According to the deal, Shanghai Huayi Group Co. and Shanghai Industrial Investment Group Co., 50-50 percent shareholders of the targeted Shanghai Medicine Group Co., will each hand over 20 percent of shares to the China Huayuan Group. The three investors will then recapitalize their investment by a ratio of 4:3:3 (Huayuan: Huayi: Industrial Investment).

Huayuan will become the largest shareholder of the company, owning 40 percent, following the capital increase.

The state-owned medicine group owns 54 subsidiary companies and a listed company, and last year its industrial value accounted for7.5 percent of China's total medicine industry, its sales revenues8 percent at 13.6 billion yuan (US$1.6 billion), and its exports ranked first in the country, according to statistics.

Huayuan ranks 78th in China's top 500 companies and began its medicine business in 1999. It owns two listed companies and many medicine factories in Beijing, Shanghai and in northeast and east China. Huayuan's medicine output has reached 20 percent of the group's total in the first half of this year.

Zhou Yucheng, president of Huayuan, said the deal would be reciprocal and help build a bellwether in the Chinese medicine industry that would bite into the global market.

Huayuan did not rule out the possibility of resuming its stalled cooperation, proposed before this week's deal, with another medicine giant Harbin Medicine Manufacturing Group in northeast China. It would continue to invest in the acquisition and restructuring of under performing medicine companies, sources said.

(Xinhua News Agency August 22, 2002)