Report on Promotion of Investment in Pharmaceutical ...images.mofcom.gov.cn/tzswj/table/chongqing_yiyao_e.pdf · Report on Promotion of Investment in Pharmaceutical Industries

Series of Promotive Report on Promotion of Investment

in Regional Advantaged Industries in China

Report on Promotion of Investment in Pharmaceutical Industries

in Chongqing

Investment Promotion Agency of Ministry of Commerce, P.R.C

Chongqing Foreign Trade & Economic Relations Commission

Chongqing Municipal Statistic Bureau

November, 2004

Brief introduction Pharmaceutical industry, known as “a rising industry which never declines”, always has a close relations with the national economy and the people's livelihood. Due to fast growth with an increase rate of 10.6% on a year-on-year basis over the past 6 years, Chongqing pharmaceutical industry has taken an initial shape in terms of integration of production, sale and research and has become one of 5 pillar industries in Chongqing region. As a traditional industrial city, Chongqing has decided to prioritize the development of the pharmaceutical industry in “Tenth-Five Year” Program. We are confident that Chongqing pharmaceutical industry will advance to meet a new period of fast development. The report, based on the perspective of interests of investors, firstly thoroughly reviews industrial foundation in Chongqing pharmaceutical sector, analyzes advantages, disadvantages, potential for development, potential investment risks for Chongqing pharmaceutical industry and secondly introduces development policy, associated policy in investment and preferential policy promulgated by the state and Chongqing and thirdly raises the area of investment in priority for Chongqing pharmaceutical industry and proposals on mode of investment for reference. Included in the attachment are key investment projects in Chongqing, layout of construction on Chinese medicinal material bases, guiding price for employees wage, etc, intended to provide investors an insight into the industry. 1. Analysis of competitiveness for Chongqing pharmaceutical industry 1.1 Advantage of competition for Chongqing pharmaceutical industry 1.1.1 Solid foundation of pharmaceutical industry Over recent years, Chongqing pharmaceutical industry witnessed a fast development. From 1998 to 2003, assets and output values for Chongqing pharmaceutical industrial enterprises rose by 7.5% and 10.6% on a year-on-year basis respectively and the increase rate of asset is slightly higher than gross increase rate of asset for above-scale industrial enterprises at the same period. In 2003, gross output value for pharmaceutical industrial enterprises across the municipality increased by 12.4% over the preceding year, of which output value for new products rose by 39.1%. Industrial foundation in the pharmaceutical sector is becoming more robust, promoting the establishment of science and research, production and marketing system and subsequently becoming one of 5 pillar industries across the Chongqing region. The information of latest survey conducted over root units shows that there are 182 legal representatives of pharmaceutical Industrial enterprises across the city, employing

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39510 persons and annual turnover being RMB6.507 billon, accounting for 1.0%、2.7% and 4.6% respectively of total proportion of industrial enterprises in the whole city, of which there are 144 legal entities in pharmaceutical manufacturing industry, employing 35900 persons and annual turnover being RMB 6.243 billion and 38 legal entities in medical apparatus and instruments manufacturing, employing 3610 persons and annual operation revenue being RMB264 million. Chart 1: Trend showing gross output value, added value for pharmaceutical industrial above-scale enterprises in Chongqing from 2000 to 2003

34.99

10.81

39.94

12.22

43.78

12.85

49.23

15.11

0

10

20

30

40

50

2000 2001 2002 2003

100 million yuan

industrial gross output value industrial added value

From the overall point of view, the state-owned and non state-owned pharmaceutical industrial enterprises (above-scale for short, same below) which income of annual sales reaches over RMB500 million are still the backbone of pharmaceutical industry of Chongqing. Statistics shows that there were 48 above-scale pharmaceutical industrial enterprises in Chongqing in 2003, accounting for 2.1% of total above scale industrial enterprises, possessing a total assets of RMB 8.469 billion, employing 21292 persons, achieving an output value of RMB 4.923 billion (note: all are gross output value of the current rate, same below), added value of RMB 1.511 billion, achieving gross profits of RMB 318 million, which account for 3.9%、2.5%、3.1%、3.2%、3.7% respectively of the proportion of above-scale industrial enterprises in the whole city. In terms of size, above-scale pharmaceutical industrial enterprises in Chongqing are composed of 2 large-scale enterprises, 12 middle-scale enterprises, 34 small-scale

