the ministry have been assigned to different government bodies. the most important of these was the transfer of medical insurance responsibilities to the new ministry of labor and social security. nonetheless, the ministry of health retains its other main functions-regulatory development and oversight, healthcare resource allocation, and medical research and education. the chinese government's establishment of a single drug regulatory authority was an important step toward foreign access, because it eliminated the conflicting standards that prevailed among provincial government agencies, centralized the chinese healthcare regulatory system, and made it more transparent. sfda now oversees all medications-both western and tcm-as well as advertising. its new regulations follow fda's model. depending on the product and circumstance companies seeking to receive pharmaceutical approval might additionally have to register their product with the general administration of quality supervision, inspection and quarantine aqsiq. in july 1999, as part of medical insurance reform, sfda released its first list of over-the-counter (otc) medications, and in 2000, the state began to regulate otc and prescription drugs separately. sfda did so to encourage patients to purchase otc medicines for less serious diseases, thereby reducing government medication expenditures and hospital visits. the sfda plans to cut the number of manufacturers down to around 2,000 over the next two years by attrition and by requiring remaining firms to meet the new gmp standards. in fact, sfda required all pharmaceutical companies in china to obtain gmp certificates from sfda by 30 june 2004 to be licensed to sell their drug products in china. about 3000 of the companies met the deadline; companies in the process of obtaining certification may subcontract secondary production to a certified company until 30 june 2005. in 2005, sfda launched a regulation on drug research and supervision management aimed at enforcing glp to investigative drugs, traditional chinese medicine injections and biotechnology products. the regulation aims to help china's drug research and development gain international recognition. national development and reform commission: the function of the agency includes making strategic planning and mid to long term planning for the chinese pharmaceutical industry, regulating the prices of drugs, managing disaster relief funds and carrying out the pharmaceutical development projects sponsored by the government. ministry of commerce: the government organization regulates the import and export of medical devices and equipment, collects and analyzes import and export data, and carries out anti-dumping investigations. ministry of labor and social security: the agency is responsible for the management of state medical insurance systems. ministry of health: the agency guides the reform of the medical service industry, is responsible for clinical trials and clinical applications of drugs, joins with other agencies in monitoring the severe side effects of drugs, and makes the basic insurance drug list. state traditional chinese medicine administration: the agency focuses on policies and regulations related to traditional chinese medicines. state population and family planning commission: the agency writes the regulations on the use of birth control tools and pills. ministry of science and technology: the agency determines new product development projects, evaluates and registers new research and development achievements; issues grants and funds for small to mid business innovative investment. state quality control administration: it enacts and implements national standards. industrial associations: include china otc association, china pharmaceutical quality management association, china pharmaceutical commerce association, and others. regulatory requirements china quickly advanced its pharmaceutical-related regulations around the time of its december 2001 entry into the world trade organization (wto). china has strengthened patent protection: in conformity with the wto/trips agreement, the patent protection structure adopted by china approaches that of japan, europe, and the us. since the end of the 1990s, the government has been striving to develop a healthcare insurance system that covers 200 million chinese. already, 90% of the population in major cities like shanghai, beijing, and guangzhou are covered, for a total of over 80 million. the pharmaceutical management law was overhauled in december 2001, and various regulations were enacted from 2002 to 2003. transparency in the approval process is gradually improving. following wto regulations, china has committed itself to cutting tariffs, liberalizing its domestic distribution practices, and restructuring its regulatory environment. china has allowed foreign enterprises to import products and engage in distribution services. furthermore, china has also implemented new drug administration laws designed to streamline product registration and protect intellectual property rights (ipr). china has agreed to six years of "data exclusivity" and has committed itself to implementing a patent linkage system. the sfda has worked to crack down on counterfeiters but without greater resources and stricter legal consequences, these actions alone have yet to be enough to curb this rampant problem. since 1998, the government has raised the bar for entering the pharmaceutical business by passing laws including drug management law and regulations on pharmaceutical manufacturing. they involve following aspects of pharmaceutical manufacturing, drug distribution and selling, drug registration, requirements for manufacturing traditional chinese medicines, medical packaging manufacturing requirements, and medical device manufacturing requirement. the new laws will likely have an adverse effect on market growth and profitability during the transitional period, but over the next 5–10 years this market should be able to provide the returns. government drug pricing policy in order to alleviate the burden of medical expenses on the society and ensure the implementation of the medical insurance scheme, retail prices of pharmaceutical products qualified for the program and included in the national basic medical insurance scheme drug catalogue will be regulated. the pricing mechanism is based upon three considerations when setting the maximum retail price – production cost, a wholesaler spread set by the government and the prices of comparable products in the market. any products priced above this level will be cut. centralized tendering drug procurement program the centralized tendering procurement system operates in two ways. first, several hospitals and medical institutions join to invite tenders. then, they appoint qualified agents to handle tenders. these agents are prohibited from having ties with the industry regulatory or administrative bodies. in 2002, 70% of public hospitals at county or above level implemented this tendering system. this system