Melanie Lee of Boston Consulting Group predicted Chinese drug sales would virtually double to $25 billion a year from $13 billion in 2005, driven by greater adoption of Western-style medicines.

Such products currently account for less than a quarter of a market dominated by locally produced generics and traditional Chinese medicine.

Those cheaper alternatives will remain important but China's sheer size, its aging population and rapid economic growth mean it could overtake the United States as the top drugs market by 2050, according to PricewaterhouseCoopers.

Dr Sen Gong of the State Council's Development Research Center told a conference at London's Chatham House think tank that health spending was set to rise to 7 to 8 percent of GDP by 2010 from 5.7 percent in 2004, based on current trends.

In the past, Western drug makers have been wary of investing in China because of its reputation for weak patent protection, as highlighted by a decision of the State Intellectual Property Office in 2004 to overturn Pfizer Inc's Viagra patent.

Yet executives say enforcement of patents is starting to improve, following accession to the World Trade Organization, and they can no longer ignore China's huge potential.

Still, Kenneth DeWoskin of PricewaterhouseCoopers warned making money in China was not easy, given the high cost of drug distribution and aggressive government action on prices.

"While revenue growth is assured, margin growth is not," he told the meeting.

The government has already cut drug prices 17 times since 1997 and more cuts are expected this year, he said.

CHEAP RESEARCH BASE

Tapping into growing demand for Western medicine, though, is only half the story. Western manufacturers are also turning to the country as an important source of cheap research.

The cost of hiring a Chinese scientist with a PhD is just a one quarter of that in the United States, according to Boston Consulting's Lee, while PricewaterhouseCoopers estimates that conducting clinical trials in China costs one third as much.

Those advantages have encouraged growing numbers of European and U.S. drug groups -- including AstraZeneca Plc, Novartis AG, GlaxoSmithKline Plc, Johnson & Johnson, Roche Holding AG and Pfizer -- to set up operations in China.

In total, multinationals now have over 600 active joint ventures in the sector.

China's fragmented domestic drug industry -- consisting of more than 4,000 small manufacturers -- has so far failed to produce national champions with international reach, comparable to Indian firms like Ranbaxy Laboratories Ltd.

But while China lags in conventional drug production, it is making strides in biotechnology and a handful of Chinese-developed biotech products already on the local market, including the world's first licensed gene therapy treatment.

Dr Huanming Yang, director of the Beijing Genomics Institute, said his group's world-renowned work in helping sequence the human genome, mapping the rice genome and unraveling the SARS virus, highlighted the biotech potential.

"I'm not sure we can do the job better, but I'm confident we can do the job faster and cheaper," he said.