pharmaceutical industry in china pharmaceutical industry in china the pharmaceutical industry is one of the leading industries in the people's republic of china, covering synthetic chemicals and drugs, prepared chinese medicines, medical devices, apparatus and instruments, hygiene materials, packing materials, and pharmaceutical machinery. china has the second-largest pharmaceutical market in the world as of 2017 which is worth us$110 billion. china accounts for 20% of the world's population but only a small fraction of the global drug market. china's changing health-care environment is designed to extend basic health insurance to a larger portion of the population and give individuals greater access to products and services. following the period of change, the pharmaceutical industry is expected to continue its expansion. china, as of 2007, has around 3,000 to 6,000 domestic pharmaceutical manufacturers and around 14,000 domestic pharmaceutical distributors. the most often-cited adverse factors in the marketplace include a lack of protection of intellectual property rights, a lack of visibility for drug approval procedures, a lack of effective governmental oversight, poor corporate support for drug research, and differences in the treatment in china that are accorded to local and foreign firms. research and development are increasing, with shanghai becoming one of the most important global drug research centers. most notably, novartis is expected to establish a large research and development base in shanghai that will be a pillar of its drug development. china's thousands of domestic companies account for 70% of the market, 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 30 june 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. however, sales at the top-tier chinese companies are growing faster than at western ones. overview china has established a pharmaceutical industry structure, and has become one of the largest pharmaceutical producers in the world. however, the industry is still small-scale with a scattered geographical layout, duplicated production processes, and outdated manufacturing technology and management structures.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) 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. quality the quality of drugs and active pharmaceutical ingredients (api) made by chinese pharmaceutical companies is often poor. in the past three years 2015–2017, there were 35 fda warning letters to chinese pharmaceutical companies citing serious data integrity issues, including data deletion or manipulation or fabrication of test results, see "an analysis of 2017 fda warning letters on data integrity" by barbara unger, unger consulting inc. an analysis of 2017 fda warning letters on data integrity see the long list of chinese pharmaceutical companies which have been placed on import alert by the fda due to serious noncompliance with good manufacturing procedures import alert 66-40 see the european medicines agency eudagmdp noncompliance reports based on inspections of companies that revealed serious noncompliance with good manufacturing procedures: eudra gmp - public layout see fda warning letters detailing serious noncompliance with good manufacturing procedures: warning letters structure and trends in 2013, china had 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 percent of the market, and the top 10 companies about 20 percent, according to business china. in contrast, the top 10 companies in most developed countries control about half the market. since 30 june 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, according to ims health inc. even the top selling companies just barely exceed sales of $100 million (hospital market). most of the chinese drug-makers fall below the 20th ranking, but 30 of the top 50 companies are local. in addition, china's over-the-counter market is growing fast and has become the fourth largest otc market in the world. foreign enterprises have been closely monitoring the expanding otc market. merck announced the launch of otc program in china in september 2003. roche listed china as one of its 10 core otc markets, with the aim of growing its otc drug sales by 50% in the next five years and reaching 1.3 billion in 2008. novartis is expanding its otc market share in china, and wyeth has also entered otc market. the pharmaceutical market in china is dominated by its non-branded generic industry that operates with basic technology and simple production methods. domestic pharmaceuticals are not as technologically advanced as western products, but nonetheless occupy approximately 70% of the market in china. domestic companies are mainly government owned and fraught with overproduction and losses. the chinese government has begun consolidating and upgrading the industry in an effort to compete with foreign corporations. it is estimated that most hospitals derive 25–60% of their revenue from prescription sales, hospitals remain the main outlets for distributing pharmaceuticals in china. this will change with the separation of hospital pharmacies from healthcare services and with the growing numbers of retail pharmacy outlets. retail pharmacy outlets are expected to grow in number once the government finally introduces its system to classify drugs as otc. the government is now encouraging development of chain drug stores, but the full effect might not be seen for several years. the price of pharmaceutical products will continue to decrease steadily. in june 2004, the price of 400 antibiotics in 24 categories, including penicillin, was reduced by, on average, 35%. the total value affected by this reduction was us$42 million. the central government has been playing a significant role in pharmaceutical price readjustment. the government compelled and continually 32 times reduced the price of most of the drugs in last 20 years since 2016. future price reductions will originate from hospital pharmaceutical retail shops. the rural pharmaceutical market will shift significantly. 