The Chinese may be poor, but their appetite for pharmaceuticals is considerable. China's 1.2 billion people and its long history of medicine making and taking mean its pharmaceutical market is already estimated to be worth dollars 6bn ( pounds 4bn), considerably more than the UK's dollars 4.5bn.
Inevitably the market is dominated by the state sector; international drug companies account for barely 12 per cent. But the fast pace of structural reform and booming economic growth mean China is becoming an increasingly tempting prospect for the pharmaceutical giants.
Which is why a run-down suburb of Chongqing, an obscure town in the south-western province of Sichuan, is home to a gleaming white modernist factory belonging to the giant Glaxo pharmaceuticals group. Built at a cost of dollars 10m and opened in October 1991 it manufactures half a dozen of Glaxo's aerosol anti-asthma inhalers, such as its Ventolin treatment, for local sale.
The Chongqing factory, employing 150, is a 50:50 joint venture between Glaxo and the State Pharmaceutical Administration of China, which runs the manufacturing aspects of China's pharmaceutical industry.
It is expected to break even next year. Yet the idea is not to repatriate profits but to plough them back into the plant and boost capacity. 'We didn't go into this to take pots of money out of China but to learn how to build a good plant there,' said Neil Maidment, head of Glaxo's Asia Pacific operations.
Unlike many of the foreign ventures in southern China, this is not an export-driven initiative dependent on the exploitation of cheap labour and land. 'In our industry cheap labour doesn't help much,' Mr Maidment said. 'The labour component of the costs of a drug is peanuts. We need highly skilled people, and they are in short supply there.' Rather it is the local market that is of interest.
In pharmaceuticals as in other sectors, the Chinese appear to be trying to fertilise their ailing state industries by infecting them with Western ideas. Medimetrik, the market research organisation, estimates that Glaxo has the largest share of the Chinese market for imported drugs. Yet the company was relatively late establishing a manufacturing presence on the mainland, where 10 foreign groups have so far set up joint production facilities.
First in was the 'Shanghai Squibb' a joint venture between the Chinese and Bristol-Myers Squibb of the US, which had a long-standing pre-revolutionary involvement in China. Its plant near Shanghai opened in 1986. Unlike Glaxo's, it is a large multi-purpose facility producing tablets and liquids, a significant proportion of which are exported. According to Squibb, it is profitable. Later recruits to China have included SmithKline Beecham, Astra, Warner Lambert, Pfizer, Otsuka, Ciba-Geigy, Johnson & Johnson and Hoechst. The main omission is Merck, the world's biggest drug company.
Perhaps the most revolutionary change in the Chinese market as a result of the presence of the big drug companies has been the progressive introduction of sales and marketing functions. Until recently the state pharmaceutical manufacturing monopoly used to meet twice a year with the production and distribution arms and fix a quota for various drugs.
'It was a good old Stalinist approach,' Mr Maidment said. But things are changing fast, spurred by the arrival of Western-style sales and marketing teams.
Glaxo's Hong Kong registered sales and marketing operation has more than 100 sales staff working in China, and the number is soon to double. Most have a medical background and travel extensively visiting hospitals and shops, promoting Glaxo products made in the Chongqing plant and imported ones, for which scarce foreign currency is required.
While the system is moving closer to the West, big differences remain. There is no clear distinction between prescription drugs and over-the- counter sales, for example. Opiates and barbiturates aside, there are very few controlled substances. 'At the moment the stores are very strong sales centres. That's partly because there are relatively few doctors and many people would rather ask the store pharmacist for a product to solve their problem than queue up in a hospital,' Mr Maidment explained.
Promoting a drug to a hospital tends to be rather hit and miss. Each hospital has its own drug budget, although only the very biggest have a foreign currency allocation to buy imported drugs. Others have to rely on their local medical or administrative authorities - many of which are too poor to have significant foreign currency holdings.
Things are complicated by a bizarre pricing mechanism for imports. All foreign pharmaceuticals are imported at a price fixed at the manufacturer's price plus a profit margin that goes to the state-owned importer. If the state determines a generous margin this encourages the importer to buy it; but equally it encourages the purchase of more expensive drugs.
Producing for sale locally has its attractions, since it avoids the need to fish in the small pool of available foreign currency. But it also creates problems. The non-convertibility of the Chinese currency means that any foreign currency needs - for importing raw materials or staff - have to be provided either by the foreign partner, or earned through exports. Convertibility has therefore become the holy grail of the drug companies.
There are signs they may be nearing the end of their quest. 'The Chinese have been devaluing the renminbi fast,' Mr Maidment said. 'It has lost 30 per cent or so over the last year and it's now worth around HKdollars 1.1. That's pretty close to its black market value of 85 cents, so they aren't far away.'
Glaxo's best sellers in China are antibiotics; anti-cancer compounds are also in strong demand. But China's late entry into the international trading world has killed the market for Glaxo's biggest-selling product, the anti-ulcer drug Zantac.
'Zantac was invented before the promulgation of the patent system in China, so there was no protection for it. They started making a copy of it within a year or two of its release,' Mr Maidment said.
Glaxo is exceedingly coy about sales figures for China. When operating at full capacity, the new joint venture will contribute perhaps a quarter of Chinese sales, Mr Maidment said, although he would not say what those are.
But he did provide the following illustration of the speed with which the market is growing. 'We started Glaxo China in 1988. In sales terms it's already bigger than Glaxo Hong Kong, which was founded in 1971.'
There are exceptional risks in the Chinese market, of course. 'After Tiananmen Square we didn't get any orders for six months.' Business activity was paralysed as everyone tried to work out what the official line was.
But political risk is not his main concern. More of a worry is that the economy, which grew by 12 per cent last year, will overheat dramatically.
Nevertheless Glaxo has expansion plans on the drawing board for its mainland factory, with antibiotics the next therapeutic group on the list.
'If you look at the Pacific Rim you have to be blind not to see that's where the world growth is going to come from in the next 20-30 years,' Mr Maidment said.
'Korea, Taiwan, Singapore, Hong Kong, China - these countries with huge burgeoning populations, increasingly wanting to improve their life styles. You've got an Asian middle class that didn't exist 30 years ago which now numbers in its millions.'
And, fortunately for the drug companies, it is a group culturally inclined towards medicines. 'You don't have to convince the population of the worth of medicines. They are very medicine-orientated. They are a natural people for drug companies to be interested in.'
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