When localizing a brand name, companies need to pay attention to many factors, including phonetics, semantics, characters, tones, and local dialects. Daxue consulting has a proven four-step method for choosing a brand name in Chinese, which you can learn about here.

Different approaches to Chinese brand names in the pharmaceutical industry

There are several ways to choose Chinese brand names for foreign pharmaceutical brands. Just as when translating foreign names, companies can translate the name either according to its semantic meaning, or according to its phonetic sound. In some cases, it is possible to combine both methods into one translation.  

This case study includes the analysis of 10 companies in China’s pharmaceutical industry. Namely: GlaxoSmithKline Plc, Sanofi, Merck & Co Inc, F Hoffmann-La Roche Ltd, Johnson & Johnson, Bayer AG, AbbVie Inc, AbbVie Inc, Pfizer Inc and Eli Lilly and Co. It includes the analysis of how they choose a Chinese brand name, as well as the names of their products in the Chinese market.

Phonetic translations

Phonetic translation is the easiest way for translation and the most common localization method. A common slip up is when companies simply transliterate their name without thinking about the meaning and sound of the characters. As a result, the character choices, while having a good sound, may have unfit meanings or tones that do not roll of the tongue easily. However, when giving Chinese brand names in the pharmaceutical industry, companies often use this method, combined with choosing the right characters, as it is a very specific market.

GlaxoSmithKline Plc

Source: GSK, GSK website page in Chinese

Original name of this English company is GlaxoSmithKline Plc. In Chinese the brand has the name “葛兰素史克” (“Gelansushike”) / GSK.

Its antiviral medicine Viread in Chinese has the name: “韦瑞德” (“Weiruide”), which sounds similar to the original name.

Such as in this case, the original foreign name has sounds that do not exist in Mandarin, such as the V sound. However, “V” sounds in brand or product names are often transcribed to “W” in Mandarin.

Sanofi

Source: Sanofi, Sanofi website page in Chinese

The French company Sanofi in Chinese has a name “赛诺菲” (“Sainuofei”).

Its antiepileptic medicine Depakine in Chinese is “德巴金” (“Debajin”). “De” might give an impression of “Germany”. However, the French flag is on the packaging, conveying a message that the product made in France.  

Source: Taobao, Depakine in the Chinese market

Merck & Co Inc

Source: Merck, Merck website page in Chinese

The Chinese name of the American company Merck & Co Inc is “默克” (“Moke”). Their popular product Vigantol does not have a Chinese name. Some overseas flagship stores sell this product and it receives hot discussion on social media. 

Source: Taobao, Vigantol in the Chinese market

F Hoffmann-La Roche Ltd

Source: La Roche, La Roche website page in Chinese

A company La Roche from Switzerland has its Chinese name “罗氏” (“Luo Shi”). Some of their products also have names based on phonetic approach. For example, the product Rocaltrol which contains vitamin D metabolites, in Chinese has a name “罗盖全” (“Youjiale”). It uses same character “Luo” as ”Luo” in the company name. Another La Roche product Madopar in Chinese is named “美多芭” (“Meiduoba”).

Johnson & Johnson

American company Johnson & Johnson does not use phonetic approach for its brand naming in China. However, it applies this approach to some of its products. For example, Band-aid in Chinese sounds like  “邦迪” (“Bangdi”). Another product which original name is Motrin has “美林” （ “Meilin”) as a Chinese name.

Source: Taobao, Band Aid and Motrin in the Chinese market

Bayer AG

Source: Bayer AG, Bayer website page in Chinese

German pharmaceutical company Bayer in Chinese sounds like “拜耳” (“Bai Er”). Besides, some of Bayer China’s products also named based on the phonetic approach. For example, Bayaspirin has its Chinese name “拜阿司匹灵” (“Baiasipiling”). It uses same character “Bai” as ”Bai” in the company name. Its product Canesten also has a Chinese name  “凯妮汀”（ “Kainiting”), which sounds similar to the original.

AbbVie Inc

Source: AbbVie, AbbVie website page in Chinese

American company AbbVie in Chinese has a name   “艾伯维” (“Aibowei”). However, most of its products name represent “phonetic + evocative” approach.

Novartis

Novartis which based in Switzerland does not use phonetic approach to its brand name in China. However, its products Diovan has Chinese name “代文”(“Dai Wen”), which sounds close to original.  Same for Trileptal with the Chinese name: “曲莱” (“Qu Lai”).

Source: Baozhilin, Diovan and Trileptal in the Chinese market

Phonetic approach for prescription drugs

All drugs mentioned previously are  over-the-counter drugs, meaning they are aimed at ordinary consumers and their names are casual-sounding, to be clearer for customers. However, for comparison, we also looked at prescription drugs, where the marketing is not just directed to consumers, but also medical professionals. What is interesting thing is that some companies adapt their names of prescription drugs for the Chinese market in not-professional-sounding, rather casual-sounding way.

AbbVie Inc

AbbVie’s medicine Zemplar, which helps to treat secondary hyperparathyroidism in people with chronic kidney failure, has a Chinese name “胜普乐” (“Shengpule”). “Sheng” means “victory”, “Pu” means “common” and “Le” means “happiness”. As we can see, it has no connection with the effect which this drug has or with ingredients it contains.

Another drug Humira, which used to treat arthritis, Crohn’s disease and psoriasis, in the Chinese market has a name “修美乐” (“Xiumeile”). It sounds close to original and has positive meaning: “Mei” and “Le” mean “happy” and “beautiful”.

Source: Taobao, Humira in the Chinese market

Sevofrane’s name in Chinese is “喜保福宁” (“Xibaofuning”) “Xi”, “Bao”, “Fu”, “Ning” are all positive words standing for happiness, safe and good health. It is a volatile liquid anesthetic, used during serious operations. The name sounds surprisingly casual and light-hearted considering the seriousness of the product.

Eli Lilly and Co

This company produces Olumiant, which helps to reduce pain and stiffness in Chinese sounds like “艾乐明” (“Aileming”).  “Le” means “happy” and “Ming” means “bright”. The name conveys a positive message.

Pfizer Inc

Calcium channel blocker Norvasc in Chinese sounds like “络活喜” (“Luohuoxi”). “Luo” means “Merridian”, “Huo” means “alive” and “Xi” means “happiness”. “Luohuoxi” conveys a positive message and might be reliable in curing heart diseases and unblock blood vessels. It also has casual-sound name, although being a serious drug, which requires prescription.  

Source: Taobao, Norvasc in the Chinese market

Phonetic and evocative names

In case of “phonetic + evocative” method, translation covers not only the name itself, but also the signal that the product or service carries. Adaptation taking into account the meaning and sound is the most difficult and successful option, when the creators manage to preserve the pronunciation. Besides, they put the original meaning into the translation and avoid negative perception of images.

Sanofi

Sanofi also uses this approach. For example, its product Aprovel has a Chinese name “安博维” (“Anbowei”), where “an” means “safe”. 

Source: Taobao, Aprovel in the Chinese market

Merck & Co Inc

Merch also has some product names which combine phonetics and meaning. For instance, Glucophage has a Chinese name: “格华止” (“Gehuazhi”). “Zhi” means “stop”. Since the main function of the medicine is to deal with diabetes, “Zhi” means that the product can stop the disease and keep balance of body.

Another product Euthyrox has its Chinese name “优甲乐” (“Youjiale”). “You” and “Le” means great and happy. “Jia” is the same character with “Jia” in “Jiazhuangxian” (thyroid). It conveys a message that the product can do good to thyroid diseases.

Source: Taobao, Glucophage and Euthyrox in the Chinese market

F Hoffmann-La Roche Ltd

The product of this company Xeloda in Chinese sounds like “希罗达” (“Xiluoda”). It uses same character “Luo” as ”Luo” in the company name. “Xi” represents “hope”.

Source: Taobao, Xeloda in the Chinese market

Johnson & Johnson

Source: Johnson&Johnson, Johnson&Johnson website page in Chinese

Johnson & Johnson uses “phonetic + evocative” approach for its brand name in China. In Chinese it is “强生” (“Qiang Sheng”). “Qiang” means “strong” and “sheng” means “life”. “Qiangsheng” conveys a message of “make life stronger”. 

Same approach is for some products. For example, Acuvue’s Chinese name is “安视优” (“Anshiyou”).

“Anshiyou” stands for  “having stable and better eyesight”.

Bayer AG

Bayer uses this approach for Redoxon product. Chinese name is “力度伸” (“Lidushen”). “Lidu” means “strength and power”. “Shen” means “strengthen”. The name conveys a message that people can gain more power after eating the vitamin tablets.

Source: Taobao, Redoxon in the Chinese market

Novartis

Source: Novartis, Novartis website page in Chinese

The Chinese brand name of Novartis is “诺华” (“Nuo Hua”). “Nuo” means “promise” and “Hua” means “China”. Nuo Hua would like to make a promise to China, keep providing innovative products and contribute to the improvement of health and living quality of Chinese people.

Its product Lucentis’s Chinese name is “诺适得” (“Nuoshide”). “Nuoshide” adopt phonetic and evocative strategy by using the same character “Nuo” as the company name “Nuo Hua”.  “Shi” and “De” represent for “comportable”. 

Pfizer Inc

Pfizer has some products named according to “phonetic + evocative” approach. For instance, Diflucan’s Chinese name is “大扶康” (“Dafukang”). “Da” means “big”, “Fu” means “help” and “Kang” represents “a good health”. Another product Lipitor – “立普妥” (“Liputuo”) in Chinese. “Li” and “Tuo” stands for “a high speed”. “Liputuo” means that the problem can be solved in a short time.

Eli Lilly and Co

Source: Eli Lilly, Eli Lilly in the Chinese market

American brand Eli Lilly and Co is another example of combining semantics and meaning. Its Chinese name is  “礼来” (“Li Lai”).  “Li” means “courtesy and politeness” in Chinese and it is an important virtue in Chinese society.  “Lai” means “come”. “Li Lai” conveys a message that the company is gentle and is willing to do good to the Chinese society. This brand is also very special, because of its visual identity. Typography and name totally stand out from the competition in the Chinese market.  Their name is something that you would expect seeing in the hospitality industry for instance (“courtesy/politeness is coming”). Same for their typography, hand-written, as it relates to tailor-made/crafted/personalized products.

Source: JD, Ceclor in the Chinese market

Its products Ceclor’s Chinese name is “希刻劳”(“Xikelao”). “Xi” means “hope”. Zyprexa’s Chinese name is “再普乐” (“Zaipule”). “Zai” means “again” and “Le” means “happiness”. The name conveys a positive message. 

Phonetic and descriptive names

This approach to the Chinese brand names in the pharmaceutical industry means that the name gives a hint of the effect of the product. At the same time, there is a certain parallel in the phonetics of the word with the original name.

GlaxoSmithKline Plc

This company uses this approach to the Requip, which helps to treat Parkinson disease. The Chinese name is “力备” (“Li Bei”). “Li Bei” means to have the power, which can reflect the function to release Parkinson symptoms.

Source: Taobao, Requip in the Chinese market

AbbVie Inc

Its product Calcijex has a Chinese name: “溉纯” (“Gai Chun”). “Chun” stands for “pure”. Since the product is a liquid used for injection, it gives people a sense of pureness.

Descriptive

This approach to the Chinese brand names in the pharmaceutical industry adapts the brand name so that Chinese consumers understand what effect the product has. It doesn’t have to sound similar to the original name.

GlaxoSmithKline Plc

The example of this approach is company’s product Avamys. In Chinese it is “鼻眼适”(“Biyanshi”). “Biyanshi” means make both nose and eyes comfortable, which can represent the core function of the product.

Source: Taobao, Avamys in the Chinese market

Key Takeaways of pharmaceutical brand naming in Chinese

• Most of the Chinese brand names in the pharmaceutical industry apply phonetic approach. It could be explained by the fact that it is simpler and does not require spending time finding the characters that convey the essence of the product.
• Some companies in the pharmaceutical industry in China use “phonetic + evocative” approach. It helps Chinese customers to better understand what effect product has. However, it is harder to come up with the brand name which sounds similar in Chinese language and has a clear meaning.
• The descriptive approach helps Chinese customers to better understand the product, but it has little correlation with the original brand name.

Vitamin and health supplements market report by daxue consulting from Daxue Consulting

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Bayer AG is a global enterprise with core competencies in the life science fields of health care and agriculture. Bayer, headquartered in Leverkusen, Germany, is one of the most famous companies among the world’s top 500 enterprises. In 2019, the total number of Bayer’s employees was 103,824 and the annual sales were 43.5 billion euros. Bayer’s products cover high polymer material, medical and health products, chemical industry products, and agricultural products. Bayer puts a lot of emphasis on its research and development. Its capital expenditures amounted to 2.9 billion euros, R&D expenses to 5.3 billion euros in 2019.

Bayer’s current state in China

Bayer entered the Chinese market in 1982. Bayer has operated its business in Hong Kong, Taiwan, and mainland China. Currently, China has become one of the largest markets for Bayer globally and an important driver for the growth of Bayer’s business. In 2019, Bayer’s sales in Greater China reached 3.724 billion euros. As of December 2019, Bayer has more than 9,000 employees in Greater China.

Bayer is deeply rooted in the Chinese market

Source: Quanjing, China’s pharmaceutical industry

The Chinese market is a crucial driver of Bayer’s growth. Bayer complies with the policy and regulations of China, exploring its business in line with specific rules in China. Two examples that Bayer China firmly supports China’s regulations are as follows.

Bayer cuts price largely to win contracts with the Chinese government

In 2018, China’s government launched the centralized procurement program, in order to lower drug prices. A lot of drug companies are invited to place bids after the number of different kinds of drugs that will be needed in the public hospitals are determined by China’s health care security authorities. Under this centralized procurement program, the drug company which offers the lowest price will become the supplier of a certain drug. The Chinese government aims to reshuffle China’s pharmaceutical industry through the price war, and both foreign and domestic players have to come up with survival strategies to secure the market.

