The Ministry of Commerce has given the nod to the nation's first pharmaceutical distribution joint venture ahead of the date China promised to the World Trade Organization (WTO), reflecting the authority's desire to learn from the foreign business.

The joint venture, which involves the China Xinxing Medicine Corp and Switzerland's Zuellig Pharma, is set to open in Beijing in September.

China had promised to open the sector to foreign investors by December 1 next year.

The venture was approved by the Ministry of Commerce on May 16 as a pilot after getting the nod from the State Council, China's cabinet.

Xinxing Medicine General Manager Liu Zhongyi said the government pinned its hopes on the joint venture, which may set an example for domestic companies.

The venture, called the Zuellig Xinxing Pharmaceutical Co, will last for 30 years and have a total investment of 120 million yuan (US$14.5 million), with China Xinxing holding a 51 per cent stake and Zuellig Pharma the remaining 49 per cent.

Liu said his company will inject its current assets and cash into the venture and the Swiss side will pay for all shares by cash.

The major business of the joint venture is to act as agents for medicine and medical products, Liu said.

Xinxing Medicine is a State-owned medicine enterprise with a registered capital of 113 million yuan (US$13.65 million) and an annual sales volume of 300 million yuan (US$36.25 million).

Zuellig Pharma, although based in Switzerland, carries out its main business in the Asia-Pacific region.

As a professional distributor of pharmaceutical and healthcare products, Zuellig serves over 125 multinational pharmaceutical manufacturers with an annual sales income of US$3 billion, according to Liu.

Under China's WTO agreements, medicine distributors are being given more time to prepare for the challenges than retailers and wholesalers in other sectors since they are relatively weaker.

There are currently more than 16,000 medicine distribution companies in China and most of them are uncompetitive as the industry has been controlled by the government for decades.

It is unusual for the industry to be crowded with so many small companies, compared with the situation in the United States where there are around 200 firms in this sector, Liu said.

By introducing the pilots in advance, the government expected to give the domestic industry time to gradually accept the impact and update itself, Liu said.

Liu expects the entrance of foreign counterparts to ignite a round of industry reorganization.

The government has said earlier joint-venture trials will be limited to the key cities of Beijing, Guangzhou and Shanghai.

Under the trials, any foreign trader can apply to the Ministry of Commerce to set up a joint venture if the company's assets reached US$200 million the year before the application and the annual turnover reached at least US$2 billion in each of the previous three years.

The Chinese equity must be at least 51 per cent of the venture.

(China Daily June 6, 2003)