Fresh Reports of Tough Conditions in Chinese Sector

A survey conducted by a domestic drug sector group, the China Pharmaceutical Industry Association, appears to confirm recent official data indicating that many local drugmakers are under severe pressure. The data shows an 11.5% fall in profit among the country's "major chemical drug manufacturers" in 2004, although production of basic drugs appears to have risen in the year by as much as 10%.

The association reports that its members' crude drug exports grew 17.5% in 2004, accounting for slightly more than half of production. Output of cancer drugs, genitourinary therapies and skin treatments grew by more than 30%, with vitamins production rising by a similar amount. The anti-infectives segment expanded by 6.8% in 2004.

Much of the decline in profitability was attributed to a combination of rising manufacturing costs, falling prices and a cut in export rebates last year. Notably, the figures appear to confirm the findings of an earlier survey of the state-controlled sector, which highlighted slowing sales growth and a 10.6% rise in production costs to CNY15.19bn (US$1.84bn) in 2004. However, official profit figures for the state-run industry were far more optimistic, claiming a 23.9% year-on-year rise to CNY780mn (US$94.24mn) last year.

It is acknowledged that operating conditions for many Chinese companies are getting tougher, as the industry is widely expected to consolidate amid a glut of basic drugs. While overall sales may be rising, a picture of pressured margins appears more convincing as competition intensifies. Without access to capital in order to finance much-needed modernisation, the many local companies reliant on standardised, low-tech drugs face a very difficult period.