China Today: Pharmaceutical Distribution in China - The country strives to modernize its distribution logistics as thousands of small companies compete for profits - BioPharm International


China Today: Pharmaceutical Distribution in China
The country strives to modernize its distribution logistics as thousands of small companies compete for profits

BioPharm International
Volume 20, Issue 2

Planned Economy Stage (1950–1979)

Before China opened its door to the outside world, the government applied rigorous central power policies to rule the country. The state adopted a highly centralized drug distribution management system under this "planned economy." During this period, pharmaceutical products were strictly allocated and transferred through three levels of drug wholesale distributors. The first-level drug wholesalers, which were called "medical and pharmaceutical purchase and supply stations," were under direct supervision of the central government. The second-level wholesale stations were supervised by provincial or municipal authorities, and the third-level wholesalers were managed by local governments. At the planned economy stage, all Chinese distributors were state-owned. The government controlled the price differences between wholesalers. The price difference between the drug manufacturers and the first-level wholesalers was not allowed to exceed 5%. The price difference between the first-level and the second-level wholesalers ranged from 5% to 8%, and the price difference between the second-level wholesalers and hospitals or pharmacies was up to 15%. In total, the overall price difference from producer to pharmacy or hospital ranged from 25% to 28%.

Reform and Open Stage (1980–1989)

China began major economic reforms and gradually opened its door to the world in 1978. The pharmaceutical distribution structure in China evolved significantly at that time, moving from an introverted structure to a more open system. It also became more decentralized. During this period, as China began to have more market-driven economy policies, the rigid three-level drug distribution pattern was gradually abandoned. Drug distribution channels increased and manufacturers had some freedom to choose their distributors. At this stage, the market demand for pharmaceutical products also began to increase dramatically, and the market became more of a seller's market. This reduced competition among distributors as both the pharmaceutical industry and distributing businesses in China experienced rapid growth.

Market-Oriented Stage (1990–present)

In the early 1990s, China's pharmaceutical industrial environment began to undergo tremendous changes. Domestic pharmaceutical production grew dramatically while numerous imported drugs began to enter in the Chinese market. China's pharmaceutical market changed from a seller's to a buyer's market. Meanwhile, the number of distributors and retailers continued to increase. Many large state-owned distributing companies were restructured and transformed to public shareholding enterprises. Some of these companies managed to get listed on Hong Kong or domestic Chinese stock exchange markets. The total number of distributors soared from 2,500 in the 1980s to more than 16,000 in the 1990s. Mergers and acquisitions among Chinese distributors began to take place in the early 1990s and have increased over time. In general, the most successful distributors today are the ones that adopt strategies for pharmaceutical logistics that emphasize expansion, large scale distribution, and modernization.

Although China has not fully modernized, and is still undergoing reform and restructuring, the country is on the way to developing an organized, efficient, and cost-effective pharmaceutical distribution framework in conformity with international standards.


In 2004, after a nationwide "Good Supply Practice" (GSP) certification campaign, the number of drug wholesalers dropped from 16,000 to 7,445.2 Today, there are over 200,000 pharmacies across China and private owned enterprises are becoming a strong force in China's pharmaceutical distribution sector. State-supported pharmaceutical logistics and electronic trade systems have been put into operation in many cities. Since pharmaceutical distribution in China was opened to the world in 2003, several foreign distributors have entered the Chinese market.

Despite these advances, the industry is dominated by small companies. In terms of sales revenue, only 10 wholesalers have exceeded 1 billion RMB ($127 million) and just a handful have exceeded 5 billion RMB ($635 million). The revenue of the largest chain pharmacy is 500 million RMB ($63 million). However, the total market share of the three largest Chinese distributors (China National Pharmaceutical Group Corporation, Shanghai Pharmaceutical Co., Ltd., and China Jointown Group) in 2005 was only 17%. This is a small figure compared with that of the three leading distributors in the US, which account for 90% of the US domestic market.

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