According to Chinese media, in January 2020, 77 pharmaceutical companies won contracts with the government by cutting drugs’ prices by 53% on average. Among them, Bayer made a big offer in the bidding. For example, it cut the price of its off-patent acarbose for diabetes (which affects a large part of the Chinese population) by almost 90%, and the new price is 78.5% lower than the price ceiling set by the Chinese government in December 2019.

By adopting an ultra-low-price strategy in the price war, Bayer hopes to expand its market share of some drugs like acarbose. In this way, it can secure its Chinese market and earn more profits in the future. For Bayer, the Chinese market is so important that it worth taking the large price cut to support the price war launched by the government.

Bayer fired an employee for breaking home quarantine rule during COVID-19

Bayer fired an Australian Chinese employee for breaking the coronavirus quarantine rule in China. In March 2020, a video of the woman gbreaking the home quarantine policy to go on a run went viral on the Chinese social network and drew widespread criticism from the public.

Bayer’s response reflects that it firmly follows laws and regulations in China, and supports the coronavirus rules of the Chinese government. This decision has been widely applauded by Chinese netizens and the company is considered as responsible and compliant. Hence, Bayer China has built a positive image through this crisis. 

Boosting innovation and advance digitalization

In 2016, China announced the Healthy China 2030 Blueprint. Currently, China is speeding up the initiative and improving patients’ access to medicines by increasing their affordability. “With the mission of helping China achieve health goals, Bayer China will make unremitting efforts to bring innovations faster to Chinese patients and provide more complete medical services.” Jiang Wei, executive vice president and managing director of Bayer China, said.

Bayer strengthened R&D and innovation

Under the Healthy China 2030 plan, China has promulgated policies from various aspects to increase support for the development of innovative drugs. Many pharmaceutical companies, including Bayer, are seizing opportunities and making full use of policy support to accelerate the approval of various new drugs in China.

Since 2017, Bayer has brought 14 innovative drugs to China. As an important part of the “China Innovation Strategy”, Bayer is continuously accelerating the introduction of more innovative products into China through the China R&D Center. The China R&D center, established by Bayer Health Consumer in Qidong, Jiangsu, is also actively carrying out category innovation, and enhancing the technical support and protection level of existing listed products.

At the same time, Bayer establishes long-term strategic cooperation with China’s top scientific research institutes including Tsinghua University and Peking University and strives to apply more cooperation results to the in clinical practice. Also, Bayer China is exploring cooperation opportunities with Chinese pharmaceutical companies and biological start-ups, leveraging the complementary advantages of both parties to fully develop innovative results. For example, Bayer and CStone Pharmaceuticals collaborate to evaluate D-L1 monoclonal antibody CS1001in combination with regorafenib as a treatment for multiple cancers.

Bayer China embraces digital transformation

Source: creamandpartners.com, Bayer cooperates with VeChain

Bayer has seen great potential to foster digitalization in China’s pharmaceutical industry, and has sped up its digitalization.

In 2017, Bayer teaeds up with Alibaba Health (AliHealth) to provide Chinese patients with healthcare services ‘at their fingertips’. At the same time, Bayer China can follow health trends of Chinese people and better satisfy their self-care demands by leveraging the big data advantages of the Alibaba platform.

Bayer re-started the ‘Bayer G4A China’ program in 2019, a global digital health startup partnership program to select Chinese startups that have digital potential. In 2019, Bayer China forms a co-operation agreement with Yaoshibang, a domestic online B2B pharma platform, to offer a new digitized medicine and health services solution in China. During this collaboration, the parties will exploit their advantages in the fields of medicine, health, and the internet.

In 2020, Bayer announced its partnership with VeChain, a pioneering public blockchain startup, to co-establish CSecure, a blockchain-based traceability platform for drugs. This new blockchain-powered solution will allow Bayer to track clinical drugs across the supply chain digitally.

Bayer considers digitalization as its vital strategy in China’s pharmaceutical industry. Digital transformation will enable Bayer to provide patients with new drugs and personalized treatment faster, improve the efficiency of healthcare service, and ultimately better serve patients. 

Bayer’s China Vision & Mission

Source: Bayer China’s Weibo, Bayer’s logo

With its strong marketing strategies, crisis management, and cooperation with the government, Bayer China devotes itself to provide better products and services for Chinese in the areas of health and nutrition. Bayer is a key player in helping China achieve the Healthy China 2030 plan, which makes the future outlook for the pharmaceutical brand’s development in China very promising.

Learn about China’s vitamin and health supplement market

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Data source: askCI.com- Market size of telemedicine in China from 2015-2019

Telemedicine consumer penetration

Given the COVID-19 situation in the beginning of 2020, it is no surprise that the penetration rate jumped up by 2% YOY. By April 2019, the number of users of online telemedicine services in China had reached 45 million, with industry penetration reaching 6.6%. The penetration rate continued to rise from 2018 to 2019 and will likely maintain its growth momentum in the future. It is expected to exceed 8% in 2020 and the scale of users will continue to expand.

Telemedicine apps and websites are no longer just patients from 1^st-tier cities, but people in 2^nd and 3^rd-tier cities are beginning to use telemedicine platforms. People under 35 years old are the main users, however, the middle-aged & elderly groups’ needs have not yet been explored. Telemedicine companies should pay more attention to the convenience and operability of online consultation to seize this part of consumers.

The characteristics of telemedicine industry in China

5G technology

Source: Sohu.com – Construction of 5G base stations is accelerating and 5G networks are expected to cover prefecture-level cities nationwide by the end of the year

In 2020, 5G technology helped telemedicine enter a new stage of development and explore new scenarios for application. Telemedicine in China started relatively late. In 1988, the PLA General Hospital conducted a remote case discussion of neurosurgery with a German hospital via satellite, which was the first telemedicine activity in the modern sense in China. China’s telemedicine industry has developed rapidly later on, owing to the development of computer technology, communication technology, digital medical equipment technology, hospital information management technology and a series of core technologies in telemedicine.

In early 2020, during the COVID-19 outbreak, China’s telemedicine was more widely applied and developed with the support of 5G technology. Zte and Sichuan Telecom assisted West China Hospital of Sichuan University and Chengdu Public Health Clinical Medical Center to realize 5G remote consultation of two COVID-19 cases for the first time.

5G telemedicine trolley has been launched in Wuhan Huoshenshan Hospital. In some places, China Mobile has launched the application of “5G infrared thermal imaging temperature measurement” to realize the simultaneous scanning and temperature measurement of many people.

Driven by 5G technology, the application scenarios of telemedicine have been expanded, such as remote ultrasound, remote surgery, mobile ward rounds, remote monitoring, remote consultation and remote first aid.

The uneven distribution of medical resources

In China, the distribution of superior medical resources is extremely uneven. More than 70% of the third-level grade-A hospitals are located in the eastern region, making the potential demand for telemedicine in the central and western regions huge.

Data source: chyxx.com – The proportion of third-level grade-A hospitals in the three regions in 2018

Telemedicine in China’s ageing society

China’s huge population base has already put medical resources to a severe test. On top of this, China has encountered the problems of relatively unbalanced economic development and unevenly medical resources distribution. At the same time, China’s population is aging, and immense pressure is put on the younger generations to care for the elderly.

The United Nations issued a standard: as 65 years old people account for more than 7% of the total population, the country is considered an aging society. According to data released by Chinese National Bureau of Statistics (NBS), the proportion of the population over 65 years old has reached 11.9% in 2018.

Data source: chyxx.com – The proportion of people aged 65 and over in China from 2000 to 2018

As the elderly have entered a period of decline, they are much more likely to be infected with various diseases than their younger counterparts, which greatly increases the market demand for medical resources. Telemedicine can solve the imbalance of medical services in different regions to a large extent as well as integrate and utilize medical resources through the Internet, which will be conducive to the stability of our society and the protection of people’s healthcare.

Telemedicine platforms in China under the influence of COVID-19

Accelerate the construction of telemedicine platforms in China from hospitals

Due to the COVID-19 outbreak, the urgent need for epidemic prevention and control has promoted the construction of telemedicine platforms in China from hospitals, which reached a new peak in February 2020, with 65 telemedicine platforms from hospitals built in a single month. During the epidemic, in addition to online outpatient services and pneumonia consultation services provided by existing telemedicine platforms, traditional public hospitals and other medical institutions also launched online telemedicine platforms on an emergency basis.

Previously, most of the public hospital informatization construction remained in the “digital hospital” level, such as “intelligent outpatient service”. The degree of informatization is mainly reflected in basic services such as hospital registration, consultation, settlement and medical record management. The epidemic has accelerated the construction of remote online consultation in hospitals and the real patient-oriented Internet diagnosis as well as treatment services which have begun to develop.

Data source: Xinhua.com – Number of Chinese hospitals with own telemedicine platforms from 2019-2020

Take one of the leading platforms – PingAn Good Doctor as an example

PingAn Good Doctor is the wholly-owned subsidiary of PingAn Group and leader in telemedicine services in China.

It covers four major business segments: online medical consultation, consumption medical care, health malls, health management and interaction. The number of users reached 5.67 million on February 5th, with an increase of 8.4% before the 2020 Lunar new year.

In terms of city distribution, the proportion of customers from new first-tier cities is the largest while the proportion of customers from first-tier cities is the smallest.

In terms of age distribution, consumers aged 24 to 30 account for the largest proportion.

Data source: qianfan.analysys.cn, Ping’an Good Doctor users are disproportionately in first tier-cities.

Data source: qianfan.analysys.cn, Ping’An Good Doctor users are usually young, although elderly are more likely to experience health problems

Monthly active users of PingAn Good Doctor app increased rapidly since January, 2020 (COVID-19 outbreak).

Data Source: qianfan.analysys.cn, monthly active users of Ping’an Good Doctor

Limitations and Opportunities

With the deepening of “Internet Plus”, Internet economy has become an important factor in China’s economic development. “Internet + medical treatment” has been constantly applied and developed.

The coverage rate of 4G network has reached more than 95% and 5G network has been officially commercialized. Software services, cloud computing, big data and other industries are developing rapidly, laying a good technical foundation for telemedicine. With the use of automated and intelligent technologies, telemedicine is gaining more and more recognition from patients. Therefore, it can drive the increase of huge demands and the potential space of telemedicine market will be huge.

Since 2009, a series of established policies have demonstrated the government’s strong determination to develop telemedicine. With the intensive introduction of policies, the policy environment of the telemedicine industry in China is clear and the industry will usher in rapid development.

However, the telemedicine industry in China has not yet developed a mature business mode, remaining some problems like vague pricing policies, uneven payment systems and wide variations in health care from place to place. Additionally, an obvious concern with telemedicine is that it is easy to ignore symptoms that can only be diagnosed in a “face-to-face” setting, leaving health-care providers vulnerable to negligence claims and insurance coverage. At the same time, patients are also prone to misdiagnosis or missed diagnosis.

Social habits and careful regulation hinder the application of telemedicine. For many people around the world including Chinese, the COVID-19 outbreak is already forcing a change in social habits that is likely to have a permanent positive impact on telemedicine.

Author: Qing Zheng

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China’s position in the  global API market

Pharmaceutical products have drastically varied features, some being patented and customized, while others generic and bulk manufactured. The production of pharmaceuticals, therefore, is heavily reliant on outsourcing and import and export. According to Results Healthcare analysis, the worldwide outsourced manufacturing market reached $71.5 billion in 2015 and is growing steadily. Since drug products are likely to be assembled where they are patented, API represents more than two thirds of the outsourced pharmaceutical market.

Compared to India or Europe, China is best at bulk manufacturing unbranded chemical API, according to sinolink securities.

Source: Sinolink securities, Segmentation of APIs. The API industry in China focuses on unpatented, bulk products.

China is world’s largest producer of pharmaceutical ingredients

Globally speaking, the chemical and generic APIs account for 70% of global API, while biotech APIs account for the remaining 30%.

China is the source of 40% of the global APIs, according to Optima insights. In addition, chemical APIs dominate theAPI industry in China. In 2017, the global API market size was at $156 billion, according to Sinolink securities. Chinese chemical API manufacturers had in total 500 billion RMB, which corresponds to approximately $74.6 billion. Thus, China takes 68.3% of chemical API market worldwide in terms of value.

Asia and Europe are the main export destinations of the  API industry in China

According to China Chamber of Commerce for Import & Export of Medicine and Health products (CCCMHPIE in short): in 2019, APIs produced and exported by China reached 10.12 million tonnes (+9% year-on-year), worthy of $33.7 billion (+12% year-on-year).

The destinations of APIs produced and exported by China comprise of 189 countries and regions, mainly in Asia, Europe and North America. Over 2019, API export grew in Asia and Europe, but dropped in America, largely due to the Sino-US trade war. In fact, the volume of API produced and exported by China to the U.S. decreased 11% year-on-year. So much so that an increase in average export price of 11% did not compensate enough for the trade friction.

Data source: CCCMHPIE, Chinese API export destinations

To be more specific, the leading export destinations by country are India, the U.S., and Japan.

Data source: CCCMHPIE, leading Chinese API export destinations

APIs take up 81% of total value of Chinese pharmaceutical exports

The majority of Chinese pharmaceutical exports are APIs. In 2018, according to China Chamber of Commerce for Import & Export of Medicine and Health products: APIs exported from China accounted for 81% ($30 billion over $37 billion) of total value of exported Chinese pharmaceutical products. The rest of Chinese exports are pharmaceutical preparations, finished drug products (11%, $4.1 billion over $37 billion) and biochemical drugs (8%, $2.7 billion over $37 billion).

Data source: CCCMHPIE, composition of Chinese pharmaceutical exports

When it comes to API exporters in China, private companies take the lead. According to China Chamber of Commerce for Import & Export of Medicine and Health products, in 2019 there were in total 12,462 API manufacturers and exporters in China, an increase of 1,056 from 2018, almost all privately held.

Data source: CCCMHPIE, Segmentation of Chinese API exporters by ownership

India is both competitor and customer of the API industry in China

The trade statistics suggest that nearly 75% to 80% of the APIs imported to the United States are from China and India. These two countries have well-established manufacturing facilities and an abundant talent pool serving the pharmaceutical industry.

