Global Insight Perspective | |
Significance | Following the release of sales figures for its four key sectors, the overall industry appears to be in robust health, with sales growth frequently reaching in excess of 20% and profits showing even greater increases. |
Implications | The headline figures mask the fact that a significant proportion of companies have reported losses. This is especially true in the case of chemical drug manufacturers (28.33% of which have suffered losses) and in the case of manufacturers of finished TCM products (27.46% of which have suffered losses). |
Outlook | The overall sharp rise in profits has been attributed to new initiatives that have been introduced in order to outlaw corruption, which have led to a curtailing in the number of kickbacks and free gifts to doctors. Large-scale manufacturers are likely to continue to derive benefits from this change in culture, although further consolidation in the industry is inevitable as smaller operators continue to be squeezed out. |
According to NBS figures published by Interfax, China's chemical drug industry generated sales of 107.06 billion yuan (US$14.26 billion) in the first eight months of the year, which corresponds to a year-on-year (y/y) increase of 23.73%. Meanwhile, profits shot up by 60.61% y/y to reach 11.08 billion yuan. The chemical drug industry's assets totalled 184 billion yuan (+14.48%), while the number of employees rose by 3.63% y/y to 362,712.
China's biopharmaceutical industry enjoyed a similar upsurge in the year to August, with sales increasing by 24.13% y/y to reach 31.78 billion yuan. Profits amounted to 3.60 billion yuan, which corresponds to a y/y increase of 37.2%. The industry's gross output value reached 35.13 billion yuan (+24.60%), while exports grew by 17.2% y/y to 5.18 billion yuan.
Over the same period, the industry for finished TCM products was also very buoyant, with sales up by 19.42% y/y to reach 80.56 billion yuan. Profits surged by 52.74% y/y to reach 8.79 billion yuan. The finished TCM industry's total assets amounted to 177.92 billion yuan (+8.80%), while the number of employees in the industry rose to 358,051 (+0.4%).
The sales statistics of these three sections of the pharmaceuticals industry mirror those of the active pharmaceutical ingredient (API) industry, whose year-to-August statistics were reported by Interfax previously (see China: 15 October 2007: API Sales in China Grow by 35% Y/Y in August, NBS Reveals).
China: Sales and Profits of Pharmaceutical Industry, Year to End-August 2007 | ||||
Sales (bil. Yuan) | % Growth | Profits (bil. Yuan) | % Growth | |
APIs | 95.47 | 34.78 | 6.30 | 36.10 |
Chemical Medicines | 107.06 | 23.73 | 11.08 | 60.61 |
Biopharmaceuticals | 31.78 | 24.13 | 3.60 | 37.20 |
Finished TCM | 80.56 | 19.42 | 8.79 | 52.74 |
Source: National Bureau of Statistics | ||||
Despite Strong Headline Figures, a High Proportion of Manufacturers Suffer Losses
Despite the industry's overall picture of health, 323 chemical drug manufacturers—representing 28.33% of the total—reported losses amounting to a combined 839 million yuan. That said, this figure is 7.93% lower than in the corresponding period last year. Large sections of the finished TCM industry also suffered losses, with 365 manufacturers—representing 27.46% of the total—losing a combined total of 595 million yuan. In this case, the figure was 4.18% lower than in the corresponding period of 2006.
Meanwhile, the NBS also breaks down sales for each sector of the pharmaceutical industry into individual provinces. In terms of chemical drugs, the dominant province is Jiangsu, with sales of 20.7 billion yuan (+25.91%) in the year to August. In the biopharmaceutical sector, the two dominant provinces are Shandong and Zhejiang, with respective sales of 7.5 billion yuan (+36.10%) and 5.5 billion yuan (+19.52%). In the finished TCM sector, the leader is Jiangxi, with sales of 8.8 billion yuan (+39.04%). However, it is closely followed by Jilin (7.1 billion yuan; +23.41%), Guangdong (6.9 billion yuan; +14.82%), and Shandong (6.5 billion yuan; +22.50%).
Outlook and implications
One of the most glaring aspects of the newly released figures is that, although sales have grown strongly, growth in profits is even more pronounced. The upsurge in profits has been attributed to a reduction in costs due to the Chinese administration's ongoing battle against corruption. In particular, companies are now giving far fewer kickbacks and free gifts to doctors. However, smaller operators lack the leverage to dispense with kickbacks, and so are finding it increasingly difficult to compete with large manufacturers. In this context, further industry consolidation is inevitable.
Meanwhile, the sales figures themselves are broadly in line with the mid-year figures published by the Southern Medicine Economic Research Institute (SMERI; see China: 30 August 2007: Pharmaceutical Manufacturing Sector in China Enjoys Strong H1 Growth, Report Reveals).