after the chinese market was reformed, china gradually makes space for a healthy, steady and rapidly developing pharmaceutical industry, where profit rate and growth rate are much higher than in other industries. in the view of high profit returns, regional governments often allow excessive development of regional medicine industries without careful analysis of regional competitiveness, actual advantages and development strategies to incentivise the regional development of the entire economy. in china, drug administration departments are established at both central and regional governmental level. every region has a regional drug administration department with some authority and power. without good communication and cooperation between administration department, unnecessary competition between regions might occur. the number of drug companies under each administrative department is often wrongly recorded resulting in an inaccurate evaluation index of the regional economic development and governmental performance. complex regulatory processes induce excessive exploitation of regional administrative power. before the revision of chinese pharmaceutical law in 2001, the province drug administration was assigned with authority to streamline the process of registering a generic drug. consequently, this regional authority power was exploited resulting in excessive duplication of the same drugs. for example, a fluoroquinolone type medicine was registered and manufactured by more than 1,000 enterprises. fortunately, the chinese government immediately realised the serious problem and withdrew the regional authority power to prevent overlapping of authorities. duplication of drug is, however, not the only example. after the allocation of authority of approval right of opening drug companies was taken down to provincial level several years ago, a sharp increase in the number of drug companies was noted. it was reported that 70 new drug production enterprises were approved to open during the first half of 2003, while only 45 similar enterprises were approved to open during the three years from 1998 to 2001. research and development with their low budget for research and development, china's pharmaceutical makers are in a different league from the multinationals, but they do enjoy certain advantages. many chinese companies not only produce the dosage forms (such as tablets) but also own the pharmacies where they are dispensed, as well as the distribution networks that deliver them to the hospitals, where nearly 80% of drugs are sold. in addition, chinese companies can produce generic versions of branded drugs for a fraction of their price. of the 3,000 pharmaceuticals – not including traditional medicines – manufactured in china since the 1950s, 99 percent are copies of foreign products, as are almost 90 percent of china's biotech products. most chinese companies – even joint ventures – compete with each other for the same generics. many are struggling for survival; more than 32 percent recorded losses in 1999, according to the pharmaceutical department of national development and reform commission. moreover, compared with international pharma giants, chinese companies are not only small, but are weak in technology and often lack capital. the total r&d expenditures for chinese-owned pharma businesses amounted to less than that spent by a single major western pharma company. there are presently more than 5,000 research and development (r&d) institutions in china, but only a handful of them are able to compete internationally in certain areas. the r&d system consists of specialized research institutes, major universities, biotechnology companies, and r&d divisions of large pharmaceutical enterprises. in recent years, mid- and small-size biotechnology companies are developing at a rapid pace. there are more than 1,000 such entities nationwide at present, and more than 30% of them are privately owned. special governmental funds are available to promote this type of entrepreneurship. during the past several years, some chinese pharmaceutical companies began to establish r&d infrastructures largely due to internal growth needs, but their primary focus is directed toward improving existing technologies or developing generic version of new drugs. companies to expand research efforts in china include glaxosmithkline, bayer, bristol-myers squibb, merck & co and eli lilly & company. comparison of chinese and western pharmaceutical companies like its u.s. and european counterparts, the chinese pharma business is regulated by government agencies, and competition is fierce in the business. the biggest differences include following: most chinese pharma companies are generic drug manufacturers; a large number are traditional chinese medicine manufacturers; hospitals are still the major drug market; patent issues are the greatest weakness of chinese producers. when the chinese are developing an api they try patent searches via the internet, but are limited by the scope of the available services. few factories yet have patent attorneys on staff, but for the larger pharma groups who are seeking partnerships with large western firms, this may come soon. the chinese business environment is mainly relationship-based, and this is reflected in the pharmaceutical business. establishing relationship with a pharma companies through personal connections is a common way to contact chinese pharma companies. attending pharmaceutical exhibitions, pharmaceutical conferences or seminars is another approach, as is holding a press conference attended by officials of related government agencies or associations and senior pharmaceutical executives. domestic companies from 2003 to 2004, the number of pharmacies climbed to 200,000 from 180,000, and the number of retailers owning chain stores rose from 1200 to 1349. before the 1980s, the distribution channel for china's pharmacy products was vertically integrated, as there were few middlemen for medicine sales and the only wholesalers were the traditional pharmacy stores. however, after the 1980s, with the deepening of china's reforms, the distribution of china's pharmacy products have undergone profound changes that have to some extent changed this. at present, there are three main distribution channels for china's pharmacy enterprises: pharmacy enterprises – national general agent – sub wholesaler – retailers – patients under this distribution form, there is a sole authorized organization in the country that is responsible for the sale of one or more products of a pharmacy company. such kind of distribution also can be called "the national agent mode." the pharmacy company is responsible for the manufacturing, research and development of the products, and the general agent for the nationwide sale of the products of the company. there are mainly three national distribution agencies in mainland before 2010: sinopharm group, shanghai pharma and cr pharmaceutical. in