India is a fierce competitor for API production

India is by far the world’s champion of drug master files (DMFs). What is a DMF? According to FDA, Drug master files (DMFs) are voluntary submissions to the import country authority, and contain confidential information about human drug products. APIs belongs to the Type II of DMFs, which is concerned with drug substance, material used in their preparation, or drug product.

While China holds 12% of DMFs from the U.S., India holds almost half of them. Being the largest holder of DMSs gives India the edge to export higher-value APIs, enlarging the industry’s attractiveness.

There are several reasons for India to outcompete China for API export in the last decade. Firstly, India normalized the API production with drug production, gaining bargaining power in the global market. Secondly, Indians generally speak better English than Chinese, which facilitated pharmaceutical trade with developed countries. Lastly, India adopts Common Law system, making the legal activities more fluid when dealing with western clients.

Data source: Thomson Reuters, Sinolink securities, Distribution of U.S. DMF holders

India relies heavily on China for API imports

India’s API imports are valued at $3.5 billion to per year. Of which 70%, worth $2.5 billion, are APIs produced and exported by China. 

Data source: BCG analysis, Sinolink securities, Indian API imports from China

The Indian government has long advocated “API independence” and invested in API industry. Nevertheless, it is difficult to cut back dependence on China due to its climate characteristics. India mostly relies on China for APIs related with fermentation (发酵类产品),  for which China represents 70% of global production. At around 10°C higher than China, fermentation is way more costly than in India.

Value and volume of China’s API exports tell two different stories

A quick example is to compare the API produced and exported by China in terms of both value and volume. Interestingly, even though the Association of Southeast Asian Nations takes 41.1% of volume of China-manufactured API, it only accounts for 9.8% of the value exported by China. Inversely, Europe and North America are the destination of 41.5% of the value of China-exported API, but in terms of volume, that only amounts to 28%.

Data source: CCCMHPIE, Chinese API export destination based on value

Data source: CCCMHPIE, Chinese API export destination based on volume

Sino-American API trade

There has been a question mark over whether or not China is the major supplier of APIs to the United States. Whereas the U.S. Food and Drug Administration data shows only 13% of its API is imported from China, other sources points to the opposite.

Both assertions are likely to be true and not necessarily contradictory, depending on whether we refer to volume or value, or the number of manufacturers.

On the one hand, China is indeed the world’s largest pharmaceutical producers and the biggest supplier to U.S. by volume. The observation that “China is the world’s largest producer of pharma ingredients and the world’s second largest pharma market” is confirmed by National Medical Products Administration in 2017. China in 2019 exported over $37 billion of pharmaceutical products, including APIs and DPs. In comparison, India’s total pharmaceutical exportation amounts to $20 billion in 2019/20.

On the other hand, USA seem to well diversify its import in terms of value. USA imported $78.9 billion pharmaceutical products in 2019, and China only accounts for $4.22 billion in terms of API value, a mere 5%. In addition, approximately 28% of manufacturing facilities making active pharmaceutical ingredients (APIs) for the U.S. market are based in the U.S. The remaining 72% of API manufacturers supplying the U.S. market are outside the U.S., this includes 26% in EU, 18% in India, and 13% in China.

Even though the number of China’s API manufacturers supplying the U.S. market is not great, the bulk API volume they manufacture and export can be high. Due to large-scale manufacturing capabilities, cost efficiency and adequate availability of commodity bulk drugs and intermediates.

China is positioning itself to capture a greater portion of the global industry

In summary, the massive API industry in China is an important global player of production and export. With the aging population and the growing pharmaceutical demand, China is positioning itself to capture a greater proportion of the global API manufacturing industry.

Author: Della Wang

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This article The API industry in China: Producing and exporting to the global market is the first one to appear on Daxue Consulting - Market Research China.

The Chinese pharmaceutical market consist of biologics, generics, OTC drugs, and traditional Chinese medicine. The traditional Chinese medicine market comprises about 30-40% of drug sales in China. It also displays more rapid growth than other segments of the pharmaceutical market in China. Yangtze River Pharmaceutical Group, Shanghai Pharmaceutical Co Ltd, and Yunan Baiyao Group take up over one-third of the market share, indicating a highly consolidated market. They all provide traditional Chinese medicines. Regarding the traditional Chinese medicine market specifically, key players involve China TCM, Yunnan Baiyao, Beijing Tong Ren Tang, Guangzhou BYS, and Pien Tzhe Huang. TCM products are generally categorized into Chinese patent medicines, decoction pieces, and Chinese herbs.

The traditional Chinese medicine market in China will keep growing in the new normal

Though often controversial in modern times, Traditional Chinese Medicine’s (TCM) has played a significant role in the health care system in China since ancient times. It is predicted that TCM will continue to grow in significance in the post-COVID-19 era in China. A survey about public trust in TCM in China showed that, as of November 2019, 49% of Chinese respondents prefer traditional Chinese medicine to Western medicine treatment (51%). Recent years have also witnessed a steady growth in the volume of diagnosis and treatment of medical institutions specializing in TCM. Such a phenomenon is a result of political, economic, socio-cultural, and technological implications. An increasingly aging population, rising GDP per capita, expanding health insurance programs and urbanization, technological advancement in TCM industry, and very importantly, favorable government policies support as well as promotion of TCM in mass media jointly contribute to the TCM market growth.

Notably, the Chinese government has set TCM as a strategic priority to support the development of the medical industry. The policies issued will facilitate progress in TCM medical care, scientific research, education, and culture. It will encourage the establishment of a more sophisticated TCM service network that covers both urban and rural areas. Furthermore, the State Council called for the protection and industrialization of TCM herbs and innovation in the TCM industry.     

Chinese herbal decoction pieces and Chinese medicine formula granules are growing in popularity

Among the subcategories of TCM, Chinese herbal decoction pieces (中药饮片) and TCM formula granules (中药配方颗粒) are growing in popularity. TCM decoction pieces are mainly Chinese herbs that have been processed. It uses decoction technology such as ultra-fine pulverization to processed raw materials (e.g. herb, insect, shell, dried plants) based on Chinese medicine theories and Chinese medicine processing methods, which can be taken directly as a pharmaceutical formula or taken directly, or further processed into Chinese patent medicine products. Chinse decoction pieces can be used directly in clinical treatment. Development of modernized decoction technology has led to the strong growth. The TCM formula granule grew steadily in the past ten years and will also continue to display an upward trend in the future.

Upon doctors’ prescription, the assistants do not give patients raw materials, but processed recipes, patients will have to use these powders or liquid to make a Chinese medicinal soup. With the policy dividend, the Chinese decoction pieces sector has developed steadily. The revenue growth rate bottomed out in 2018 and reached 210.49 billion yuan, an increase of 14.2% year-on-year. It shows a prospect for growth in the coming years. General hospitals and TCM hospitals are the major consumer markets for processed TCM, with revenue accounting for 48%, followed by clinics with revenue accounting for 22.5%.  

The discussion of TCM efficacy polarizes into two competing positions

Before the COVID-19 outbreak, analysts had predicted the strong growth of TCM market revenue. Given that TCM was said to be used to treat over 90% of patients in China during the COVID-19, it is predictable that public trust in TCM will increase, leading to growing demand in the market. The demand here refers not only to the treatment of confirmed diseases but also to general health optimization. TCM is known for optimizing health by balancing the entire body system, hence it is a preventative medicine. Many Chinese believe TCM is effective for general health optimization and treating minor or chronic ailments. Compared to western medicine, they believe TCM does less harm to one’s body  because it’s side effects are minimal. These perceptions have been rooted in the minds and hearts of the majority of individuals in China. 

What TCM Skeptics say

There are also a large number of TCM. Some say the theoretical foundation of TCM was much weaker than that of western medicine which is backed by sound physiochemical studies and research data. TCM is an experience-based subject and has a high level of ambiguity and uncertainty. That is why TCM is still not fully accepted as part of the modern medical science system. The status quo of TCM is that there is a lack of evidence to prove its efficacy due to its complexity. A traditional Chinese medicine prescription may have dozens of medicines, thus it’s hard to tell which one(s) are effective, what is the effective dosage, and whether it remains effective if we single out each ingredient. Even though it has been used in clinical diagnosis and treatment for centuries, it remains an issue to explain TCM’s pharmacological mechanism.    

In short, it does not come to a simple conclusion to say whether TCM is effective or not. The core of this discussion is not TCM itself, but the research framework and system. Tu Youyou’s achievement in the area of TCM is a stark example of the truth that with an evidence-based research method, TCM is proved to have high value in health care. Tu Youyou (屠呦呦) is a Chinese pharmaceutical chemist, studied traditional herbal medicines and managed to extract a substance, artemisinin (also known as 青蒿素), which inhibits the malaria parasite. She received the 2015 Nobel Prize in Physiology or Medicine for her work and brought TCM into the limelight. 

The role of TCM during COVID-19 remains uncertain

Talking about  COVID-19, while there is still no vaccine for COVID-19, western drugs like Remdesivir and Avigan are said to be effective. In China, during the early stage of the pandemic outbreak, there were news informing that the Chinese Academy of Sciences Shanghai Institute of Materia Medica (SIMM) along with the Wuhan Institute of Virology have had preliminary findings showing that Shuanghuanglian liquid, a traditional Chinese patent medicine, can inhibit the novel coronavirus. Suddenly people set off on a panic buying spree. Amid the buying spree were rebuttals to the rumor, saying that there was no strong evidence to prove that Shuanhuanglian can effectively inhibit the virus.

According to the National Medical Products Administration, by 15 March 2020, TCM was said to be used to treat 91.64% cases in Hubei Province, 89.10% in Wuhan. The proportion of Chinese medicine participating in treatment nationwide is 92.41%. Apparently, with the statistics released, there is a heated discussion on TCM on the Internet. Searches for Chinese medicine on Baidu have increased significantly during the COVID-19. While the mass media keeps promoting TCM, a lot of people are questioning the credibility of the statistics and the link between TCM and COVID-19 treatment based on the statistical approach as well as pathology.  

[Baidu Index, Search frequency for ‘Traditional Chinese Medicine’ spiked during the COVID-19 outbreak in China]

Will TCM products be accepted abroad?

Meanwhile, China has sent TCM drugs like Lianhua Qingwen abroad as part of humanitarian aids. It seems like a step forward of TCM on a global scale. However, there is still a long way for TCM to go to be accepted overseas. The key is an evidence-based modern medicine approach, determining the efficacy by comparing the existing evidence, not just the impression and the individual. It is a process from roughness to preciseness. In other words, for TCM to be accepted in the western world, using a western “ruler” in investigations is crucial, just like Tu Youyou’s case. It is going to be tough for TCM to enter the western culture using Chinese standards because it is by nature a complex and unfamiliar oriental mechanism to the western ideology. 

The public opinions call for a scientific approach in TCM investigation   

Zhong Nanshan, an advisor in managing the COVID-19 pandemic, once written in his autobiography that traditional Chinese medicine, as an accumulation of empirical medicine, must follow the path of evidence-based medicine, truly convince people of its efficacy in the clinic, and then further explore the mechanism. To tackle the bottleneck of empirical medicine in traditional Chinese medicine, practitioners must transform effective individual patient cases of traditional Chinese medicine into generic and effective solutions to the disease groups through modern evidence-based medicine research models.

Therefore, although TCM is raised to a high strategic position in domestic settings, it still has a long way to go in global settings. It is too early to say TCM is a step closer to an alternative to Western medicine, given that there are still various unresolved doubts in its cradle. To compliment or to undermine, there are complicated factors involved. Under the COVID-19 pandemic, it is hard to justify the role of TCM in a phenomenal event like this. Admittedly, it does facilitate people’s thinking about TCM, which will contribute to the development of TCM investigation in the health care system in China. Perhaps in the “new normal”, we will witness a transformational journey of TCM in China, endorsed by the government’s initiative and leading practitioners coming out of the pandemic.  

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This article will take a look at some of the main trends in the healthcare market in China, especially in tangent with COVID-19.

COVID-19 impact on healthcare in China

The COVID-19 has disturbed mankind’s way of life. Corresponding to the change in life, the consumer demand varies. To dip into the COVID-19 impact, here is a peek at the impact on healthcare in China.

Key sentiment: treat yourself

Since the epidemic, 75% of consumers are giving greater importance to their wellbeing, the demand of products for precaution such as dietary supplements, traditional Chinese medicine, vaccines and health insurance are expected to grow.

Mental treatment

Chinese mental health was also impacted by COVID-19. During the epidemic, many individuals have reported that themselves and their families have suffered from insomnia. Because of the quarantine, young Chinese people often stay up late watching series and playing games, damaging regular sleeping patterns. Some of them stated that they need help from melatonin and sleeping pills. The situation got even worst for medical workers. Due to high pressure and daily limited scope of activities, mental health significantly weakens and even aroused mental health disorders. When it comes to COVID-19 impact on healthcare in China, mental healthcare should also be taken into consideration.

The adoption of technology in healthcare offerings would be accelerated

A notable feature of China’s response to the COVID-19 has been the widespread use of mobile apps for medical information and services. Healthcare apps like Ping An Good Doctor, Ding Xiang Yuan, and Chunyu Doctor saw their user bases grow dramatically in response to the COVID-19. Ping An Good Doctor, for instance, reported a 900 percent increase in new users from December 2019 to January 2020.

During the epidemic, some Chinese hospitals are utilized robots to assist medical workers. Wuhan’s Hongshan Sports Centeri used robots and IoT-enabled technology to monitor patients’ temperatures, vital signs, heart rates, and other indicators to reduce personal interaction.

Focus on pharmaceuticals and vaccines

After the official confirmation that COVID-19 was human-to-human transmissible, Chinese citizens were keen on exploiting methods to combat the virus. Xinhua advised concerned people to try Shuang Huang Lian, an oral remedy, to combat virus, backing up the claim with a study by the Shanghai Institute of Meteria Medica and the Wuhan Institute of Virology. After the news report, Shuang Huang Lian sold out across the country and reached its peak on Baidu search even though the claim was denied by the popular medical information site Dxy.

