indicate that consumption of China's domestic drugs will be on the steady increase in the future," Li said.