has successfully passed the pilot phase and proven effective. both the number of participating hospitals and variety of drugs expanded substantially. more power to hospitals and medical institutions. in a market economy, hospitals and medical institutions do their own drug procurement. they source drugs from manufacturers at market prices and dispense them to patients. the centralized tendering drug procurement system, however, gives more power to hospitals in drug procurement. as a result, some unfair, unjustified and unreasonable practices surface as decision makers of some hospitals abused their power in order to get economic benefits. gmp compliance certification gmp is a system to ensure products are consistently produced and controlled according to quality standards. it is designed to minimize the risks involved in any pharmaceutical production that cannot be eliminated through testing the final product. a directive circular issued by the ministry of health in jul 95 marked the official launch of gmp certification in china. the china certification committee for drugs (cccd) was established in the same year. a subsidiary organization was also set up to manage the certification program. currently nine government agencies are the key agencies responsible for regulation. they are the state food and pharmaceutical administration (sfda), the state development and reform committee, the commerce ministry, the state traditional chinese medicine administration, the ministry of labor and social security, the ministry of health, the state population and family planning committee, the ministry of science and technology, and the state quality and technology supervision administration. in addition, more than 10 industrial associations also regulate the industry. comparison of regulatory requirements with other countries the enforcement of good manufacturing practices has not been adequate in china and the u.s. fda and ema (european medicines agency) have inspected chinese pharmaceutical plants that export to their countries and found many to be seriously non compliant with gmp. there is only federal regulation on new drug application, but there are both local regulation and national regulation regarding pharma expenditures of hospitals, reimbursable drug lists, and other issues. national regulation is implemented by sfda and other state agencies, while local regulation is implemented by provincial agencies. through related laws, china has established a physician licensing system, which requires physicians to pass a national exam to be eligible for applying for licenses. after passing the exam, physicians will be eligible for applying for certificates for the practice of medicine. licensed physicians can open their own clinics five years after getting licenses, during which they must work as physicians. there is a mechanism for approving new drugs (from nda filing to approval). a full three-phase research trial takes three to five years, similar to the u.s., while requirements to start a trial are onerous by foreign standards, according to western drug-company executives. although the approval time is being shortened, there still remain many aspects where transparency is lacking. patents western pharmaceutical companies have applied for numerous patents in china. about 10,000 patents for traditional chinese medicines belong to western companies. however, some western observers say china lacks administrative protection for patents. in 1992, the united states and china signed a memorandum of understanding (mou) to allow administrative protection (ap) in china for us pharmaceutical patents granted between 1986 and 1992. the mou provided seven-and-a-half years of market exclusivity, or ap rights, in china for pharma patents that were: not protected by exclusive rights before the amendment of current chinese laws; patent protected after 1 january 1986 and before 1 january 1993 in an mou signatory country; not previously marketed in china. several chinese government policies have prevented us industry from realizing the intended mou benefits. according to article 42 of the patent law, the duration of patent right for inventions is twenty years, and the duration for utility models and patent right for designs is ten years, counted from the date of filing. the state intellectual property office is responsible for enforcing patents. the intellectual property system in china was originated from and developed as a result of the policy of reform and opening-up. the state council, the patent office of china, the predecessor of sipo, was founded in 1980 to protect intellectual property, encourage invention and creation, help popularize inventions and their exploitation, and promote the progress and innovation in science and technology. in 1998, with the restructuring of the government agencies, the patent office of china was renamed sipo and became a government institution under the direct under control of the state council. the office is in charge of patent affairs and deals with foreign-related intellectual property issues. united states and china as a member of the world intellectual property organization, china is active in protecting international patents. the sipo has signed intellectual property protection memorandums with countries including russia and thailand on the protection of intellectual properties. such agreements are necessary to protect international patents in china. on 14 july 2005, china and the united states reached an agreement on intellectual property protection. according to western pharmaceutical business journals, most discouraging to us pharmaceutical companies has been the rampant theft of their intellectual property through patent infringement and counterfeiting. all those factors undermined the competitive advantage that innovative pharmaceutical companies stood to gain from marketing investments. as a result, us companies accounted for less than 10 percent of china's total pharmaceutical imports between 1998 and 2000. china has more recently agreed to implement the trade related intellectual property agreement of the uruguay round. to comply, chinese companies will have to change their long-time practice of relying on counterfeit products. according to china's securities times, foreign companies will be able to file compensation claims ranging from $400 million to $1 billion against companies that copy patented medicines. articles 18 and 19 chinese patent law addresses foreign companies in articles 18 and 19. under article 18, where any foreigner, foreign enterprise or other foreign organization having no habitual residence or business office in china files an application for a patent in china, the application is treated in accordance with any agreement between the organization's host country and china, or any international treaty to which both countries are party, or on the basis of the principle of reciprocity. under article 19, where such an organization applies for a patent, or has other patent matters to attend to in china,