[Source: Baidu Index, Shuang Huang Lian and COVID-19 searches on Baidu]

However, the Chinese pharmaceutical industry did stand in the spotlight during COVID-19 epidemic by proving its efficacy by practice. Of the confirmed cases of COVID-19 in China, 74,187 people used traditional Chinese medicine, accounting for 91.5%. Observation of clinical efficacy shows that the total effective rate of Chinese pharmaceutical to combat the virus has reached more than 90%. With the effective result shown, the global demand for Chinese pharmaceuticals are expected to soar.

Since the outbreak of COVID-19, people paid continuous attention to vaccines, which is seen as the core method to change the status quo and bring to normal life back.

[Source: Baidu Index, Chinese netizen searches for vaccines during COVID-19]

Segments of the healthcare market in China

People’s growing awareness of healthcare and the acceleration of population aging have brought prosperity to healthcare market in China.

Healthcare services and facilities in China

Healthcare in China is mainly supported by facilities such as hospitals and nursing homes.

Hospitals in China

The total number of hospitals in China has increased significantly over the last decade from roughly 197 thousand in 2008 to about 33 thousand hospitals in 2018. The region with the highest number of hospitals in China had been Shandong province with 2,451 hospitals, followed by Sichuan province with 2,219 hospitals. The booming trend of Chinese hospitals can be interpreted by the improve of China’s medical security system. 1,344.52 million people, over 95% of the country’s total population had been covered by the basic medical insurance system.

Chinese hospitals are divided into public hospitals and private hospitals by economic type. There had been 21,165 private hospitals in China, including 2,185 new ones compared with the same period of 2018 and accounting for 63.9% of the total number of hospitals. Social capital largely flows to specialized hospitals which need low investment but produce high return on investment and are in demand. In China, over 65% of private hospitals are specialized hospitals.

Nursing homes in China

With the increase of income and the improve in the pension system in China, pension consciousness is gaining popularity among the elder, the demand for nursing homes in China is stimulated. From 2013 to 2017, the number of patients in nursing homes in China showed an overall upward trend, which reached more than 2 million in 2018. However, the supply gap was growing from 2016 to 2018, reaching 9.14 million in 2018. The composition of nursing homes is unified since most of them are government facilities; there are relatively few privately owned ones.

Regarding the required services for nursing homes, 18.9% of China’s elderly population requires professional treatment, however, 15.9% of practitioners lack senior-focused professional training and 76.9% only receive fundamental training.  Related searches to “nursing homes” are “price,” “is it profitable to run a private nursing home,” and “how much is the nursing home per month.”

The medical device market in China

AI in China’s healthcare

AI is greatly applied in the healthcare market in China. The market size of the AI-related healthcare industry already reached 9.6 billion RMB. In 2019, AI expenditure in Chinese hospitals was RMB1.7 billion, with an increase of 88% over the previous year. A survey conducted by AI Blue Book – Chinese AI development in healthcare 2019 shows that a majority of Chinese respondents (78.4%) hold supportive attitudes towards the development of AI in healthcare.

AI has become a national strategy in China. The state has put forward higher requirements for the development of medical artificial intelligence. In July 2017, the State Council issued the “Circular if the State Council on Printing and Distributing Plan for Artificial Intelligence Development in a New Era”.

AI’s unprecedented tech advancements stood out during COVID-19. Regarding healthcare, the most visible use of AI is in mass surveillance and diagnosis which greatly help on combating the virus.

The biotech market in China

The industry scale of the biotech market in China boomed from 2010 to 2017, with a growth from RMB315.6 billion to RMB919.4 billion. The average CAGR is 17.7%. In China, the biotech industry are divided into seven categories: biomedical industry, biomedical engineering, bioagriculture, biomanufacturing industry, bioenergy industry, bioenvironmental protection industry, and bioservice industry.

[Data source: chyxx.com –The Market Size of biotech in China, 2010-2017]

Biotech greatly contributed to speed up the confirmation of COVID-19. The core of COVID-19 testing diagnostic kits are Biochip, which enables virus testing within 15 minutes.

The diabetes treatment market in China

China is currently the country with the largest number of diabetes patients, which is around 116.4 million adults. The prevalence of diabetes in China increased by 2.7% from 2008 to 2013. The 20 to 39-year age group drives the increase of over-weight and obesity. IDF estimates that the annual health expenditure on diabetes in China is 294.6 billion dollars, ranking the first in the world.

In the early stage of diabetes, the increase in blood sugar of diabetic patients will not cause obvious symptoms of discomfort. It can only be discovered and diagnosed by blood collection, which makes it difficult for early detection and screening of diabetic patients. The penetration rate of diabetes diagnosis and treatment in China is only 30%, and over 60 million patients have not received treatment. With the development of economic, the national healthcare in China raises. Local governments have proposed a policy of free medical examination for the elderly once a year. In the early future, the demand of diabetes treatment will continue to expand with increasing penetration rate of diagnosis.

Dominated by foreign brands

Foreign brands still dominate the diabetes treatment market in China. They remain as the major contributors of new diabetic drug innovations. Compared with the global market, China’s diabetes drug structure is backwards, with traditional hypoglycemic drugs as the mainstay. But the new hypoglycemic is developing. In the adjustment of the national medical insurance catalog in 2017, five domestic DPP-4 inhibitors were included in the national catalog, and then liraglutide also entered the national medical insurance catalog through national negotiations. The launch of the new mechanism of hypoglycemic medicine in China and the introduction of them into the national medical insurance will bring about a structural upgrade of the domestic diabetes drug market. However, due to the high price of the new mechanism of hypoglycemic drugs, they are only used as second-line drugs.

Medicine market in China

Pharmaceutical market in China

China’s pharmaceutical market has been constantly growing in recent years. It is estimated to reach $161.8 billion by 2023 and take a 30% share of the global market. As part of the “Made in China 2025” industrial plan, China hopes to reinvent its pharmaceutical industry. The pharmaceutical industry is a high-technology field that requires massive amounts of research and development.

The vaccine market in China

As an important precaution method, vaccine is spurring in the healthcare market in China. Driven by the ‘Two Child Policy’ and the booming demand for novel vaccines such as HPV vaccine, the market size of Chinese vaccine is estimated to grow to 40 billion yuan in 2025.

[Data source: Statista, size of Chinese Vaccine Market, 2019-2025]

There are two categories of Chinese vaccine one stands for public sector (Category I) which are compulsory and free of charge, while the other one is part of the private sector (Category II). Category II vaccines in China will be included in the free-of-charge category I vaccines in China, leaving less market share for foreign companies and making it more difficult for foreign-made vaccines to stay in the Chinese vaccine market.

The traditional Chinese medicine (TCM) market in China

The market size of TCM is expected to reach to RMB537.6 billion in 2020, which account for 32.4% of the medicine market in China. TCM treatment shared the same popularity as western medicine when it comes to healthcare in China. A survey shown that 49% of respondents prefer TCM treatment, which is basically the same as that of Western medicine.

[Data source: Qianzhan, The Market Size of TCM in China, 2011-2020]

Indeed, we can find the first traces of traditional Chinese medicine 5,000 years ago. The treatment also adapted to the modern life and modern practices of the Chinese medicine. Traditional Chinese medicine has spread to 183 countries and regions in the world, currently 103 Member States have approved the use of acupuncture, 29 of which have established laws and regulations on traditional medicine, and 18 have included acupuncture in the medical insurance system. With the international recognition of traditional Chinese medicine and the “Belt and Road Development Plan for Traditional Chinese Medicine (2016-2020)” and other policies to encourage Chinese medicine culture to “go global”, the import and export trade see a good opportunity for development.

Author: Dongni He

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However, at the present moment China only possesses 11% of the global pharmaceutical market. The United States coming in first was the largest pharmaceutical market in 2018, and generated a 40.4% share of total revenues worldwide. This means the pharmaceutical market in China has a lot of consolidation to do. As a result, in the future this will open to door for many companies and businesses looking to find the right market opportunities and niche positions along the Chinese pharmaceutical value chain. 

The Government’s Efforts in Bolstering China’s Pharmaceutical Industry

The challenge for China to solve is the issue of promoting growth in the pharmaceutical industry while ensuring affordable and easily accessible drugs for its patient population. In tackling this issue, the central government has emphasized a top down approach. In addition to investing heavily, the government has rolled out a series of broad changes to the pharmaceutical regulatory environment. The policy agendas outlined in China’s 13th Five-Year Plan and Healthy China 2030 initiative each reinforce the importance of healthcare reforms such as decreasing inequality in the insurance coverage ranges and strengthening public services. Reform measures within the industry have also aimed at increasing access to medicine and making medicine affordable.

Pharmaceutical policy in China has historically been relatively disjointed and uncoordinated between provinces, but these initiatives show that China is working towards restructuring the industry with the objective of improving its ability to compete internationally while still ensuring that the benefits are passed to the patient.

Along these lines, as part of the “Made in China 2025” industrial plan, China hopes to reinvent its pharmaceutical industry. The pharmaceutical industry is a high-technology field that requires massive amounts of research and development. However, with such high investment costs, most Chinese companies are simply priced out. Beijing’s ultimate goal for China’s pharmaceutical industry is to create national champion companies that can dominate the Chinese market, compete and beat foreign competitors, and begin to take market share abroad.

China’s Pharmaceutical Manufacturing Industry

China’s pharmaceutical manufacturing industry developed when the country was relatively isolated from international trade. In particular, the pharmaceutical manufacturing industry manufactures chemical medicinal and pharmaceutical products in various formats, including ampoules, tablets, capsules, vials, ointments, powders, solutions, suspensions and radioactive medicine. These products are then sold through pharmacies or used in hospitals. China’s pharmaceutical manufacturing sector supplied the needs of the country’s population and grew rapidly as the nation transitioned from a centrally planned economy to a market based economy. Thus, it is evident that the pharmaceutical manufacturing industry is an important part of China’s national economy.

Chinese pharmaceutical manufacturers have largely concentrated on the production of basic chemicals, intermediates and active pharmaceutical ingredients (APIs). In a relatively short period of time, China has become the leading global supplier of APIs in terms of volume. More recently, Chinese manufacturers have become focused on the development and production of finished pharmaceutical products (FPPs), primarily to serve the domestic market, but with increasing attention to export markets.

The statistic below shows a breakdown of the prime operating revenue of China’s pharmaceutical manufacturing industry in 2018, by segment. In 2018, the total revenue of China’s pharmaceutical industry amounted to 2.6 trillion yuan.

[Source: Statista, China MIIT]

Current State of China’s Pharmaceutical Market

Chinese pharmaceutical companies are mostly engaged in the production of generics, therapeutic medicines, active pharmaceutical ingredients, and traditional Chinese medicine. More than 90% of drugs registered in China are generic.

China’s pharmaceutical market is also highly fragmented, comprising of approximately 5,000 manufacturers, a majority of which are small and medium-size companies. For Chinese companies, this fragmentation has kept R&D spending to as low as 5% of sales on average. Although highly fragmented, global pharma and biopharmaceutical players such as Novartis, Novo Nordisk, and AstraZeneca, have a significant hold capturing at least 8-10% of the market. The market is highly dependent on its distributor networks, leading pharma players including Sinopharm and Shanghai Pharmaceuticals have strong control over these networks.

As a result of the industry’s fragmentation, the government has been seeking to consolidate the pharmaceutical sector and increase the average size of firms to support quality inspection and improvement. The latest national recommendation for the 13th Five-Year Plan specifically aimed to have all medicine on the National Essential Drug List go through bio-equivalence testing by 2020.

Major medical reforms

Thus, major medical reforms have been enacted to boost the Chinese pharma industry’s maturity and growth. These reforms have been addressed to tackle stringent drug quality regulations, incentivize medicine innovation, and reduce intermediaries within the pharmaceutical distribution sector. Moreover, the National Medical Products Administration (NMPA) adjusted its testing requirements regarding the quality of off-patent generic drugs to lift industry standards and bring to speed foreign drug reviews.

Overseas investment into China’s domestic pharmaceutical industry and the number of international companies bringing products into the Chinese market have also continued to grow. In 2017, China joined the International Council for Harmonization. Subsequent this announcement, China promised to gradually transform its pharmaceutical regulatory authorities, industry, and research institutions to implement the international coalition’s technical standards and guidelines. As a result, these actions initiated the true integration of China’s drug regulatory system into the international community.

China’s pharmaceutical market key players

[Source: Personal Graphic]

Size of China’s Pharmaceutical Market

China’s pharmaceutical market has been constantly growing in recent years. It is estimated to reach $161.8 billion by 2023 and take a 30% share of the global market. As of 2018, China’s pharmaceutical market was valued at $134.6 billion, with prescription medicine uptake accounting for 86.4% of total drug expenditure. The Chinese pharmaceutical market segments include generics, OTC, and patented medicines.

Due to low purchasing power and a robust local manufacturing sector, generic drugs ($85.3 billion) seized a large share of China’s pharmaceutical market ($219.9 billion). Sales of over-the-counter (OTC) medicines ($18.4 billion), which represent 13.6% of the market are supported by a cultural acceptance of self-medication and fairly liberal sales channels. Patented medicines ($30 billion), which are primarily consumed by China’s affluent class contributed a small portion (22.9%) to overall pharmaceutical sales.

Although China has expanded to be the second largest pharmaceutical market worldwide, growth has slowed from a 19% CAGR in 2008–2013 to an 8% CAGR in 2013–2018. On top of this, the market is expected to continue to decline to 3-6% through 2023. Much of China’s growth over the past ten years has been driven by central government reforms to expand insurance access to both rural and urban residents, to expand and modernize the hospital system, and reforms to better integrate primary care services. Growth moving forward will be attributed to the improvement of treatment concepts, the optimization of medical measures, the acceleration of new drug access, the improvement of medical service quality, and the dynamic adjustment of medical insurance access.