most cases, the agents buy the pharmacy products with cash after weighing the costs and profits, and the market risks lie with the wholesalers. pharmacy enterprises – regional general agents (sub wholesalers) – retailers – patients under this mode, the pharmacy enterprise search for its national or regional general agent and use the agent's market network to sell its products. such kind of distribution mode can be called "the regional general agent mode." the pharmacy enterprise usually entrusts its general agent with the sale of its products through a bidding process or forming alliance with the agent, providing it products at a bottom price. the agent, after buying a certain amount of products, win the authorization from the pharmacy company to sell in a specific region and becomes its sole authorized agent in the region. the regional general agent can be the general wholesaler in a big region, provincial wholesaler, district wholesaler or municipal wholesaler, etc. in a big region or in a province, regional general agents provide patients with their products through sub-wholesalers and retailers. in a small place such as a county, products can go directly from the regional general agent to retailers and then to patients, without the involvement of sub wholesalers. marketing companies of pharmacy enterprises – local offices of pharmacy companies – retailers – patients before taking such a distribution channel, the pharmacy enterprise should first register an independent licensed marketing company, and then set up offices in major cities which are responsible for monitoring sales and distribution of its products in their respective regions. such a distribution mode, which requires large amount of capital and high-level management for the pharmacy enterprise, is mostly used by large-sized pharmacy enterprises. in the above-mentioned modes, pharmacy enterprises, middlemen and patients are three basic components. middlemen can also be classified under the categories of wholesalers and retailers. retailers include those with shops, without shops and retail groups. what needs to be pointed out is that in china, the biggest pharmacy retailer is the hospital, due to the country's medicare and social security mechanisms. in the retail market, 85% of pharmacy products go to patient through hospitals. hence, the major distribution channels in china can also be described as the following: pharmacy enterprises—hospitals-patients; pharmacy enterprises—wholesalers—hospitals—patients; pharmacy enterprises—agents—wholesalers—retailers—patients; pharmacy enterprises—retailers—patients. the first two modes are the leading ones in china. in recent years, china's pharmacy enterprises have entered two new fields: e-business and the setting up of pharmacy retailing chain stores. at present, the development of the b to c mode of pharmacy business in china is limited. b2b is the main development trend of china's e-pharmacy commerce. though the trade volume of b2b e-pharmacy business makes up only a percentage of the total pharmacy sales, it still has large development potential. in china's case, b2b e-pharmacy commerce has grown by 300 percent yearly. in 2003, the trade volume of internet pharmacy sales was estimated to be 10 percent of the total. in addition, more and more it and other industry lead companies have been shifting their investments into the pharmaceutical industry. one example is fang zheng group, an it company that had invested a total of us$363 million into pharmaceuticals and healthcare. guangzhou bai yun shan pharmaceutical manufactory earmarked us$12 million to start an external-use medicine project, which was in addition to its us$48 million antibiotics project. domestic companies doing r&d to date, the chinese domestic pharmaceutical industry has invested very little in the research and development of new drugs, though the central government is encouraging r&d through investment and other incentives in an effort to build a world-class pharmaceutical industry. c & o pharmaceutical technology holdings ltd. (sin:copt) is an integrated pharmaceutical group in china which boasts an extensive distribution network covering over 3,000 distributors and 300,000 clinics, pharmacies and hospitals across all parts of china. to expand its portfolio of proprietary drugs, the company is developing a range of drugs that address acute medical areas such as anti-infection, anti-hbv, anti-cancer, anti-tuberculosis, anti-aging and anti-obesity. three potential category 1 drugs are also under development: an anti-hepatitis b drug, a new immuno-enhancer drug and alternative drug to cancer treatment, and an antibiotics drug which is more effective against a broad spectrum of bacterial pathogens, especially gram-positive drug-resistant bacteria. with 80 in-house researchers who have been handpicked for their specialties in different fields, ranging from chemical synthesis, drug formulation and preparation methods to clinical research, product registration, manufacturing techniques and pharmaceutical analysis, c&o is one of the few qualified pharmaceutical companies in china with the expertise to provide contract research services to the growing number of international pharmaceutical companies seeking to outsource their r&d activities to china. c&o has been providing contract research and contract manufacturing services to pharmaceutical companies both in china and outside of china. jiangsu hengrui medicine co. ltd. (sha: 600276), headquartered in lianyungang, jiangsu province, is one of the leading pharmaceutical companies in china. hengrui always values r&d and has r&d office in liangyugang since 1994. in 2000 and 2011, shanghai r&d center and chengdu r&d center were established, respectively. hengrui's investment in r&d remains high and consecutively ranks at top positions in china in recent years. hengrui's r&d involves oncology, metabolic disease, cardiovascular disease, inflammation, and diseases in central nervous system and immune system, etc., and is well known for its innovative anti-cancer drugs. apatinib, e.g., which was approved by china fda (cfda) in december 2014, has been the first small molecule anti-angiogenesis targeted treatment for advanced gastric cancer in the world. hengrui's r&d activities have expanded overseas – the r&d offices have been set up in the us, japan and australia, and collaborations have been formed with a number of renowned international pharmaceutical companies and institutes – incyte, tasoko and md anderson cancer center. shijiazhuang pharma group: based in shijiazhuang, the capital city of hebei province in northeast china, the pharma group is one of the largest pharma industries of china. in november 2004, the group announced the official launch of its investigative drug butylphthalide (nbp). the group acquired patents of the drug from chinese academy of medical sciences for less than $4 million, and spent only $6.3 million on clinical