China Pharmaceuticals and Healthcare Report Q4 2012

Business Monitor International
October 3, 2012
122 Pages - SKU: BMI4882489
Countries covered: China

BMI View: China will remain as one of the key emerging pharmaceutical market in Asia, if not the worldas the country prepares itself for deeper medical reforms and the expansion of its National EssentialDrug List. Key drivers of its growth include an increasingly ageing but affluent population and thetransition towards a higher burden of non-communicable disease (eg, diabetes and cancer). We cautionthat the business environment will be less attractive to pharmaceutical manufactures as opposed tomedical devices suppliers or private healthcare provides should government enforce further costcontainmentpolicies.

Headline Expenditure Projections

Pharmaceuticals: CNY432bn (US66.7bn) in 2011to CNY521bn (US$81.4bn) in 2012; +20.5%in local currency and +21.7% in US dollar terms. Forecast broadly in line with Q312.

Healthcare: CNY2313bn (US$358bn) in 2011 to CNY2,600bn (US$406bn) in 2012; +12.4% inlocal currency terms and +13.6% in US dollar terms. Forecast broadly in line with Q312.

Medical Devices: CNY117bn (US$18.2bn) in 2011 to CNY146bn (US$22.8bn) in 2012;+24.1% in local currency terms and +25.3% in US dollar terms. Forecast broadly in line withQ312.

Risk/Reward Rating: China maintains its rank at fourth out of the 18 key markets on ourproprietary index with a score of 61.2. Its large population coupled with the country'scommitment to provide healthcare for its people meant long-term growth potential forpharmaceutical and healthcare investors despite a relatively weak political climate comparedwith more developed countries.

Key Trends And Developments

In August 2012, the Chinese government launched a new regulation on the manufacturing ofexcipients, or pharmacologically inactive substances that are used to carry the active ingredientsof medication. The launch follows a scandal that involved contaminated medicine capsules. Thenew regulation is aimed at managing pharmaceutical excipients. Under the new regulation, theState Food and Drug Administration and its branches will increase standards for excipients whilegiving approvals to new drugs. The regulation will also need excipients to be registered andsanctioned. Meanwhile, their manufacturers will be required to secure production licences fromauthorities.



The State Food and Drug Administration (SFDA) announced on August 3 2012 that 76 localofficials failed to prevent and end the manufacturing of contaminated drug capsules in China.,The officials, who have been punished, were working with drug supervision agencies in fiveprovinces and the municipality of Chongqing. However, details regarding the punishments havenot been disclosed.

BMI Economic View: In line with our near-term outlook for price pressures to continue to ease acrossthe board in China, headline consumer price inflation (CPI) fell to a two-and-a-half-year low in July,coming in at 1.8% year-on-year (y-o-y), down from 2.2% in June. The country has witnessed consumerprice disinflation since the headline rate peaked at 6.5% y-o-y in July 2011. Broadly speaking, the laggedimpact of the sharp drop in money supply growth seen over the past few years remains in effect. (Forperspective, M1 money supply growth stood at 4.7% y-o-y as of June – well below the 39.0% highreached in January 2010.)

BMI Political View: As China prepares to transfer power to the fifth generation of leaders between late2012 and early 2013, the government's top priority will be maintaining Communist Party of China (CPC)unity in the wake of Chongqing party secretary Bo Xilai's dismissal in March, and upholding socialstability as the economy moves ever closer to a 'hard landing'. Meanwhile, outgoing President Hu Jintaowill seek to preserve his influence after his retirement. Over the longer term, the CPC's internal faultlinescould widen in tandem with the economy's growing contradictions.



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