Key Products in China’s Pharmaceutical Industry

1) Generic medicine (60% of industry revenue)

Generics include: anti-infective drugs (the leading generics segment), cardiovascular system drugs (second largest market with the highest ROI), anti-tumor and cancer drugs, and drugs for the digestive system.

Generic drugs are the mainstay of China’s pharmaceutical industry. Due to large market demand this segment’s revenue is expected to increase strongly in future years. This is because China will likely continue to rely upon widespread prescription of generics in its public insurance plan to minimize overall healthcare expenditures.

Increasing generic penetration as a means to reduce pharmaceutical expenditure will render generic drugs more important in total drug sales, driving growth in the pharmaceutical market. China has seen significant investment by foreign drugmakers in the country’s generic medicine industry, and foreign drugmakers are making inroads in China through partnerships with local firms. In 2017, for instance, Teva formed a joint venture with Guangzhou Pharma to sell generic medicines in the country. In addition, Pfizer and Zhejiang Hisun Pharmaceuticals, a leading Chinese pharmaceutical company, announced the launch of Hisun-Pfizer Pharmaceuticals, a joint venture formed between the two companies to develop, manufacture and commercialize off patent pharmaceutical products in China and global markets.

2) Patent medicine (25.3% of industry revenue)

Patent medicine is the second-largest product segment and has characteristically high profit and technology levels. But, it also possesses high R&D costs, long R&D periods, and long return periods. Providing a boost to the market outlook is the renewed focus on improving the regulatory environment for patented medicines. Healthcare reforms provide long-term upside risk to patented medicine market growth given increases in medicine accessibility. However, the high-cost nature of innovative medicines will remain restrictive to the lower-middle income population segments.

Foreign companies are the main participants in this niche market, which is expected to produce growth rates of up to 10.0% annually in the coming years. Thus, there is a niche market for Chinese and foreign MNCs to target in this segment.

3) OTC Medicine (14.2% of total industry revenue)

China’s OTC medicine market remains one of the most attractive in APAC region with a significant market share. However, government focus on improving access to prescription medicines will reduce demand for OTC drugs leading to an erosion of market share over the long term. However, because in developed countries this segment accounts for between 30% and 40% of total industry revenue, OTCs may have new life in China. Thus, OTCs in China are expected to offer significant opportunities in future years, with many foreign companies looking to develop the segment.

[Source: IBISWorld]

Major Markets for China Pharma

1. The first major market for pharmaceutical products in China are urban and rural hospitals.

Increased population flows from villages to cities will lead to an increased demand and supply of medicines. Furthermore, as suppliers and wholesalers look to penetrate the market, and more people acquire medical insurance, payment for healthcare will increase and boost the pharma market. Pharmaceutical companies in China distribute their product to wholesalers who then distribute 80% of pharmaceutical end sales to the hospitals for patient use.

2. The second major market is drugstores.

Because pharmacies and drug retailers are the second largest sales channel and are expanding their coverage, expanding regional pharmacies will promote the industry segment in tandem  with increased providing of OTC medicines and prescription pharmaceuticals.

3. Third, online sales.

Online sales will be an increasingly important market channel in line with the popularity of online shopping in China in general. This will improve pharmaceutical logistics systems and cut costs.

4. And lastly, exports.

Exports will remain steady in the next few years as China’s pharmaceutical industry matures and starts looking towards fulfilling domestic demand and expanding abroad.

China exports pharmaceutical products to over 160 countries and areas. Chinese exports are seeing continued and robust growth due to high demand for generic medicines. Export growth will be further influenced by multinational companies entering the Chinese market, domestic companies expanding to foreign markets, and the Chinese government’s emphasis on exporting pharmaceuticals as a key driver for the industry.

Demand Determinants for Growth

China’s pharmaceutical industry growth determinants are reliant on supportive government policies, favorable healthcare insurance coverage rates, advancements in medical technology, stable economic conditions, and increased demand from professional health practitioners. Hence, the full supply chain is essential for the healthy functioning of the Chinese pharmaceutical industry.

Approximately 60% of China’s domestic demand comes from generic pharmaceutical and medicine products. Antibiotics are regular medicines required by hospitals and are therefore the leading generic products demanded from the industry. Demand from rural hospitals has increased mainly due to rising incomes in rural areas, increased government aid, and a growing awareness for health. Demand for anti-tumor drugs and cardiovascular system drugs has also been high due to increasing rates of these diseases. This demand has boosted profitability as margins on these drugs are high.

Growth in the industry moving forward will be mainly driven by China’s strong economy, higher household incomes, aging population, growth in the rural hospital market, and supportive government policies. In the past, many consumers could not afford to purchase medicine or see a doctor. Hence, the government will continue to restrict and decrease medicine prices to allow more consumers to purchase medicine when necessary. Low-priced medicine will increase demand from low-income consumers.

[Source: Personal Graphic, the supply chain for China’s pharmaceutical industry]

Pharmaceutical Trade and Investment in China – Challenges and Opportunities

Despite the remarkable prosperity of the market, the Chinese pharmaceutical industry is facing some grave challenges. First, the implementation of the new ‘Good Manufacturing Practices’ and waste-water discharge standards have raised production costs. Second, a policy demanding adjustments to drug prices every three years has substantially decreased profits. And third, both the rising standards in the registration for new products and tightening of the licensing for existing products have impeded the launch of new products. In essence, market regulation of the pharmaceutical industry in China is relatively strict, especially market entry and price control.

Although the Chinese pharmaceutical industry has been developing fast in terms of market size and revenue volumes, the scale of Chinese pharmaceutical companies remains relatively small with a low market concentration. Therefore, local pharmaceutical companies with higher R&D input are generally less profitable. Although there have been increases in the number of patented drugs in the pharmaceutical industry in China, patents have made relatively low contribution to the industrial values. On top of this, IP held by Chinese firms is less competitive compared with that of foreign companies and most of the pharmaceutical enterprises in China still focus on generic drugs.

China is one of the most attractive pharmaceutical investment destinations

While the Chinese pharmaceutical market continues to face uncertainty on the back of challenges around drug pricing and the low levels of IP protection, China still presents one of the most attractive investment destinations in the Asia Pacific region. Underpinning this notion, China boasts a number of inherent advantages that makes it well positioned for continued FDI flows into the pharmaceutical sector. These include a rapidly aging population, a well-established manufacturing industry for pharmaceuticals, and notable government commitment to the sector’s development.

China’s dynamic pharmaceutical trade environment

As the largest pharmaceuticals market in the Asia Pacific, China presents a highly dynamic pharmaceutical trade environment. In 2018, China’s pharmaceutical imports were valued at $26.8 billion. This is forecasted to grow to $34.4 billion by 2023. In comparison, China’s pharmaceutical export value was $5.3 billion in 2018, and is forecasted to rise to $10.2 billion by 2023.

China imports pharmaceuticals from approximately 50 countries and areas. Most import sources are from developed countries and imported products are high-end and expensive. Imports are set to grow rapidly due to the implementation of the national essential medicine system, the new medical reform program, higher import prices of pharmaceuticals, and the improvement of R&D capability of domestic manufacturers.

The upward trajectory in the value of imports comes as China’s demand for medicines, especially innovative treatments, continues to grow in line with the country’s disease burden and healthcare modernization. Furthermore, boosted by growing demand for basic and high-quality pharmaceutical products, domestic demand is poised to remain strong moving forward.

Entering the Chinese Pharmaceutical Market – Good News for Foreign MNCs

Specific areas showing considerable market opportunities include:

• Patent drugs for Tier-3 hospitals

• Drugs for life-threatening diseases such as cancer, lung and liver diseases

• New drug research and development

• Pharmaceutical manufacturing

• Off patent generic growth (as GQCE enforcement improves)

• Strong Medicine sales growth

• Rural and suburban areas

• Pharmaceutical drug distribution

A vast aging population, increases in chronic diseases, and a burgeoning middle class and other factors have made China the fastest-emerging market for pharmaceuticals. China’s pharmaceutical market offers vast opportunity for multinationals as regulatory and other changes shift the landscape. Research firm IQVIA estimates the Chinese pharmaceutical market is worth at more than $122 billion. The scale of opportunity is momentous. But China is also a daunting pharmaceutical market, known for its red tape and lumbering drug approvals. There are positive signs that this is changing as China takes steps to overhaul its pharmaceutical sector.

Steps to improve regulation and licensing

China has taken considerable steps to improve the domestic market environment, specifically in terms of regulation and licensing operations for international companies. In 2019, the Center for Drug Evaluation and the CFDA reformed the application process for INDs and NDAs, allowing for accelerated review timelines that will bring both domestic and foreign drugs to market faster than ever before. Chinese regulators also eliminated the requirement to conduct clinical trials in China before drugs could be released, another regulatory prerequisite that had been slowing down the addition of new drugs to the Chinese market. Now, drugs that have been tested and approved for market in other countries will be fast-tracked for review without having to undergo China-specific testing.

Public insurance policies

In addition to a favorable regulatory atmosphere, China’s public health insurance policies have brought high-quality health care within reach to the average citizen. Hence, it seems the government remains committed to the improvement of healthcare access, exemplified by the universal healthcare scheme’s expansion to cover chronic diseases. Specifically, in a push to improve healthcare coverage, more than 100 Western medicines were added to public insurance policies in 2017, including AstraZeneca’s Brilinta (ticagrelor), and cancer treatments like Roche’s Herceptin (trastuzumab), MabThera/Rituxan (rituximab), Avastin (bevacizumab) and Tarceva (erlotinib). A further update in 2018 added more cancer treatments to the national reimbursement list.

More R&D

Most of the top 20 multinational pharmaceutical companies have been expanding their footprint and are setting up more R&D facilities through various enterprise structures. One attraction for these companies is China’s relatively lower cost base, compared with developed markets globally. China’s large pharmaceutical market and its strong growth potential provide an impetus for international and domestic pharmaceutical firms to develop medicines, specifically for the country’s domestic market. Chinese consumers prefer multinational firm’s pharmaceutical products due to concerns over the quality of domestic drugs as China has been a prolific source of counterfeit and defective medicines.

Lifestyle-related diseases, like diabetes in China, are a growing concern for governments. Driven by an aging population, changing lifestyles and increasing urbanization, China’s rising non-communicable disease burden will be a central factor supporting pharmaceutical market growth. This, combined with various government incentives to improve access to treatment will progressively support a greater multinational drugmaker presence.

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The vaccine market in China has been expanding rapidly and is predicted to continue growing. The market size has grown to 25.7 billion RMB in 2017 and is expected to reach 100 billion RMB by 2030.

In part thanks to the loosening of the one child policy in China, there were 16.7 million new-borns in 2018 and the number is expected to increase. Between 2007 and 2015, the annual supply of vaccines in China went from 666 million to 1,190 million doses, most of which are produced domestically. China is one of the world’s largest producers of vaccines, approximately 700 million vaccine doses are produced annually in China. The estimated growth rate for overall vaccination market in China is 11.7%, and the growth rate for category II vaccines in China is 12.7%.

[Source: Statista  ‘Size of vaccine market in China by category I and II]

One Chinese vaccine market, two types of vaccines

China is a well-regulated producer of vaccines, but some vaccines that are important globally are not included in China’s Expanded Program on Immunization (EPI) system. Sustained and coordinated effort will be required to bring the vaccines industry in China and the EPI system into an era of global leadership.

The huge vaccine market in China appears to be easy to enter and stay. However, the Chinese vaccination system creates an uneven playground for different types of vaccines.

Category I vaccines in China

Category I vaccines in China belongs to the public sector, which means they are compulsory and free of charge. Two examples include measles and hepatitis. Six major domestic institute dominates the market of category I vaccines in China, and only very few foreign-made vaccines in China are available.

Category II vaccines in China

Category II vaccines in China such as Rabies, varicella, pneumonia, and human papillomavirus (HPV) vaccines, are a part of the private sector. They are voluntary vaccines that Chinese citizens pay at their own expense, and hence are made-for-profit. Most category II vaccines in China are foreign-made.

[Source: The Japan Times, Category I vaccines in China are free of charge for all children under 14 years ]

The Chinese government manages category I vaccines in China and provides them free of charge to all children under 14 years of age. The Provincial Center for Disease Control and Prevention (CDCs) purchases vaccine from the manufacturers and report the demand and supply data to the central government. The suppliers, which are vaccine manufacturers, have to strictly follow procurement contracts to provide category I vaccines to provincial or other CDCs.

Vaccine manufacturers could sell category II vaccines to multiple parties such as Wholesalers County or district CDCs, vaccination clinics and other healthcare providers prior to April 2016. The Chinese government later revised regulation in 2016, stating that category II vaccines in China must be procured using government procurement platforms. By integrating the two types of vaccines into one management system, the Chinese government can exercise greater control over the quality of category II vaccines in China as other channels such as the internet and wholesalers are banned. In 2017, the Chinese State Council updated the Vaccine Circulation and Immunization regulation, which requested establishment of a national advisory committee of experts to review category II vaccines in China based on safety, cost-efficiency, effectiveness and production capacity, and make recommendations for inclusion of vaccines into the current EPI system. This means more category II vaccines in China will be included in the free-of-charge category I vaccines in China, leaving less market share for foreign companies and making it more difficult for foreign-made vaccines to stay in the Chinese vaccine market.

Pricing of the vaccine market in China

In China, the contract prices for EPI program vaccines ranged from $0.1 to $5.7 US dollars per dose – similar to UNICEF prices. Contract prices for private-market vaccines ranged from $2.4 to $102.9 US dollars per dose – often higher than prices of comparable US, European, and UNICEF vaccines.

The prices for Category I vaccines in China are similar to UNICEF prices, but lower than the US and European countries. The low vaccine prices may give less incentive for manufacturers to invest in production improvement and development. Therefore, therefore, results in a lack of domestic production of large combination vaccines

The prices of Category II vaccines in China were high enough to attract more competition and thus more investment in research and development. However, the demand volumes are not large enough to achieve an economic of scale. Therefore, finding a balance between manufacturers’ profit needs and the general public’s health needs is challenging.