80% of counterfeit products are consumed in rural areas. this provides a huge opportunity for pharmaceutical companies to develop the market in rural areas. in 2005, huanan pharmaceutical group, guangzhou ruobei huale, baiyunshan pharmaceutical group, and others, have stepped up efforts in targeting the rural market. the china pharmaceutical equipment industry 2015 market research report is a professional and in-depth study on the current state of the pharmaceutical equipment industry. historic foreign involvement bayer of germany, the inventor of aspirin, began trade with china in as early as 1882. hoechst ag, known as aventis, sold its products through 128 distribution agents across china in 1887, becoming china's no. 1 western medicine and dyeing provider. eli lilly and company opened its first overseas representative office in shanghai in 1918. ici, the predecessor of the world's no. 3 pharmaceutical enterprise astrazeneca, began trade with china in 1898. production levels in the 9 months from january to september 2004, the total output of the country's pharmaceutical industry reached $40 billion, 15.8% higher than the same period of 2003. in the same period, 23 major state-owned pharmaceutical companies had sales of $10 billion. a survey of 16 typical city hospitals, the usage of drugs increased by 32.23% in the first half of 2004 as compared with that of 2003. around 36% of all china's pharmaceutical enterprises are state-owned. another 35% are privately owned domestic enterprises and the remaining 29%, foreign-funded. synthetic drug manufacturing remains the pharmaceutical industry's largest business in china, constituting 65% of industry sales. another 21% of industry sales come from traditional chinese medicine. biotech-related medical products and medical equipment make up the rest. regional distribution china's huge and gradually aging population and strong biopharmaceutical sector have almost guaranteed a large but varied pharmaceutical market profile. zhejiang, guangdong, shanghai, jiangsu and hebei provinces have always been among the top five most productive provinces in china. each of these provinces has grown steadily by an average of 20 per cent per annum from 1998 to 2003 (with the exception of jiangsu in 1998 and 1999) and reflects an increasingly healthy developing trend in the chinese pharmaceutical industry. most pharmaceutical firms are located in the southeastern zone that includes two well-developed areas and three under-developed areas. the two most popular areas of well-developed pharmaceutical industry, called the growth poles, are the eastern china zone of which zhejiang province is located in the centre and the south china zone represented by the guangdong province. the total output value of these two provinces accounted for 21 per cent of the total output value of pharmaceutical industry of china in 2003. the three sub-developed areas of pharmaceutical industry, called the potential points, are also identified as the middle china zone, the northeastern zone and the southwestern zone, centralised in hebei province, heilongjiang province and sichuan province, respectively. the development of the pharmaceutical industry in china was found to be predominantly driven by economic factors. the nature of an industrial region can roughly fall into one of the following three types: natural resource-driven region, economy-driven region and science and technology-driven region. the pharmaceutical industry in china grows well only in areas with a strong macroeconomic background rather than in regions with rich natural resources or advanced science and technology. moreover, it is shown that the stronger the macro-economy, the faster the pharmaceutical industry grows. therefore, the decision-making policy on pharmaceutical development in a region should be largely based on its macroeconomic situation. broadly speaking, it appears that the dynamic features of the pharmaceutical industry in china remain steady. according to the reform plan, china will conduct a regime of vertical management in drug supervision and management departments, intensify supervision and control over medicines, and gradually set up a drug management system featuring legal management, unified law enforcement, standard codes of conduct, honest practice and high efficiency. to meet the objective requirements of drug administration and the needs of the development of medical services, a drug supervision and management body was formed in 1998. the pharmaceutical industry in china was found to be extensively fragmented. excessive repetitive establishment of provincial pharmaceutical industries was found to be serious in comparison to other industries in china. it also demonstrates a low-level, repetitive development situation of the pharmaceutical industry in different regions of china. currently in china, the pharmaceutical industry is undoubtedly still developing. the most desirable strategy has been, therefore, to concentrate on the regional pharmaceutical industries. there are three main reasons for this strategy: high profitability and growth of the pharmaceutical industry, unnecessary political competition among regions, and excessive exploitation of regional administrative power. (hu yuanjia; 2007) the pharmaceutical industry is always known as a high-return and rapidly growing industry.