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enterprises, accounting for 4.2%、25.0% and 70.8% respectively, of which large-scale pharmaceutical industrial enterprises posses an asset of RMB 14.8854 billion each on the average and output value of RMB 877.379 million each on the average; middle-scale pharmaceutical industrial enterprises posses an asset of RMB 261.978 million each on the average and output value of RMB 178.352 million each on the average; small-scale pharmaceutical industrial enterprises posses an asset of RMB 69.074 million each on the average and output value of RMB 30.228 million each on the average; In terms of the industry, there are 44 pharmaceutical manufacturing enterprises and 4 medical apparatus manufacturing enterprises, accounting for 91.7% and 8.3% respectively, of which pharmaceutical manufacturing industry comprises 17 chemical raw material manufacturing enterprises, 11 chemical medicine preparation manufacturing enterprises, 4 processing enterprises on traditional Chinese medicine sliced medicinal herbs, 10 manufacturing enterprises on Chinese traditional patent medicines, 1 animal drug manufacturing enterprise and biological manufacturing enterprise each, with total assets RMB 8.065 billion, employed staff 20530, gross output value of RMB 4.75 billion and added value of RMB 1.476 billion respectively in 2003. Medical apparatus manufacturing enterprises are composed of 3 medical diagnosis monitor and treatment equipment manufacturing enterprises, 1 laboratory and medical disinfection equipment/apparatus manufacturing enterprise with total assets RMB405 million and employed staff 789, gross output value of RMB173 million and added value of RMB35 million respectively in 2003. Taiji Group, a leading pharmaceutical industrial enterprise in Chongqing, is the biggest domestic enterprise of traditional Chinese medicine and the largest pharmaceutical enterprise in the western region as well, ranking the 3rd position on sales from main operation business among pharmaceutical enterprises in 2002 and the 10th position in Top 100 Chinese pharmaceutical enterprises in 2004 against total mount of profits. Taiji Group is mainly composed of Chongqing Taiji Industry (group) Limited Company, Chongqing Tongjunge Stock Co., Ltd, Southwest Pharmaceutical Stock Co., Ltd which are 3 listing firms, and Chongqing Academy of Chinese Material Medicine, Taiji Pharmaceutical Research Institute, Chongqing Medicines&Health Products Import&Export Corp., Sichuan Mianyang Medicine Trade Group Co., etc. It totally employs a staff of 13,210 and possesses post-doctor’s work stations and state high-tech centers and other several national research institutes. As a listing firm, Taiji industry of Chongqing (group) Limited Company, is the only enterprise in Chongqing selected by China 180 Index, which achieved RMB 4.8 billion on sales in 2002 and RMB 4.11

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billion on sales in 2003 and is expected to exceed RMB 10 billion in 2007. As one of the representatives of chemical pharmaceuticals, Southwest Synthetic Pharmaceutical Corporation Ltd. is the biggest base on production, research, development and export of chemical synthetic pharmaceuticals in the western China and is one of the pillar enterprises in China’s pharmaceutical sector. With 2 pharmaceutical products bases and a couple of pharmaceutical products production workshops with a capacity of over 1000te/y each, Southwest Synthetic Pharmaceutical Corporation Ltd. can produce 12 main categories of synthetic pharmaceuticals, including sulfas, antipyretic & analgesics drug, vitamins, antibiotics, quilonones, anticancer drug, antiulcer drug, antianxity drug, antihypertension drug, heart and brain blood vessel drug, antihistamines, antiemetic, more than 100 pharmaceutical products and preparations and also owns a number of preparations production lines on tablets, capsule, powder for injection, aqueous injection and granule preparations. All synthetic pharmaceuticals are fully subject to GMP certification as per SFDA. As a famous manufacturing enterprise of medical apparatus and instruments and the leader of HIFU non-invasive treatment technology to tumor, Chongqing Haifu (HIFU) Technology Co., Ltd is not only the birthplace of the first High Intensity Focused Ultrasound Therapeutic System (Haifu Knife), but also the largest production center for ultrasound therapeutic system, largest HIFU foundation and largest clinical study center. The creative academic thought, safe and non-polluting treatment source, advanced 3D assorted conformal scanning technology, real-time monitoring system, and the leading clinical application keep Haifu products at the top of the non-invasive treatment field. 1.1.2 Position of Chongqing pharmaceutical industry in the country According to data on 2003 China Pharmaceutical Statistic Annual Report, Chongqing pharmaceutical industrial enterprises as a whole do not enter a front ranks of the country for its main economic indicators(see Table 1). But, with respect to average figure of single enterprise, the average industrial gross output value for Chongqing’s enterprises is higher than average level in the country, ie. 35%, industrial added value higher than average level of the country, ie. 7%, sales incomes higher than the average level of the country, ie. 16% while total amount of profits is slightly lower than the average level of the country, which demonstrate that Chongqing pharmaceutical industry has a strong ability for overall processing and marketing but the ability for profiting is not satisfied. The position of Chongqing chemical medicines industry in the country is slightly higher than that for Chongqing pharmaceutical industry as a whole(see Table 2). One highlight with Chongqing pharmaceutical industry is TCM processing industry in Chongqing(see Table 3 and Table 4). Main economic indicators for Chinese traditional