Leading Competitors in the Chinese vaccine market: international and domestic institutes

Although the number of Category I vaccines in China accounted for 65% of the total number of all vaccines in China, it was mainly occupied by the six major research institutes of China Biotechnology Co., Ltd. (Changchun, Beijing, Shanghai, Wuhan, Lanzhou, Chengdu). As Category I vaccines in China are dominated by the local competitors, foreign competitors can only enter the Chinese vaccine market with category II vaccines.

There are more than 30 companies in the vaccination market in China. Apart from major foreign players like GSK, MSD, Novartis, Sanofi Pasteur and Pfizer, local players such as Chang Sheng, Zhi Fei, Kang Tai, and Wo Sen are strong competitors..

Foreign vaccine companies in China’s vaccine market in China: GSK, MSD, Pfizer, Sanofi Pasteur, Novartis

GSK in China: Shingrix leading the way to expand in the Chinese vaccine market

[Source: GSK-China official website, ‘GSK-China has innovated 24 products between 2011 to 2016]

GSK has invested more than 500 million USD in China and its revenue reached almost 40  million USD in 2018. GSK products cover 250 cities in China. It has five business hubs: Beijing, Shanghai, Guangzhou, Chengdu and Hangzhou; five manufacturing hubs: Shanghai, Suzhou, Hangzhou and Tianjin; one global research and development center in Shanghai.

The growth rate of GSK vaccines in China was 12% in 2017. “I’m very confident in a long-term thriving vaccine industry in China, we want GSK to be part of it and to be a partner to bring new vaccines into the market.” said Walmsley, CEO of GSK since April 2017. She believes in prevention philosophically, in which vaccines have been the most powerful protector for human life aprart form clearn water.

Since Cervarix has entered the Chinese vaccine market, its growth rate has increased from 8% in 2016 to 65%. Meanwhile, GSK has developed Shingrix, a newly approved herpes vaccine in October 2017. This vaccine has achieved sales of £22 million in 2017, which suggests a huge market potential. Shingrix’s approval of Zostavax, which has been a monopoly in the Merck market for many years, has ushered in new competitors. It is worth mentioning that the Centers for Disease Control and Prevention (CDC) Advisory Committee on Immunization Practices (ACIP) issued a recommendation recommending Shinglix to replace herpes zoster, the vaccine Zostavax used for immunization of the elderly population aged 50 years and over. According to EvaluatePharma, by 2022, GSK will be the world’s vaccine market leader with more than $8 billion in sales with its new herpes zoster vaccine Shingrix (Sanofi second, Pfizer third, MSD fourth).

MSD in China: Explosive demand for Gardasil 9 in China

[Source: Xinhua, Merck Sharp and Dohme (MSD) introduces Gardasil 9 in China]

Merck Sharp and Dohme (MSD) is a global research-driven pharmaceutical company dedicated to putting patients first. MSD China formed in 1994 in partnership with Hangzhou Hua-dong Medicine Group Co. Ltd. From the beginning, MSD China has been a socially responsible, innovative company contributing to improved health and economic growth. With more than 5000 highly skilled, motivated employees throughout the country, MSD China is committed to bringing its high quality medicines and vaccines to the Chinese people. MSD has 10 operation areas, manufacturing plants and R&D centers. It has invested 1.5 billion USD in Beijing to establish a research center in 2011. In April 2013, it invested 120 million for MSD new plant in Hangzhou. The plant is the biggest and with most advanced technology pharmaceutical production packaging plant in APAC area.

One of the highlight products from MSD is its 9-valence cervical cancer vaccine: Gardasil 9. It has become so popular in China that there is not enough supply of vaccines to meet the demand. In 2018, MSD Gardasil 9 cervical cancer vaccine sales reached 3.15 billion USD in China. However, Gardasil 9 in China grew only by 37% due to the production capacity constraints. It is clear that in the future, China is one of the most important consumer markets for MSD cervical cancer vaccine.

Local Giants of the Chinese vaccine market: Changsheng, Zhifei, Kangtai, Walvax

Changsheng

[Source: Changsheng biotechnology Changsheng biotechnology’s vaccine products maintained good market sales]

According to the company’s annual report data, 2017 Changsheng Biological’s vaccine products maintained good market sales, achieving sales revenue growth of 51.67%. The growth is mainly attributed to the company’s significant increase in the sales revenue of category II vaccines, which totaled an operating income of ¥115 million yuan representing an increase of 59.57% from 2016. The sales of category I vaccines however decreased by 5.89%.

Zhifei

[Source: Chongqing Zhifei Biological Products Zhifei Biotech derived its sales mainly from Category II vaccines in China]

Zhifei Biotech’s revenue is mainly derived from the sales and promotion of Category II vaccines in China, including self-developed vaccines and agent-imported vaccines. According to the company’s annual report data, in 2017, Zhifei Biotech generated a sales of ¥1.263 billion yuan from vaccine products, an increase of 205.36% from 2016. Among all vaccines sold, the sales revenue of its self-developed category II vaccines has increased by 140.84%. The total sales of the Category II vaccines in China as a proxy was 274 million yuan, a year-on-year increase of 9231.67%.

From the company’s own analysis, its full-invested subsidiary Zhifei Green Bamboo’s self-produced global exclusive product: AC-Hib triple vaccine, is the most important contributor to the profit growth. At the same time, Zhifei Airport, another full-invested subsidiary of the company, successfully renewed the agency distribution contract for the 23-valence pneumonia with vaccine and inactivated hepatitis A vaccine last year, and the agent’s 4-valence HPV vaccine also successfully passed the drug registration approval, driving the company’s revenue growth.

Kangtai

[Source: Bio Kangtai Changsheng, The sales revenue of Kangtai Bio continue to grow]

Taking close to the market opportunity of the recovery of the vaccine industry in China, Kangtai Bio intensified its sales and promotion of vaccine products in 2017. According to the company’s annual report data, the sales revenue of Kangtai Bio’s vaccine products increased by 113.07% in 2017, among which, the second-class vaccine products. In 2017, the sales revenue was approximately ¥1.034 billion yuan, a year-on-year increase of 148.26%, attributing to the sales growth of its hepatitis B vaccine, Hib vaccine and quadruple vaccine. However, the sales revenue of one class of vaccine products has decreased slightly by 2.00% year-on-year.

Walvax

[Source: Walvax Biotechnology, Walvax Bio’s self-produced vaccines resumed growth]

In 2017, Walvax Bio’s original self-produced vaccine product sales resumed growth, and the sales revenue of various vaccine products increased significantly in 2017, especially the Haemophilus influenza type b conjugate vaccine and the freeze-dried AC vaccine group meningitis. The cocci-polysaccharide conjugate vaccine increased by 169.73% and 108.92% compared with 2016. At the same time,  Walvax Bio’s 23-valent pneumococcal polysaccharide vaccine annual sales was ¥102 million yuan in 2017, accounting for 15.30% of operating income.

Scandals of the Chinese vaccine market and lessons learned

Faulty Vaccines: scandals of local giants making Chinese consumers lose confidence in the domestic vaccine companies

[Source: Changchun Chang Sheng filed bankruptcy after been find making faulty vaccines]

In July 2018, Changchun Chang Sheng Biotechnology, one of China’s largest vaccine makers, was exposed for selling and distributing hundreds of thousands of faulty vaccines to the Chinese vaccines market. The number of rabies vaccines involved is about 113,000 batches. The government’s investigation showed in August 2018 that the company also produced nearly 500,000 non-compliant diphtheria, tetanus and pertussis vaccines.

As this news spreads through the country, the public is outraged as the affected vaccines are intended for babies, not to mention many Chinese families only have one child. Therefore, infant parents began to look for safer sources of vaccines by travelling to Hong Kong and Macao to take foreign-made vaccinations.

Chinese authority stepped into investigation immediately, removed dozens of senior officials and fined ¥9.1 billion yuan on Changchun Chang sheng, placing the company in a difficult situation. Changchun Changsheng announced its bankruptcy in Nov 2019 has sent a strong signal to the vaccine industry in China, indicating that it is likely to face a much stricter legal environment in the near future.

Chinese perceptions of vaccines

Are there ant-vaxxers in China?

Research in 2015 by Hangzhou’s Center of Disease Control and Prevention suggests that the media has swayed Chinese netizen perception of vaccines. Social media activity on Weibo and Zhihu do show that some Chinese netizens are hesitant to use vaccines. Although during the time of the research, some provinces showed a 30% decline in hepatitis B vaccinations, government officials quickly dispelled anti-vax sentiment. Compared to the west, anti-vaccination sentiment in China is more due to fear of contamination rather than distrust of the science of vaccines. Additionally, anti-vaccination sentiment in China tends to arise only after vaccines scandals, and more contained then in the west.

Chinese perceptions of vaccines in 2020

[Source: Zhihu, Consumer on Zhihu asking if the HPV vaccine is worthy and effective]

Although the market for the HPV vaccine in China is booming, many consumers still doubt the necessity of taking the expensive category II vaccine. There are many similar questions posted on Zhihu, a Chinese question-answer forum, asking for detailed information on HPV vaccines. This indicates that the Chinese consumers are aware of the HPV vaccine, but the amount of information available on such vaccines is fairly low. Many are still judging between the needs and the costs.

[Source: Zhihu Chinese consumers asking the necessity of taking vaccines and the types of vaccines required]

As anti-vaccination theories become increasingly prevalent, many consumers are seeking to gain more knowledge on the importance and the necessity for taking vaccines. Moreover, the above question is posted after Changchun Chang Sheng’s faulty vaccines scandal, which indicates Chinese consumers’ concern over the Chinese vaccine market.

Opportunities in the vaccine market in China

Increasing number of newborns as China’s ‘one-child policy’ loosens

In 2015, the “Population and Family Planning Law of China” was amended in which China’s one-child policy became two-child policy. This change will lead to an increase in the birth cohort size and hence an aggregate increase in vaccine demand.

Growing demand for quality vaccinations

Many common vaccines that are currently used in China has been outdated compared to international markets. To fulfil the growing demand, there are more quality vaccines developed and will replace the first generation vaccines. For example, Prevnar 13 and Gardasil 9 approved in 2016 and 2017 by CFDA. Furthermore, the concern over domestic manufacturers made many parents fly all the way to Hong Kong to get foreign-made vaccinations for their children. However, this may also serve an opportunity for foreign-made vaccines to enter the Chinese vaccine market directly.

Growth potential of the adult vaccine market in China

The adult vaccine market in China is also developing along with the aging population. Vaccine for common diseases is proven to be the one of the most effective ways to prevent elderly from getting the diseases. In China, the population of those aged 65 and older is expected to raise to 16.6% by 2030 and thus increase demand for such types of vaccines in China.

Increased purchasing power leading to higher demand of foreign-made vaccinations

With greater purchasing power, more Chinese consumers are willing to buy foreign-made vaccines in China. Disposable income is expected to increase to ¥50,900 yuan for households in the cities and to ¥22,200 yuan for households in countryside, with compound growth rates of 7.1% and 9.5%.

Loosened requirement for clinical trials allowing more room for future development

Historically, China has required clinical trials to be conducted in China before a drug can be approved for use. Reforms in the Chinese Food and Drug Administration (CFDA) in 2017 have removed this requirement and in which makes it easier for companies to receive approval.

Pfizer faced this issue when its Prevenar 7 (pneumococcal 7-valent conjugate), the only pneumococcal vaccine available in China at that time, was up for license renewal in 2015. The government did not approve the renewal, resulting in Pfizer abruptly ceasing their vaccine sales in China and prompting significant changes in the company’s operations, as well as leading to a shortage of the vaccine for Chinese children. Pfizer did not comment on why its license was not renewed, but the Beijing-based finance magazine CaiJin reported on an anonymous source who suggested that the license was not renewed in order to allow domestic pneumococcal vaccine development more time free from competition.

Companies are subject to less regulations. Therefore, the long research and development time they have go through will more likely be realized than ever before.

The vaccine market in China has a long future of growth

Overall, there is still a huge potential for the Chinese vaccine market to further expand in the foreseeable future. The increasing amount of awareness and demand for category II vaccines in China will bring more opportunities and open doors to more foreign companies to provide vaccines in China. Although competition with domestic brands is tight, there is still a displayed interest among Chinese consumers for foreign made products. Additionally, the awareness of diseases is increasing, and as the middle class grows, so will the demand for vaccinations.

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The market for feminine hygiene in China is difficult to understand. Between the open-mindedness of younger consumers and the old beliefs of older women, preferences differ. In 2017, China’s female population was 679 million. This leaves many opportunities for feminine hygiene brands. However, the obstacles are numerous. Daxue Consulting gives an overview of the obstacles and strategic levers to activate to enter this market in China or to improve your marketing strategy in this field.

The feminine product market is evolving very fast in China, especially for pads

Feminine products refer to what women use to prevent leaking during menstruation. This includes all paper made from pulp like sanitary napkins, tampons or menstrual cups and other feminine hygiene products.

Chinese female hygiene market grows rapidly

Women are increasingly concerned about feminine hygiene issues in China

Out of a total population of 1.38 billion in China, nearly 48% are women. The country is now the largest market in Asia for hygiene products, including health protection products. But over the past decade, the Chinese population of women aged 12 to 54 has declined. However, the growing awareness of women’s hygiene practices has led to the more frequent replacement of sanitary protection products, resulting in a significant increase in volume in this category.

Indeed, the market is expected to reach 16.8 billion, growing at a CAGR close to 4.7% during 2019−2023. For now, in 2019, revenue in the Feminine Hygiene segment amounts to US$8,369m.

China’s feminine hygiene market contributed to the highest shareof the overall Asia-Pacific market value in 2017 with 77.7%. China’s spending on such products was 113.8 RMB per capita (2017).

In terms of product preferences, it is interesting to note that sanitary napkins are very widely represented in China, accounting for 88% of total sanitary protection sales in 2018. 

In comparison, in the United States, about 42% of women would use tampons and 62% sanitary napkins. In Europe, the percentage of women using tampons is as high as 70%.

