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Economics Pharmaceutical Industry In China Economics Essay

China is a country that has a rich cultural and economical history along with a large population and one of the most civilized country in the world. This country is home to the recorded very first civilizations and contains the worlds largest population. Due to the huge mountains it is rich in primary resources and advanced economies in the world through successful dynasties. China produces a large variety of things from steel, to cameras and synthetic materials. Electricity generation in China is concluded as one of the largest in the world. It's government is one of the oldest on earth starting in 1726. All of these things make up China.The United States of America has been the superpower for a couple of centuries. But after the Beijing Olympics and even couple years before the event, the world recognized China as a powerful, emerging nation that is attempting to catch up with America. Evidently China is on the rise and no one can deny that fact as news channels and online news sites are constantly discussing issues about China. As China is becoming the World’s greatest rising power it is important to be aware of the factors that made China a leading power and also to examine what is holding them back as they are striving to become the most modernized and powerful nation.

China has generally implemented reforms in a changes ought to occur method. As its role in world trade has steadily grown, its importance to the international economy has also increased apace. Foreign trade in the growth of China was more than the growth of GDP past 25 years. China's growth comes both from the huge investments of infrastructure and heavy industrial sector and from private sectorial expansion in the small industries instead of just exporting, whose role in the economy appears to have been significantly overhelmed. The smaller but highly concentrated public sector, dominated by 159 large SOEs, provided key inputs from utilities, heavy industries, and energy resources that facilitates private sector growth and huge investments in the foundation of national growth. By 2008 thousands of private companies were closed down due to the government has announced plans to expand the public sector to take up with the problems caused by the global financial crisis. In 2010, there were approximately 10 million small businesses in China.

By 1978 China's transition have began from a planned economy to a market economy. When China started this process, the government did not have a well-designed ‘blueprint’ of the plan, and so to approach the reform has been characterized as an experimental. The process of reform has been gradual and incremental in nature and is still incomplete. In fact, China can’t be treated as a full market economy nor can it be treated as a centrally planned economy in which the Government substantially influences prices of goods or monopolises international trade.

Chinese Pharmaceutical Industry has become one of the largest producers of the pharmaceutical products in the world of economies. Over the past two decades china has seen a tremendous growth in the pharmaceutical sector of the country .The Chinese pharmaceutical industry has increased in value with an average annual growth of 16.72% over the past two decades.China’s drug market is considered to be the 8th largest drug market in the world .Synthetic drug manufacturing constitutes 65% of the industry’s sales making it the largest business of the pharmaceutical industry in china. The growth in pharmaceutical productivity over recent years can, in part, be attributed to the

increase in foreign firms’ activity in the industry. While this inevitably deals a blow to smaller

domestic manufacturers, the government is clear that these joint ventures (JVs) are necessary in

order for domestic firms to compete on the international market, enabling them to access better

products, improved technology and enhanced management skills. China's accession to the World Trade Organization (WTO) led to business analysts predict that China will become the world's

largest pharmaceutical market by 2020. China’s current sales are estimated to be topping US$60 billion. Foreign drug makers have begun to display considerable interest in China over the past few years.

After three years, China's World Trade Organisation (WTO) entry, nearly all global pharmaceutical companies have already completed their restriction in entries of the new firms to enter the Chinese market and will currently shifts their focus to development of research. The most important reasons for the overseas companies have been taking risk to come to China have been to save costs by using the extensive science and technology research bases currently in place in China, the abundant human resources, and less expensive medical and clinical trials.

There are currently about 1,700 Sino-foreign joint ventures in the pharmaceutical sector. About 40% of domestic pharmaceutical firms currently have co-operative projects with foreign manufacturers. Most of the industry giants have some sort of marketing presence, for example, the local subsidiaries setup by Roche and Novartis, rank among the top two marketing companies in the country, which is measurable by sales. Many of the multinationals have also recently announced plans to expand their Chinese operations, in an effort to gain market share. A total of 20 out of the 25 largest international manufacturers now have operations in China.

Pharmaceuticals produced by foreign ventures and imports now account for around 50% of the total sales in China’s domestic market successfully. There are some areas in which investing in foreign trade have been encouraged including bulk pharmaceuticals has been covered by patent protection . There are also some areas in which investment are restricted include commodity-like antibiotics , narcotics, vitamins, and traditional Chinese medicines.