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patent medicines in Chongqing take a leading position in the country, average industrial gross output value and industrial added value of which are 3 times more than the average level of the country, sales incomes and gross profits 2 times more than the average level of the country. Particularly for sliced medicinal herbs processing industry, its total amount of profit ranks the 12th position in the country while gross industrial output value and sales incomes are only the 22nd position across the country. It demonstrates that Chongqing TCM processing industry enjoys a certain advantage on Chinese medicinal materials resource and TCM products. Table 1: Ranking in the country on main economic indicators of Chongqing pharmaceutical industry in 2003

unit: 10,000 yuan economic indicator in the country Chongqing ranking no.s of enterprises 4359 50 — gross industrial output value (present value)

30616251 473400 21

industrial added value 10814487 133173 23 sales incomes 29168728 388551 20 total amount of profit 2733999 29147 23

Table 2: Ranking in the country on main economic indicators for Chongqing chemical medicines industry in 2003 unit: 10,000 yuan

economic indicator in the country Chongqing ranking no.s of enterprises 1747 28 — gross industrial output value (present value)

16535073 226952 19


Table 3: Ranking in the country on main economic indicators for Chongqing Chinese

traditional patent medicines in 2003 unit: 10,000 yuan


6618817 205560 12

5


Table 4: Ranking in the country on main economic indicators for Chongqing sliced medicinal herbs in 2003 unit: 10,000 yuan


1752853 19674 22


source of information: 2003 China Pharmaceutical Statistic Annual Report 1.1.3 Properly established foundation of pharmaceutical commerce According to latest survey conducted over root units, there are currently 465 legal entities in the pharmaceutical commercial sector, employing 17410 persons and annual sales incomes being RMB 4.494 billion, accounting for 3.7%、5.7% and 5.8% respectively of the total proportion in the whole commercial enterprises of the city, of which there are 182 legal entities in medicines and medical equipment wholesale business, employing 10210 persons and annual business revenue being RMB 3.376 billion and 283 legal entities in medicines and medical equipment retail business, employing 7200 persons and annual business revenue being RMB1.118 billion. Like the condition for pharmaceutical industry, state-owned and non state-owned pharmaceutical industrial enterprises which incomes of annual sales reaches over RMB500 million(above-limit for short, same below) are still the main composition of the pharmaceutical commercial industry of Chongqing. Statistics shows that there were 48 above-limit pharmaceutical commercial enterprises in Chongqing in 2003, accounting for 9.1% of total above-limit commercial enterprises, possessing a total assets of RMB4.823 billion, employing 9499 persons, achieving a sales incomes of RMB 8.856 billion, profit of RMB1.48 million, accounting for 13.7%, 11.4% of the proportion of above-limit commercial enterprises in the whole city.

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Chart 2: Trend of sales incomes for above-limit pharmaceutical commercial enterprises from 1999 to 2003

17.9529.42

41.39

65.09

88.55

0

20

40

60

80

100

1999

2000

2001

2002

2003

100million yuan

In terms of makeup in the sector, pharmaceutical commercial enterprise contains 34 pharmaceuticals and medical appliance wholesale enterprises and 14 pharmaceuticals and medical appliance specialized retail enterprises, accounting for 70.8% and 29.2% of pharmaceutical commercial enterprises respectively. In 2003, pharmaceuticals and medical appliance wholesale enterprises possessed an assets of RMB4.553 billion with a total staff of 8520 and sales incomes of RMB8.423 billion, accounting for 94.4%、

