China’s Pharmacy Market to Open in 2003

China's pharmaceutical distribution sector will be fully opened to foreigners in 2003, in accordance with the country's World Trade Organization (WTO) commitments.

In 2003, foreigners will be permitted to operate both retail and wholesale businesses without capital and geographical limitations in China.

During the transition period, Sino-foreign joint venture trials will be run in key cities including Beijing, Shanghai and Guangzhou.

Yu Mingde, deputy director with the Economic Operation Department of the State Economic and Trade Commission (SETC), believes opening up the market will inspire domestic pharmaceutical distributors to speed up business expansion efforts and strengthen foreign counterparts' confidence in exploring China's vast market.

According to regulations drafted by the SETC and the Ministry of Foreign Trade and Economic Cooperation, non-wholesale foreign medicine retailers are now permitted to set up joint ventures in China.

Foreign partners must achieve an annual sales volume surpassing US$2 billion for three consecutive years before applying to set up a joint venture and total assets must exceed US$200 million prior to their application.

Meanwhile, the two figures on the same conditions for the Chinese side shall be over 50 million yuan (US$6.02 million) and 300 million yuan (US$36.14 million) respectively.

The requirements for domestic companies in the western and central regions are set at 30 million yuan (US$3.61 million) and 200 million yuan (US$24.10 million) respectively.

Furthermore, if the domestic operator is a foreign trade enterprise, its annual foreign trade volume shall exceed US$50 million for three consecutive years before the application, among which US$30 million should be gained from exports.

And if the Chinese side is a pharmaceutical wholesaler, the domestic equity for the joint venture shall be more than 51 percent.

Analysts said that the coming arrival of foreign enterprises will inevitably deal a blow to the country's relatively fragile domestic competitors.

China's medicine distribution industry, a sector closely related to people's lives and health, has been controlled by the government for decades, and chain pharmacies have appeared only in the past five years.

Zhang Zhengrong, general manager of Jinxiang Pharmaceutics Shop -- one of China's leading chain pharmacies with over 60 branches around the country -- said that the challenges posed by the market opening far outweigh the opportunities. Zhang cited the small scale, immature management system and poor service of domestic players as their main weaknesses.

Jinxiang's sales volume for this year is estimated at 200 million yuan (US$24.10 million), equal to that of small pharmaceutical retailers in the United States, said Zhang.

However, with the introduction of foreign capital, talent, high-quality services and management skills, Chinese competitors may take a short cut to catching up with the world's leading operators.

"Moreover, we have the unique advantages of traditional Chinese medicine, market knowledge and culture familiarity, which is crucial in this specific sector,'' Zhang added.

Liu Min, a 34-year-old Beijing resident, said that she prefers to buy traditional Chinese medicine from domestic shops and does not know where to buy Western medicine.

"I have no foreign medicine shops in mind,'' Liu said.

Sources from the SETC revealed that the negotiations for foreign giant pharmaceutics retailers setting up joint ventures in Beijing and Shanghai have been ongoing for several years and that foreigners were happy to learn that agreements will be realized soon.

(China Daily November 27, 2001)

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