The Chinese pharmaceutical distribution sector is very fragmented with about 10,000 + state-owned pharmaceutical wholesalers. Direct marketing to doctors which is the basic marketing activity in developed countries, complemented by advertising, is not developed in China. Chinese hospitals generate 60 percent of their revenues from the sale of prescription drugs. Hospital pharmacies are still the main retail outlets for pharmaceuticals, accounting for 80 percent of total drug sales. This situation is changing because the government is encouraging the establishment of retail pharmacies that are not associated with hospitals. Drugs are distributed in China through the Chinese-style channels. China has a three tiered distribution system. At the top of the ladder are national level-1 stations in Beijing , Shanghais , Shenyang , Guangzhou, and Tianjin. These allocate products to provincial level 2 distributors, who in turn sell to county and city level-3 wholesaler-drug stores. At the bottom of the distribution chain are China's vast numbers of small retail stores are difficult to reach individually.

China has a pool of highly educated doctors who are keen to participate in clinical trials. The treatment of major maladies is also concentrated in major hospitals, so it is often easier to recruit trial investigators and patients than it is in the US, Europe or Japan. Lastly, clinical trials conducted in China provide access to data that cover a different ethnic population, and genetic variations play a large part in determining both susceptibility to disease and the safety and efficacy of the drugs used to treat it.All these attractions explain why some of the leading foreign drug makers have now started building clinical research facilities in the area.

It has been reported that China began to establish a drugabuse monitoring system in 1992, which has now became a drug abuse monitoring network covering 31 provinces,autonomous regions and municipalities directly under the central government realized on-time and online food and drug regulatory departments have

been continuously innovating methods of supervision, establishing a set of special control systems for specific drugs to effectively regulate the production and use of medical narcotic drugs and psychotropic substances and preventing the occurrence of drug abuse.

China adopted the good manufacturing practices started by the world health organization in 1980. Under the GMP management guidelines , the pharmaceutical producers were asked to set up special administrative offices tolook after the production process and quality of production. The GMP aims at setting provisions concerning drug verification and authentication, including the facilities and installing the equipments, operating of products and operating of productions. Another such practice started was the State food and drug administration which stipulated that all Chinese drug makers had to comply wid the GMP by the end of 2004 or loose the right to sell their products.

The locally produced medicines in China has been improved automatically during the past two decades since the reinforcement of the national drug regulatory authority in 1998. There are so many pharmaceutical manufacturers operating in China, however, a number of them still tried to produce fake or low quality products to make money. The immitated drugs are causing global public health problems which is the main cause of the death, disability and injury to adults and children, which effects both developing and developed countries. Most developed countries with effective regulatory systems and market control currently have a very low proportion, and than 1% of the market value. Many developing countries have areas where more than 30% of the medicines on sale can be immitated, according to the usage of the drugs, a reasonable estimate is between 10% and 30%.In China, 332, 000 immitated drugs and medical devices cases were investigated in the distribution chain in 2006, worth about RMB 0.57 billion; 4 manufacturers were told togive back their production licenses and 142 were requested to stop productivity; mostly all the distributors were revoked of their distribution licenses and some were told to close permanently; 86 GMP certificates and 135 GSP certificates were withdrewn; almost, all the venues of the producing duplicate medicines were eradicated .Some new characteristics of counterfeit drugs cases in China are seen to be increased and their cases in the process of research and development, and submission of fake dossiers; not following the SOPs to produce; too many channels in the distorted distribution system.

One overriding characteristic of the Chinese pharmaceutical market is the importance of traditional medicines and demand has been particularly high for TCM, which is very popular in Australia and the United States as an alternative remedy. They account for almost half of all medicines sold in the country and over the past few years have become increasingly popular among non-Chinese, particularly in Western countries. Government surveys in Hong Kong have shown that 60 % the local population have consulted traditional Chinese medicine (TCM) practitioners at one time or another and the demand for TCM products is expected to increase, particularly as alternative medicines gain popularity among Western consumers. Chinese hospitals are also showing increased demand for such medicines, since the government has institutionalised a policy of dividing state-owned hospitals into modern and TCM units,

depending on the preference of patients.

