Pharmaceutical industry in the People''s Republic of China

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.[citation needed]

The domestic pharmaceutical market is highly fragmented and inefficient. China, as of 2007, has around 3,000 to 6,000 domestic pharmaceutical manufacturers and around 14,000 domestic pharmaceutical distributors. Most often cited adverse factors include a lack of protection of intellectual property rights, a lack of visibility for drug approval procedures, a lack of effective governmental incentives, poor corporate support for drug research and differences in the treatment in China accorded to local and foreign firms.[1]

Even so, the industry environment has been transformed for the better over the last 10 years. Entry to the WTO has brought a stronger patent system, medical insurance is now more widespread, and pharmaceutical-related regulations have been stiffened. China is reportedly expected to become the third largest pharmaceuticals market in the world by 2011.[2]

Research and development is rapidly increasing with Shanghai becoming one of the most important global centers. Most notably, Novartis is expected to establish a large R&D base in Shanghai that will be a pillar of its drug development.[3]

Currently China has about 3,500 drug companies, falling from more than 5,000 in 2004, according to government figures. The number is expected to drop further. The domestic companies compete in the $10 billion market without a dominant leader. As of 2007, China is the world's ninth drug market, and in 2008 it will become the eighth largest market.

China's thousands of domestic companies account for 70% of the market, and the top 10 companies about 20%, according to Business China. In contrast, the top 10 companies in most developed countries control about half the market. Since June 30, 2004, the State Food and Drug Administration (SFDA) has been closing down manufacturers that do not meet the new GMP standards. Foreign players account for 10% to 20% of overall sales, depending on the types of medicines and ventures included in the count. But sales at the top-tier Chinese companies are growing faster than at Western ones.

China is expected to become the world's third-largest prescription drug market in 2011, according to a report released by pharmaceutical market research firm IMS Health. The report said that China's pharmaceutical revenue is growing fast and that the market there may double by 2013. Sales of prescription drugs in China will grow by US$40 billion through 2013, the report said. The value-added output of China's pharmaceutical industry increased 14.9% year on year in 2009, according to statistics released by the Ministry of Industry and Information Technology. In the first 11 months of last year, the medicine sector's combined net profit was RMB 89.6 billion, up 25.9% year on year. Growth in the period was only 16.2% in the period from January to August.

China has established a pharmaceutical industry structure, and has become one of the largest pharmaceutical producers in the world. The Chinese pharmaceutical industry has been growing at an average annual rate of 16.72% over the last few decades. However, the industry is still small-scale with a scattered geographical layout, duplicated production processes, and outdated manufacturing technology and management structures. The Chinese pharmaceutical industry also has a low market concentration and weak international trading competitiveness, coupled with a lack of patented domestically-developed pharmaceuticals. (Barnet Siu; 2010)

As China joins the World Trade Organization (WTO), it will need to integrate more completely into the global economy. The international competition will place an intense pressure on the Chinese pharmaceutical industry. Accession to the WTO will bind China by fundamental WTO principles, such as improved transparency and the strengthening of commercial legal procedures. China's WTO commitments include the tightening of rules on intellectual property, tariff concessions, and market access of non-Chinese service suppliers engaging in the distribution of pharmaceuticals. (Cheri Grace; 2004)

Investment conditions in China have improved due to the vast consumer demand for pharmaceuticals, the lower labor costs and the changes resulting from economic reform. Changes to the patenting laws in full compliance with the requirement of the Agreement on Trade-Related Aspects of Intellectual Property Rights (or "TRIPS Agreement") and the lack of Chinese pharmaceutical R&D have also left gaps in the market.

The domestic pharmaceutical industry has been a key contributor to the country’s impressive economic growth. As one of the world's major producers of pharmaceuticals, the sector achieved an annual compound growth rate of 16.7% between 1978 and 2003. Both far outpaced other economies in the world, making China the world's fastest growing pharmaceutical market. Although China has enjoyed the benefits of an expansive market for pharmaceutical production and distribution, the industry is suffering from minimal innovation and investment in R&D and new product development. The sector's economies of scale have yet to be achieved. Most domestic manufacturers in the pharmaceutical industry lack the autonomic intellectual property and financial resources to develop their own brand products. Most manufacturers rely on the repetitive production of low value added bulk pharmaceuticals and imitation drugs.