Page 294 - 2023 White Paper on the Business Environment in China
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3 White Paper on the Business Environment in China
China’s rapidly aging population. As part of the As of 2022, foreign companies are still the main
“Made in China 2025” industrial plan, China participants in this niche market, which is expected
hopes to reinvent its pharmaceutical industry. to produce growth rates of up to 10% annually in
The pharmaceutical industry is one with high the coming years. Thus, there is a niche market
technological benchmarks that require massive for Chinese and foreign MNCs to target in this
amounts of research and development (R&D). segment. China’s Over the Counter (OTC) medicine
However, with such high investment costs, most market remains one of the most attractive in
Chinese companies are simply priced out. Beijing’s the APAC region with a significant market share.
ultimate goal for the domestic pharmaceutical However, government focus on improving access
industry is to create national champion companies to prescription medicines will reduce demand for
that can dominate the Chinese market, compete, OTC drugs leading to an erosion of the domestic
and beat foreign competitors, and begin to take market share over the long term. As OTCs make up
market share abroad. The 14th Five-Year Plan, between 30% and 40% of total industry revenue in
shifts from calling on Chinese pharmaceutical developed countries, inexpensive OTC production
producers to “follow innovation” to “becoming in China for global markets is still expected to offer
leaders in innovation.” Similarly, an aim of reaching significant opportunities in future years. There
an average annual increase of more than 10% in are four major channels for pharmaceutical sales
R&D investment across the industry was set as for China, urban and rural hospitals, drugstores,
a target, and investors are encouraged to invest online sales, and exports (Daxue Consulting).
in Chinese pharmaceutical R&D. Along with the
transformation of the vocational education sector, Internet Hospital
pharmaceutical and biomedicine talent cultivation
was put on the agenda. In view of the international More than 1,700 internet hospitals have
pharmaceutical market, the 14th Five-Year Plan been approved and established in China and
stipulates increasing cooperation with overseas integrated online and offline medical service has
research institutions and drug companies. Chinese formed basically, according to National Health
pharmaceutical manufacturers have largely Commission. Online medical services have
focused on the production of basic chemicals, developed fast in China since the outbreak of
intermediates, and active pharmaceutical the COVID-19 pandemic, with internet hospitals
ingredients (APIs), with roughly 4,000 API accumulating in number. As of the end of 2021,
manufacturers in the country. In a relatively short online hospitals have served 298 million people,
period of time, China has become the leading increasing by 83.08 million compared to 2020.
global supplier of APIs in terms of volume. More Online hospital users have accounted for 28.9% of
recently, Chinese manufacturers have focused the total number of Chinese netizens. As of 2022,
on the development and production of finished more than half of the second-level and above public
pharmaceutical products (FPPs), primarily to hospitals in China have developed medical service
serve the domestic market, but with increasing pre-registration and among them, over 4,800
attention to export markets. Generic drugs are can provide prior-consultations, reducing cross-
the mainstay of China’s pharmaceutical industry. infection caused by gathering. Meanwhile, remote
Due to its large market demand, this segment’s medical services have covered all prefecture-level
revenue is expected to increase strongly in future cities and more than 90% of counties (cities and
years, as China will utilize generics in its public regions), providing high-quality medical resources
insurance plan to minimize overall healthcare and improving the medical service capability at
expenditures. Patent medicine is the second- grassroot-level hospitals (Dongfang).
largest product segment, with high-profit margins.
However, high R&D costs, long R&D periods, and Individual provinces are making efforts to
long return periods are involved in the production provide internet hospitals to their residents. For
of originator drugs. State policy aims to increase instance, Guangdong province has taken the lead
the share of innovative domestically created in the Chinese mainland in opening an internet
originator drugs, but rapid policy changes may hospital for occupational diseases, offering online
pose a threat in terms of long-term profitability.
294
China’s rapidly aging population. As part of the As of 2022, foreign companies are still the main
“Made in China 2025” industrial plan, China participants in this niche market, which is expected
hopes to reinvent its pharmaceutical industry. to produce growth rates of up to 10% annually in
The pharmaceutical industry is one with high the coming years. Thus, there is a niche market
technological benchmarks that require massive for Chinese and foreign MNCs to target in this
amounts of research and development (R&D). segment. China’s Over the Counter (OTC) medicine
However, with such high investment costs, most market remains one of the most attractive in
Chinese companies are simply priced out. Beijing’s the APAC region with a significant market share.
ultimate goal for the domestic pharmaceutical However, government focus on improving access
industry is to create national champion companies to prescription medicines will reduce demand for
that can dominate the Chinese market, compete, OTC drugs leading to an erosion of the domestic
and beat foreign competitors, and begin to take market share over the long term. As OTCs make up
market share abroad. The 14th Five-Year Plan, between 30% and 40% of total industry revenue in
shifts from calling on Chinese pharmaceutical developed countries, inexpensive OTC production
producers to “follow innovation” to “becoming in China for global markets is still expected to offer
leaders in innovation.” Similarly, an aim of reaching significant opportunities in future years. There
an average annual increase of more than 10% in are four major channels for pharmaceutical sales
R&D investment across the industry was set as for China, urban and rural hospitals, drugstores,
a target, and investors are encouraged to invest online sales, and exports (Daxue Consulting).
in Chinese pharmaceutical R&D. Along with the
transformation of the vocational education sector, Internet Hospital
pharmaceutical and biomedicine talent cultivation
was put on the agenda. In view of the international More than 1,700 internet hospitals have
pharmaceutical market, the 14th Five-Year Plan been approved and established in China and
stipulates increasing cooperation with overseas integrated online and offline medical service has
research institutions and drug companies. Chinese formed basically, according to National Health
pharmaceutical manufacturers have largely Commission. Online medical services have
focused on the production of basic chemicals, developed fast in China since the outbreak of
intermediates, and active pharmaceutical the COVID-19 pandemic, with internet hospitals
ingredients (APIs), with roughly 4,000 API accumulating in number. As of the end of 2021,
manufacturers in the country. In a relatively short online hospitals have served 298 million people,
period of time, China has become the leading increasing by 83.08 million compared to 2020.
global supplier of APIs in terms of volume. More Online hospital users have accounted for 28.9% of
recently, Chinese manufacturers have focused the total number of Chinese netizens. As of 2022,
on the development and production of finished more than half of the second-level and above public
pharmaceutical products (FPPs), primarily to hospitals in China have developed medical service
serve the domestic market, but with increasing pre-registration and among them, over 4,800
attention to export markets. Generic drugs are can provide prior-consultations, reducing cross-
the mainstay of China’s pharmaceutical industry. infection caused by gathering. Meanwhile, remote
Due to its large market demand, this segment’s medical services have covered all prefecture-level
revenue is expected to increase strongly in future cities and more than 90% of counties (cities and
years, as China will utilize generics in its public regions), providing high-quality medical resources
insurance plan to minimize overall healthcare and improving the medical service capability at
expenditures. Patent medicine is the second- grassroot-level hospitals (Dongfang).
largest product segment, with high-profit margins.
However, high R&D costs, long R&D periods, and Individual provinces are making efforts to
long return periods are involved in the production provide internet hospitals to their residents. For
of originator drugs. State policy aims to increase instance, Guangdong province has taken the lead
the share of innovative domestically created in the Chinese mainland in opening an internet
originator drugs, but rapid policy changes may hospital for occupational diseases, offering online
pose a threat in terms of long-term profitability.
294