Chinese hospitals are also showing increased demand for such medicines, since the government has institutionalised a policy of dividing state-owned hospitals into modern and TCM units, depending on the preference of patients. Domestic demand remains high, and the institutionalisation of TCM hospital services will provide sufficient fodder for Chinese pharma companies.Domestic demand remains high, and the institutionalisation of TCM hospital services will provide sufficient fodder for Chinese pharma companies.China's market is too big to overlook, with just RMB 150 in per-capita annual consumption, but it is growing fast. One-child policy and improved life-expectancy are also contributing to a dramatic demographic shift. The share of the population over the age of 60 will double from 10% now to more than 20% by 2035. This will lead to a huge expansion in healthcare spending.The Chinese pharmaceutical market

continues to be dominated by the hospital sector, which accounts for 90% of all pharmaceutical sales. The remaining 10% reach consumers through retail pharmacies and local clinics. Anti-infection drugs account for 39% of drugs sold, followed by gastrointestinal products (13%) and cardiovascular drugs (11%). Drugs made by domestic companies, which tend to be the cheapest, account for almost 69% of total sales, while joint-venture products and imported medicines make up 15 and 16%, respectively, according to the Bulletin of the State Drug Administration.

Foreign companies that have entered the market face considerable regulatory and policy barriers.The domestic market for ordinary medicine has experienced the supply exceeding demand for years. The severe market competition has caused enterprises to gain meager profits. Because of the high cost of production and no price advantage, foreign pharmaceutical

enterprises will not enter china's market of ordinary medicine, and launch a price fight with Chinese enterprises. At present, china's pharmaceutical industry has more than 1,000 foreign-funded enterprises.

Demand for drug have several special features: first, physician, who is an agent of patient, consumer of drug, will decide to buy which drug and how much. Usually, information asymmetry on drug knowledge is huge between physicians and patients, thus agency problem between the two is a serious and important issue. Second, medical insurance will pay for patient. There exist another agency problem between insurance, physician and patient. Thus it is a very

prevalent phenomena that physician will prescribe excessively high price drug to increase their revenue, not for reduce burden of patient, when the medical system is designed poorly to resolve these agency problems. In developing economies, where coverage of social security system is limited, physician depends on direct revenue from patient, this agency problem become more acute.

The pharmaceutical industries in China is always known as a high-return and rapidly growing industrial sector. After the market were reformed in China, the country has gradually made space for a healthy, steady and rapidly developing pharmaceutical industries, where profit rate and growth rate are much higher than the other industries whe is compared. In the view of high profit returns, regional governments often allow excessive development of regional medicine industries without carefully analysising the regional competitiveness, actual advantages and development strategies to incentivize 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 administrative departments, there will be an unnecessarycompetition which will occour between regions. 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.

China had 135 companies that exported bio-pharmaceuticals, of which 20 companies had a bio-pharmaceuticals export value of more than US$1 million each. The top ten were Chengdu Institute of Biological Products, Beijing Charity Detection Technology Co Ltd, Shanghai RAAS Blood Products Co Ltd, Hualan Biological Engineering Co Ltd, Sichuan Kelun Bio-pharmaceutical Co Ltd, ABON Biopharm (Hangzhou) Co Ltd, Lanzhou Biological Technology Development Co Ltd, Shanghai Kehua Biological Engineering Co Ltd, Liaoning Chengda Biological Co Ltd and Sichuan Yuanda Shuyang Pharmaceutical Co Ltd. Their combined bio-pharmaceuticals export value accounted for 59.66% of the national total. China's bio-pharmaceuticals were exported to 126 countries and regions, but mainly to the Asian market, for which the export value accounted for 59.57% of the total. The 10 biggest destinations of China's pharmaceutical exports were India, the United States, Hong Kong, Canada, Egypt, Ethiopia, Vietnam, Indonesia, Thailand and Pakistan. The combined exports to these countries accounted for 77.99% of China's total, and the exports to India alone accounted for 34.66% of the total.

The statistics of China Chamber of Commerce for Import & Export of Medicines & Health Products shows China's import and export value of bio-pharmaceuticals was US$887 million, up 44.35% year on year, of which the export value was US$87.175 million, up 53.16% year on year; and the import value was US$800 million, up 43.35%.

