| By Daisy Zhang, Asia Manufacturing Pharma |
| Tuesday, 12 August 2008 |
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As China’s manufacturing sector faces precarious times amid the appreciation of the yuan, rising labor costs, increased bank rates as well as adjustments to the country’s export tax rebate policy, so does the Chinese pharmaceutical industry.
Sixty per cent of the small and medium pharmaceutical companies in Zhejiang province are on the verge of bankruptcy, mainly due to the soaring manufacturing costs arising from a combination of increasing costs for raw materials and labor along |
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with the yuan’s appreciation, among others, Zhao Bowen, chairman of Zhejiang Provincial Pharmaceutical Industry Association, said recently in an interview.
Zhejiang province has been a leader in China in terms of pharmaceutical production for many years. In 2007, Zhejiang became the second largest exporter of pharmaceutical products in China, with exports totaling RMB14 billion (approx US$2 billion). Zhejiang Hisun Pharmaceutical, Zhejiang Huahai Pharmaceutical and Zhejiang Medicine, among other |
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publicly traded pharmaceutical companies in the province, have always been favored by securities investors.
With the ever-changing financial policies in China, however, these market players have been brought to their knees by the skyrocketing costs and squeezed margins.
The appreciation of the yuan, for example, has directly affected the profitability of export-oriented pharmaceutical companies, while the higher lending rates have led to a heavier interest burden on these companies.
In recent years, China has adjusted the export rebate policy targeting pharmaceutical products several times. The export rebate rate on paclitaxel has been reduced to zero, while that on the bulk of APIs for Western medicines has declined to 5 per cent, further squeezing margins for drug makers, Zhao added. Hangzhou Minsheng Pharmaceutical Group, for instance, saw an increase of RMB2.82 million (approx US$411,000) in export costs during the second half of 2007.
In addition, the increasing prices for energy resources and raw materials as well as hikes in labor costs as a |
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result of the implementation of the new Labor Contract Law have put much pressure on China’s pharmaceutical market players.
China’s pharmaceutical companies are also facing challenges from their foreign rivals, who are striving to gain a larger share of the Chinese market through research and development. For this reason, China’s domestic companies are being forced to increase their investment in R&D and technology innovation.
The oversight authorities in China are urged to raise the barriers to entry for pharmaceutical manufacturers in a move to prevent excessive competition, while putting in place incentive policies to encourage mergers and acquisitions as well as strategic alliances in the pharmaceutical industry, said Zhao.
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