Feminine hygiene market in China: types of products and brands

Thus in China, we find mostly sanitary napkins on the market and some brands of tampons. Here is a list of the most important hygienic protection brands in China in 2019:

·         Whisper (Procter and Gamble)

Whisper is the equivalent of Always for the Chinese market. The brand is recognized as an essential player for Chinese women and inspires confidence, mainly through the innovations they bring. Two years ago the brand launched its sanitary foam pads in China with a material that can absorb 10 times its weight in liquids and remain contoured to the human body, to eliminate leakage. Whisper saw its sales revenue reached more than 2 billion yuan ($315 million) in China in 2017.

·         Hengan (Hengan Fujian Holding)

Hengan Group, as the earliest enterprise entering into the sanitary napkins market in China, was established in 1985. Its strength lies in its extensive marketing network across China because it has 300 sales offices in more than 40 different locations. The brand has 3 sanitary napkins brands: Anle, Anerle and Space 7 which is known for its pink culture.

·         Kotex (Kimberly-Clark)

Kimberly-Clark came up with the brand Kotex more than 90 years ago in the United States. The products are manufactured in Japan. The brand is known for its communication on women’s empowerment and is present in 100 countries around the world. In China, the brand also sells its tampons.

·         Sofy (Unicharm group)

Sofy has been present in China since 1993 and sells top-quality sanitary napkins, tampons, and pantyliners. Its communication highlights perfect hygiene, safety, good health, and worry-free chums. The name “Sofy” has the meaning of “Sophisticated” and “Soft-hearted.“ The last product they launch in China is ‘’Chao shushui anxin ku’’ that are napkins preventing night leakage in 2014.

·         ABC (Kingdom Healthcare Holdings)

ABC is a high-end female personal care brand including sanitary napkins, hygiene wipes, and care solutions. Since its establishment in 1998, ABC has been adhering to the concept of “health, quality, and comfort” and has provided care and love to women in China and the rest of the world.

To buy their sanitary napkins or tampons in China, women can go to female specialty stores, supermarkets or convenience stores or purchase them online.

Very different expectations and perceptions depending on the age and region

China is a vast country, and perceptions between regions can be very different.

For example, as shown in the graph below the main cities and provinces which have a high female’s attention to feminine hygiene are the ones benefiting from the highest GDP and personal income in China. These regions are Beijing (City, GDP ranked 2nd in 2017), Shanghai (City, GDP ranked 1st in 2017), Zhejiang province (Province, GDP ranked 4th in 2017), Tianjin (City, GDP ranks the 6thin 2017) and Guangdong province (Province, GDP ranked 1st in 2017).

Consumers from these regions can allocate more money to feminine products that have a direct impact on their health and help them improve their quality of life.

Age is also a factor to be taken into account when considering the consumption of sanitary protection in China.

Indeed, younger women have a very different vision of female hygiene. Women are active and ambitious and are now looking for new protection systems adapted to their lifestyle. Then the demand for slim, thin, and ultra-thin sanitary napkins is increasing, and the demand for tampons and menstrual cups is also expected to increase, even if the consumption remains currently very low.

Women aged 18 to 34 are therefore spending more and more money on feminine hygiene products in China, accounting for 40.9% of female buyers in 2016 compared to only 30.8% in 2014.

Another thing is that women of 18-24-year-old pay more attention to feminine hygiene than the other groups, as personal care during menstruation and gynecologic inflammation are 2 topics they would like to be more knowledgeable about.

They are influenced by ideas and lifestyles from the West and grow up in more open and international environments.

But a market with many obstacles for brands

Despite an increase in awareness and sales in recent years in China, sanitary protections brands face many obstacles such as scandals or cultural gaps. 

A lack of sexual education but not a taboo among young people

The first thing that makes hygiene protection products challenging to promote in China is the lack of sex education and regulations imposed by the Chinese government.

For example, China’s media regulator, banned advertisements of feminine hygiene products on TV at lunchtime and during prime time shows. Which is particularly revealing is that their reasoning for this is a question of disgust, explaining that feminine hygiene was disgusting and thus would turn people away from the TV.

Thus Chinese society still portrays a disgusting and embarrassing image of menstruation and the lack of sex education reinforces this feeling. 

Sexual education in China: the recent textbook scandal

Recently in China, a sex education textbook caused a wave of anger among parents. The book published by the Beijing Normal University [u1] was intended for primary and secondary school students in China. While information such as ‘how to make a baby’ or ‘how sex works’ seems normal for Western countries, in China, the book has outraged parents.

Some sentences like: “Daddy and mommy are in love with each other; daddy puts his penis into mommy’s vagina, then sperm enters mommy’s womb.” – shocked some Chinese people.

One chapter described the transformation of the body between childhood and adolescence. In another chapter, homosexuality, which is tolerated in China, is presented as a normal phenomenon by the researcher.

Some parents consider this manual to be pornography. Others say they blushed when they saw the images describing a child’s conception. But we can also read very positive reactions that show that Chinese young people have grown up differently. Young Chinese parents consider it is high time for China to get rid of taboos on sexuality.

Swimmer Fu Yuanhui remarks about her menstrual cycle

Another event that happened in 2016 in China is an excellent example of how Chinese see menstruation and the evolution of ways of thinking. In August 2016, after competing in the women’s 4x100m medley final at the Olympic Games, Chinese swimmer Fu Yuanhui (傅园慧) explained her disappointing performance (4th place) by discussing her period.

“I didn’t swim well enough this time. It’s because I’ve been having my period since yesterday, so I feel unusually tired. But that’s no reason; I didn’t swim well enough.’’

Her explanation shocked the audience, and the scandal was broadcast on all the country’s media.  But on the internet, one could read very good comments, many women finding Fu Yuanhui brave and impressive because she represents a generation of modern and open-minded Chinese women.Young Chinese women are comfortable with menstruation

The interesting thing, despite all of these cases, is that the female monthly cycle is not a taboo topic in everyday Chinese conversations.

As can be seen in the graph below, women are interested in these topics and easily seek new information about sexual relations or the menstrual period. 

Today in some China’s provinces it is even possible to have sick leave for menstrual pain (Ningxia, Shandong Province, Anhui, Hubei, Shanxi) or to make short after lunch naps.

Many scandals happened that increase the need for brand vigilance

Scandals that have frightened Chinese women

Two years ago, a huge scandal occurred in southern China where the police found more than 10 million fake sanitary towels produced in unsanitary facilities. It was then learned that the counterfeits had been sold for 3 years throughout the country and under famous brands such as ABC or Whisper. At that time, Chinese netizens were shocked, and tens of thousands of Sina Weibo microblog users were posting under the hashtags #Over10MillionFakeSanitaryTowels and #SanitaryNapkins.

Two years ago, reports also revealed that some napkins made in China might contain a fluorescent carcinogen agent.

These scandals and mistrust contributed positively to the situation of the international feminine hygiene brands that Chinese consumers tend to prefer thinking they are more qualitative.

Innovations brought by brands to reassure the buyers

Chinese women are therefore paying more and more attention to the quality of the products they buy.

The above data shows the main comments and keywords used on Weibo Xiahongshu in February 2019 by Chinese women consumers of feminine hygiene products. By the keywords on social media, people care about the brand origin, its qualities and characteristics such as doctor’s endorsement, natural PH, odor protection, etc.

Thus, international feminine hygiene brands in China have been able to seize this opportunity and have developed more qualitative products with soft materials and organic compositions, promising safety and natural feeling.

Manufacturers now begin to introduce 100% organic cotton products to attract consumers who feel uncomfortable with synthetic fibers or who have concerns about safety. For example, in October 2017, Whisper launched pure cotton towels which contain no preservatives, softeners or fluorescent brighteners, to avoid skin irritation and safety troubles.

These organic cotton pads, whose top sheets are manufactured in Japan using organic cotton produced in the United States, are the results of considerable investments in research and development in China. According to Yang Shanshan, vice-president of female care of P&G China, “Whisper plans to increase more research and development efforts in China, to develop products at its research center in Beijing and then export abroad, using advanced big data technology in the country.”

Tampons in China, what uses and perceptions?

A growing category for feminine hygiene in China but difficult to reach because of different beliefs

As mentioned above, tampons are not common in China. Barely 2% of Chinese women would use tampons as hygienic protection: on the contrary, more than 70% of Westerners would be regular users. Although Chinese women are increasingly attracted to the Westerners’ way of life and welcome European cosmetics products with open arms, tampons are still a hard sell to a culture still bound in cultural traditions.

However, tampons in China saw the most dynamic growth in sanitary protection in 2017 in China even if it is mainly due to its small buyer base.

According to the market research firm Euromonitor International, the tampon market reached 408 million RMB in 2018 compared to just 100 million RMB in 2014. This increased by 342% from 2014 to 2018. Euromonitor International predicts that in the next five years, the size of the tampon market will grow from 598 million RMB in 2019 to 2.123 billion RMB in 2023, it means an increase of 255%.  

Today, among the regular users of tampons, we mainly find young women who have lived overseas or who have strong western influence and who live in top-tier cities in China.

But then why don’t Chinese women buy tampons?

• The tampon is a foreign body

In traditional Chinese medicine, we learn that the body must be free and that the tampon can bring bacteria in addition to obstructing the free flow of blood out of the uterus and vaginal canal. In the book ”Chinese Medicine for Women: A Commonsense Approach” written by Bronwyn Whitlocke, we can read “Tampons do not allow free flow of blood. The tampon acts as a dam, absorbing some of the blood; and that is not absorbed can flow back to the uterus.’’

So some Chinese women do not see the tampon as something beneficial but as a foreign body that can hurt the body. In addition, there is a lack of knowledge around the use of tampons and women think that the object hurts or is uncomfortable.

• The cult of virginity

In China, this is called ”the Virgin complex,” and it is one reason why tampons are not successful. Indeed, for some Chinese people, being a virgin means being pure. For younger women, there has always been a fear that tampons will break the hymen.

The cult of virginity comes from ancient traditions in patriarchal family structures. Marrying a virgin woman was very important at the time and was seen as a gift. Today, in some tourist villages in Anhui province, you can still see female chastity memorial arches built by local governments between the 14th and 20th centuries to honor widows who never married again.

However, today Chinese women are less concerned about these issues of virginity. Indeed, with more than 70% of Chinese women having sex before marriage, virginity and sexual taboos seem to be disappearing. However, maternal or grandmother influences are still obstacles to the use of tampon in China.

• The cost

Finally, there is also an objective reason: tampons are about 2 to 6 times more expensive than sanitary napkins in China. On average, a tampon costs between 3 and 4 yuan while sanitary napkins cost less than 1 yuan. So the calculation is quickly done: if a woman uses 15 sanitary napkins or 15 tampons for each menstrual period, the difference in price per year is more than 500 yuan. 

Major tampons brands in China

• OB Tampons (Johnson & Johnson)

O.B. tampons are the old tampon brand in China. They first appeared in 1993. Indeed, Johson and Johson was one of the first foreign pioneers to enter China in the 1980s, when it set up the joint venture Xi’an-Janssen Pharmaceutical Ltd. Their simple packaging suggests that they have a medical aspect, which appeals to Chinese customers because it inspires confidence. According to Euromonitor International, OB is the top-selling tampon brand in China with 22,5% market share.

• U by Kotex Click Tampons

Kotex launched its first tampons in China in 2015. The non-slip and small design makes them easy to use and portable. Coming in sleek and hygienic packaging, these tampons guarantee top-notch protection for regular and high levels of absorbency. 

• Tampax Radiant Tampons (Procter & Gamble)

Tampax has been in China since 2010; however, it is still seen as the brand imported from the United States. These tampons come with a smooth and compact plastic applicator and rounded tip for comfortable insertion.

• Danbishuang

Danbishuang is the first brand of Chinese tampons in China. Launched 3 years ago, the brand uses Tampax’s color codes while focusing on protection and safety.

A dual communication strategy for feminine hygiene brands in China: Through information and woman empowerment

Inform to reassure: when brands become prescriptive

The best way for a brand to gain legitimacy in a market where doubt and mistrust reign is to position itself as a teacher, as an advisor. By adopting an educational approach, the brand seems expert. Many brands call on experts and doctors to carry their messages.

In China, since women are not very familiar with tampons and do not know how to use them, brands should provide useful advice and guides. More generally, in a sector as complicated and sensitive as feminine hygiene in China, it is essential for brands to reassure the public.

Unicharm has developed a whole digital content strategy on their Chinese site and social networks: tips, tricks, and useful tips, consumers can easily refer to this section called “Tips & Advise.”

Female empowerment in China: feminine hygienic protection brands want to become its new symbol

In recent years, Chinese women have seen their living conditions and lifestyles change: young women are now more independent, more open to the world and sometimes feminist.

It is in this niche of women’s liberation speech that feminine hygiene brands want to position themselves in a market like China.

For example, Whisper hired the famous actress Dilraba Dilmurat to carry the message of empowered women to China. The actress, beloved in China, is recognized as a model of success, having received last year the “Golden Eagle Goddess” award at China’s Golden Eagle Awards, one of the three main national award ceremonies that recognize excellence in Chinese TV.

Some brands are also positioning themselves in the women’s sports market to show that women are now able to play sports when they want and that no one can prevent them. This was Johson & Johnson’s strategic choice in 2018 by sponsoring sports halls in China, and also the choice of the brand ABC with the ad below:

Tampax also developed a communication campaign focused on women’s empowerment during the Single’s Day in 2017, which left its mark on people’s minds. The advertisement then showed a woman in a bikini surfing on a tampon with the legend “Explore the new world. Tampax wishes you a happy 11.11”.

Thus, the market for feminine hygiene products in China is undergoing a major disruption as women emancipate themselves and change their vision of their bodies and their sexuality. It is therefore certain that the tampon will be able to make its mark on this market in the years to come. But will Chinese women be ready for other types of hygiene protection such as menstrual cups? Nothing is less certain.  

Author: Steffi Noël

To learn more about the needs and preferences of the Chinese market for feminine hygiene products, subscribe to our newsletter or contact our team at dx@daxueconsulting.com.