One overriding characteristic of the Chinese pharmaceutical market is the importance of traditional medicines and demand has been particularly high for TCM, which is very popular in Australia and the United States as an alternative remedy. They account for almost half of all medicines sold in the country and over the past few years have become increasingly popular among non-Chinese, particularly in Western countries. Government surveys in Hong Kong have shown that 60 % the local population have consulted traditional Chinese medicine (TCM) practitioners at one time or another and the demand for TCM products is expected to increase, particularly as alternative medicines gain popularity among Western consumers.

At present, China's pharmaceutical logistics industry is featured as small-scale, scattered investment and fierce competition. China's pharmaceutical logistics industry is mainly composed of pharmaceutical manufacturers and pharmaceutical distributors. China has 16,500 wholesalers, 120,000 retailers and more than 6,300 producers. In terms of sales, China's top three companies:Sinopharm Group, Shanghai Pharmaceutical Co. and Jiuzhoutong Group Corp., are all shared less than 5% of the national market.

The overall demand for drugs is growing rapidly - particularly for drugs in certain therapeutic

categories. As China becomes more developed, its epidemiological profile is changing. For example, that eating more and exercising less has increased the incidence of cardio-vascular disease, which is now the most frequent cause of death in China. Five of the 10 fastest growing therapy classes in 2003 were treatments for illnesses of the cardio-vascular and central nervous system. Another three were respiratory, anti-inflammatory and anti-ulcer drugs. Only two were anti-infectives which the Chinese government traditionally encouraged domestic manufacturers to produce. Generics accounted for almost two-thirds of the market (measured in dollars). OTC products and branded generics accounted for another 29% and patented drugs for a mere 9%.

Most pharmaceutical manufacturers in China have been actively promoting their products to have moe profits in their business, using a variety of promoting ways and also employing numerous salespersons, sending medical representatives to promote prescription in hospitals, advertising at newspapers and TV for OTC products, etc. These salespersons and medical representatives often contact hospitals and doctors directly to sell their products. They have used sales commission, kick back, or gifts to hospital managers and/or doctors who purchased or prescribed their products. They sometimes also supported senior doctors to participate in international conferences as sort of rewards for the use of their products. Such activities have greatly influenced prescription behavior. The financial incentives given by the manufacturers to the hospitals and doctors might have resulted in hospitals purchasing less effective, but expensive medicines, improper prescribing, and polypharmacy. In addition, advertising has also affected the choices of medicines by both service providers and users, as found in other countries. As a whole, most of them are using legal or illegal means to

promote the sale of medicines in order to maximize their profits. Since the mid 1990s, the relevant line ministries responsible for pharmaceutical policies have issued a number of regulations and decrees, banning illegal practices (e.g. commission fee, kick back, etc.) of promoting medicine sales. However, the effects of these regulations have not been so far significantly effective in tackling these problems.

China's macro economy has remained sound and stable .China, home to over one billion, now attempts to make a leap forward to a new development stage through economic reform. In this process, the government economic policy plays a great role, and reasonable, effective policy is being requested. Maintaining rapid growth in Chinese industrial output value is still not completely out of the current global Financial .The shadow of the tsunami, but in 2010 and 2019 for the next ten years, the brilliant economic development, Chinese medicine is the foreseeable future. The next decade, will be the pharmaceutical industry's 'golden years’.  "This is not just due to the China's macroeconomic environment has been stabilized, but also because the next decade is the decade of rapid growth in Chinese demand.

The statistics of the Chinese economy shows that over the past decade, the pharmaceutical industry compound growth rate of 20.8%, a figure far higher than GDP growth and other industries. As a sunrise industry, in 2009 against the background of the global financial hit, Chinese industry is still full of energy, medicine, industrial output growth rate of 19.9%. The pharmaceutical industry and business profitability also continued to grow. In addition, including community health, rural health, including the third terminal of the primary care dosage also maintained rapid growth momentum. It can be said for the past decade, China's macroeconomic environment laid a more solid foundation.

The number of medical instrument producers in China is huge,therefore they all fall far behind world leading companies in terms of the productivity and physical stability of the products. Therefore, although China's homegrown producers are cost-superior as for low variety, low-end products, the country depends mainly on import of the medical instruments and other machines prodused in the pharmaceutical sector in China. China's market of medical instruments would be of great use during the country's 11th "Five-Year Plan" with domestic demand continuing to grow, while trade of export and import would still dominate the market. The pharmaceutical industry in China was found to be extensively break. 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. China’s pharmaceutical industry is the 5th largest pharmaceutical industry in the world.

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