Our team of experts offer in-depth interviews and focus groups that construct insightful profiles on consumers across the country, and provide marketing strategy recommendations to our clients based on extensive experiences in China.

This article Sanitary pads, tampons: everything you need to know about the feminine hygiene market in China | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

E-pharmacy, also called “internet pharmacy” (网上药店) are online platforms that act as intermediaries or retailers to facilitate the sales of medicine, and are becoming increasingly popular across the world. China is currently facing many of the same regulatory and security challenges with their e-pharmacies as many other developing countries. Despite this, China has many unique market forces and players that make its e-pharmacy development different, and as Daxue Consulting has observed in the past, those agents often contribute and interact in unusual ways.

The Chinese e-pharmacy market has been growing substantially in the last six years according to Sinohealth CMH (中康 CMH). Sinohealth’s study shows that B2C e-pharmacy sales reached almost 28 billion CNY in 2016, which is a 93% YOY increase since 2015 and is over 17 times the sales amount in 2012.  With its rapidly expanding size, China’s e-pharmacy market is already becoming one of the world’s most important sectors of the healthcare industry.

E-pharmacies allow for pharmaceutical to be conveniently delivered to a patient’s doorstep. Photo credit: Daxue Consulting.

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Today, the largest Chinese cities are experiencing a massive increase in demand for health care goods and services, averaging roughly 30% every year. According to China Internet Network Information Center (CNNIC,中国互联网络信息中心), over half of the Chinese population are internet users, with 5.14 million Chinese expected to regularly purchase products online through platforms such as Tmall and Jing Dong (京东), and those numbers will continue to rise in coming years. As a result, the combination of two major trends in China, healthcare and e-commerce, is powering the development of the e-pharmacy alternative at a tremendous pace. In 2016, China overtook Japan and became the world’s second largest pharmaceutical market, with over 914 enterprises approved to sell over-the-counter (OTC) medicines online in China as of January 2017, according to China Food and Drug Administration (CFDA,国家食品药品监督管理总局).

Succeeding in e-pharmacy in China: practicality over risk

One of the reasons for the success of e-pharmacy in China stems from the fact that many Chinese are being drawn into a busy lifestyle where short holidays, rigorous work environments, and long hours are all too common. This results in high levels of stress and pressure within the population and fueling the demand for consumer health products, particularly vitamins and dietary supplements (VDS). The average consumer’s purchasing power is rising quickly in China, and so too is the demand for healthier products to boost their immune systems, delay aging, and fight fatigue. Lack of free time leads the Chinese to value convenient round-the-clock shopping and the fast home-delivery services provided by e-pharmacies.

[ctt template=”2″ link=”g8Pap” via=”no” ]B2C e-pharmacy sales reached almost 28 billion CNY in 2016, a 93% YOY increase since 2015[/ctt]

In many cases, many Chinese citizens are increasingly finding less time to navigate a complex healthcare market, and are off-put by expensive medical services. It is only natural then that self-medication and traditional medicine have remained very common methods of healthcare in China. E-pharmacy services offer a clear solution to the current Chinese lifestyle and desire for rapid product delivery.

E-pharmacy platforms show that herbal and natural ingredients are the most popular medicines. The general Chinese consensus on non-herbal and non-natural medicines such as prescription drugs is quite poor, as they believe these medicines to cause unwanted side-effects and are generally less safe. Thus, OTC products intended for fighting allergies, colds and coughs saw strong growth in 2016, along with dermatological creams in Chinese e-pharmacies.

China’s air quality leads to dryness and other symptoms that are remedied with topical ointments. Calamine Lotion (炉甘石洗剂), developed by Winguide Huangpu Pharmaceutical Ltd (上海运佳黄埔制药有限公司), is an itch-relieving medication and one of the best sellers on Taobao and Tmall. Photo source: Tmall.

Skin products are getting sold faster than other OTC products in China because the highly polluted and often humid air is particularly damaging to skin. Also, Chinese consumers view dermatological products much more favorably, as they are perceived as less dangerous than ingested medicines when it comes to the use of potentially toxic substances.

 Topical medication products, such as this one which can cure skin infections, are very popular on Chinese e-pharmacy platforms. Photo source: Tmall.

This e-pharmacy phenomenon is being primarily driven by China’s younger, tech-savvy demographic groups. Consumer reviews, websites ratings, discussion boards, blogs, and other social media platforms are used frequently by these younger consumers. Firms wanting to sell their products through an e-pharmacy in China must ensure they have a sufficient online presence and the capability to manage online business operations. E-pharmacy user purchases in China depend highly on the opinions of key internet influencers and on the experiences of other customers.

Black market e-pharmacy presence in Mainland China

The rise of e-pharmacies has been mirrored by the surge of illegal sales as well, and the situation has reached a critical point. In China, according to Legit Script, only 3% of e-pharmacy websites comply with local laws and regulations. This means that 97% of e-pharmacies in China are operating somewhat illegally, and most likely with hazardous practices. Rogue e-pharmacies has become a genuine problem in China as these websites are not managed by qualified pharmacies or pharmacists, do not require prescriptions or medical examinations, and sell unapproved and falsified drugs. The public health of citizens is directly threatened by the high saturation of criminal entities in the pharmaceutical industry.

To fight the proliferation of these firms, agencies such as the Chinese Food and Drug Administration are building a drug database for public awareness. Ideally, the Chinese government will also be executing regular campaigns to shut down non-compliant sites and mitigate consumer risk. Furthermore, packaging will be improved, including clear color codes which let patients know if their medicine requires a medical consultation or a prescription.

New perspectives on diversification of e-pharmacy in China

Recent research conducted by Frost & Sullivan shows that there is a large gap between U.S. and China when it comes to the development of the e-pharmacy market. The report states that e-pharmacies accounts for over 30% of the total retail sales in U.S., but in China e-pharmacy sales only account for 1.5% of total market sales. Frost & Sullivan, therefore, concluded that foreign multinationals would be well-positioned to exploit the market differences.

[ctt template=”2″ link=”4GeeE” via=”no” ]China could legalize the selling of prescription drugs online within five years[/ctt]

The leading consumer health players haven’t missed out on the e-commerce and e-retailing trends in China. Chinese pharmacies and international players have started selling online though the most popular e-commerce Chinese websites. For example, Guangzhou-based health giant By-Health (汤臣倍键) opened its flagship store on Tmall (天猫) in 2011. After 12 months, that had already realized over 600 million CNY on the platform. This new channel of e-pharmacy is letting large firms reach more customers than ever before.

Protein powder (蛋白粉), liquid calcium supplements (液体钙), fish oil supplements (鱼油) and folic acid vitamins (叶酸) are the top-selling categories on By-Health (汤臣倍键)  Tmall store. Source: Tmall (天猫).

As online reputations are of paramount importance in Chinese e-pharmacy, direct selling companies are offering consumers various experience centers to review products. In this way, customer needs are targeted far more effectively, products can be segmented, the company’s internet image stands to improve, and brands can engage with consumers more directly. Amway (安利) and Infinitus (无限极) for example, both have implemented successful strategies with this in mind. By creating and maintaining a strong brand presence on WeChat and other top platforms, both brands could quickly garner helpful feedback and respond in kind. Other e-pharmacies should explore how to advertise in China, as mobile advertising is still one of the best solutions to boost sales in China, since mobile internet-based formats are skyrocketing at a yearly rate of 600%.

Amway and Infinitus have both created an online presence through successful branding and marketing. Bichen Zhang (张碧晨), a Chinese singer, is seen promoting an essence lotion product on Amway’s official WeChat account. Photo Source: Infinitus and Amway’s official WeChat account.

Most importantly, however, is the fact that China could legalize the selling of prescription drugs online within five years. As of May 2016, the CFDA has halted all online, third-party platform trial periods of prescription drug sales. However, the Chinese have also been looking to reintegrate those services into the economy. On December 2016, the Ministry of Commerce of China issued “The National Development Plan for Drug Circulation Industry (2016-2020)” (全国药品流通行业发展规划2016年-2020年) in which the government stated that China should cultivate many large-scale pharmaceutical enterprises with high-quality, standardized practices that extend all over mainland China.

At the same time, the government stated it would “support the cooperation between existing drug distribution enterprises and medical institutions and healthcare department, e-commerce enterprises to promote the medical e-commerce business services.” In January 2017, the Chinese government issued another series of documents, which aimed to provide a more comprehensive framework for growing the e-pharmacy industry, as well as encouraged the exploration of other prescription drug e-commerce operations.

However, the legalization of online prescription drugs sales is mainly targeted towards self-operated e-pharmacies, as they usually have the correct qualifications and certificates which allow them to sell drugs without being impacted by the policies. In that case, the investment in self-operated e-pharmacies will become a new trend. Although internet third party platforms, like Tmall, were forbidden to sell online in May 2016, those platform’s distribution channels are still stronger and more established than those of self-operated e-pharmacies.

According to the National Health and Family Planning Commission’s magazine (中华人民共和国国家卫生和计划生育委员会, China Pharmacy (中国药店), the sales of self-operated e-pharmacies and the third-party platforms account for 32% and 59% of the total online sales respectively. However, since the government is planning to standardize the market, there will be more restrictions for third-party platforms. From here, it is highly possible that self-operated e-pharmacies may overtake those third-party platforms in the future.

E-pharmacy consumers mainly consist of younger demographics. However, its convenience is also marketed to elders who have difficulties leaving the house.

In the past two years, many established pharmaceutical firms have begun to purchase self-operated e-pharmacies. For example, Renhe pharmacy (仁和药业) has purchased 56% of Yaofangwang’s (药房网) stock in 2016 for 600 million CNY, which lead Yaofangwang to realize 192 million in revenue during their first year of joint operations. Seeing successful acquisitions like Renhe’s, many third-party platforms have followed suit. AliHealth (阿里健康) purchased Guangzhou Wuqiannian Medicine (广州五千年医药) for 16.8 million CNY in 2016 to get the selling certification that Guangzhou Wuqiannian had been using.

Regulations have forced many small business operations to be acquired by large companies capable of meeting industry standards. Photo source: Alihealth.

What are the new trends for medical e-commerce in modern China?

With the competition of online pharmacies becoming more and more fierce, it becomes hard for a medical online platform to be differentiated from others and gain profits from sales. To break the ceiling, some platforms start to provide personalized products and services like online clinical services, medication guidance, and health management. Advanced technologies are also applied to improve services in different ways. This trend is called medical e-commerce 2.0. Furthermore, e-commerce 4.0 sheds light on the latest advanced technology which may have a big impact on the prospect of medical e-commerce.  Technologies like voice assistance search, artificial intelligence, augmented reality and so forth likely improve consumers’ purchase journey experience and thus, online pharmacies could take initiatives to stay ahead of their competition.

So as to differentiate the specialized platforms from normal online pharmacies that only provide products, online medical stores draw much attention on professionalization which provides additional services for customers on specialized medical advice and their applications. Many e-pharmacies such as Yiyaowang (1药网), Jianke (健客), Kangaiduo (康爱多) have launched a “medicine + doctor” model. For example, the Yizhen (1诊) app developed by Yiyaowang is effective in driving customers by providing a series of additional services, such as clinical service and medication guidance from Xinan internet hospital. The objective is to ensure the quality consistency of online and offline service so that a larger market share can be reached.

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O2O strategy being widely adopted in medical e-commerce 2.0 in China

As a core part of the transition to medical e-commerce 2.0, O2O strategy helps medical e-commerce platforms to offer better medical service, shorten delivery time and cover more customers, which will improve the competitiveness of the industry.

The O2O model aims to combine online information and offline services. For customers, they can place an order online and pick up the products in offline stores where they can get additional services like medication guidance. Customers can also place their order in offline stores even if the goods are sold out. The products will be sent from another store or the warehouse directly to the customers’ home.

Online pharmacies, such as Kangaiduo, have built offline stores on the basis of online platforms of a self-built official website, flagship stores on JD and Tmall, mobile WAP website, WeChat store, and Kangaiduo App. Some traditional offline pharmacy chains after years of operation and development have also established their presence online based on their professional service that relies on the community.

“Web-based hospital + Drugstore” is another type of O2O strategy practiced by AliHealth. It founded China Medical O2O Pioneer League with many offline pharmacies and tried to use mobile internet technology and big data technology to realize data interaction, build customer profiles, and get through the upstream and downstream industry service. Online medical service “One-minute clinic” is offered in member store of the league, providing personalized health management services.

Active social media presence in China is a clear feature shared by main platforms

Weibo and WeChat public account is their main focus on social media. Knowledge popularization by professionals and health advice are provided to the general population in the form of articles and videos. Meanwhile, product recommendation and purchase links are attached to promote sales.

For example, the official account of Haoyaoshi on Weibo, which has 459 thousand followers, provides a variety of information including public health events, health advice, and refutation to rumors. In addition, lottery events are held regularly to attract followers and increase exposure. On WeChat platform, original articles and serial caricatures about health knowledge and recommended products are sent. And customers can make purchases in Haoyaoshi online store through WeChat Mini program.

Daxue Consulting expertise on the Chinese healthcare market

A major pharmaceutical player in Europe was looking to expand their operations in China and reached out to Daxue to gain a better understanding of the Chinese market, specifically in respiratory health. Many highly-industrialized regions and cities in China, like Beijing, regularly experience poor air quality. As a result, citizens of these areas are being affected by air quality related health concerns in record numbers. Daxue’s team provided the insight and research into these critical locations so that the client could best tailor their products and services for the Chinese market.

Our project managers approached the problem from multiple angles. Qualitative interviews with medical professionals, patients, and other industry insiders helped create a picture of the scope and implications of the problem. With extensive quantitative research using advanced analytics techniques, our team was able to discern key areas of focus for the client’s expansion. Ultimately, Daxue’s recommendations helped our client design the optimal strategy for increased profitability and addressing one of China’s greatest health concerns.

In the healthcare industry and other practices, our clients share our passion for results and success. For more on our expert insights and our work in the Chinese market, reach out to learn more.

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This article E-pharmacy in Mainland China: the health shift online is the first one to appear on Daxue Consulting - Market Research China.