89.7% and 95.1% of total proportion of pharmaceutical commercial enterprise; Pharmaceuticals and medical appliance specialized retail enterprises possessed an assets of RMB270 million with a total staff of 979 and sales incomes of RMB432 million, accounting for 5.6%、10.3% and 4.9% of total proportion of pharmaceutical commercial enterprises. Over the past few years, chain-store operation has become an obvious trend in Chongqing pharmaceutical market with Heping Pharmacy Co., Ltd and Tongjunge Pharmacy Co., Ltd as the representatives, which chain operation has come to form a main stream over Chongqing pharmaceutical market and also made considerable progress in markets outside Chongqing. Tongjunge Pharmacy has already settled in Beijing, Shanghai, etc. Up to the end of 2003, there were 5 chain-store operation enterprises in the pharmaceutical sector with total assets of RMB545 million and sales incomes of RMB1.572 billion in 2003, accounting for 17.7% of gross sales incomes of pharmaceutical commercial industry in the year, total profits of RMB5.18 million. According to 2003 China Pharmaceutical Statistic Annual Report, Chongqing pharmaceutical commerce is relatively well developed and its main economic indicators are among the leading ranks of the country(see Table 5). Chongqing, an economic

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center, transportation hub and cargo distribution terminal in the southwest, plays a considerable radiation role over the overall southwestern regions in terms of wholesale and retail of pharmaceutical products. Table 5: Ranking in the country on main economic indicators for Chongqing pharmaceutical commercial enterprises in 2003

unit: 10,000 yuan economic indicator

in the country Chongqing ranking

net amount of sales incomes

17987335 554664 11

total amount of assets

10854376 346465 8

total amount of profits

132712 1775 11

total amount of profits and taxes

— 6303 11

source of information: 2003 China Pharmaceutical Statistic Annual Report The key pharmaceutical and commercial enterprises in Chongqing go to Chonqing Pharmaceutical Co., Ltd and Chongqing Tongjunge Co. Chonqing Pharmaceutical Co., Ltd, created through restructuring of previously famous state-owned pharmaceutical enterprise and focusing on medicine, medical apparatus, chemical reagent, glassware instrument, is the biggest pharmaceutical commercial enterprise in southern China combining general agency of domestic and overseas medicines, wholesale distributor, retail chain and promotion of clinical academy, which is the only enterprise of pharmaceutical retail in southern China ranking China top 500 enterprises. Chongqing Heping Pharmacy Co., Ltd, the subsidiary firm of Chonqing Pharmaceutical Co., Ltd, achieved sales volume of RMB734 million in 2003, owning 1013 drugstores. As an important composition of Chongqing Taiji Group, Chongqing Tongjunge Co., Ltd is always a combined pharmaceutical enterprise of medicine production and sales with a long history of operation, governing Tongjunge pharmaceutical plant, Chongqing No.2 Traditional Chinese Medicine Plant, 4 drug commercial operation firms, 1 transaction market on Chinese medicinal materials. The Co. possesses 11 state protection brands of traditional Chinese medicine and forms an initial shape in modern manufacturer of traditional Chinese medicine. Chongqing Tongjunge Pharmacy Co., Ltd is one of 4 operation firms governed by

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Chongqing Tongjunge Co., Ltd. In March 2002, Chongqing Tongjunge Pharmacy Co., Ltd, together with Chongqing Federation of Supply and Marketing Cooperatives first created medicines special counter at village level nationwide, sharing a quite big stake over rural market and securing the medicine retail market around Chongqing. In 2003, Chongqing Tongjunge Pharmacy Co., Ltd reached RMB294 million on sales volume and owned 1170 drugstores. 1.1.4 Prominent advantage on Chinese medicinal materials resources Over the recent years, over 600 Chinese medicinal materials bases have been established across the country covering an area of over 6million mu on Chinese medicinal materials planting. The unique natural condition of Chongqing, featured by wide and complex geography with difference vertical height, variety of ecological environment and abundant of ecological species, enables Chinese medicinal materials in Chongqing to behave abundant on species resources, unique on product, richly endowed on medicinal resources and Chinese medicinal materials plating base has seen rapid growth over the past few years. There are over 4500 species of the Chinese herbal medicine plants quality resources, accounting for 1/3 of medicinal plant species nationwide and about 400,000 mu of medicinal material planting area, of which 100,000 mu are base-planting area. Normally there are over 350 locally-grown medicinal materials, over 30 Daodi medicinal materials and bulk traditional medicinal materials produced and procured over the year, playing an important role in production of traditional Chinese medicinal material nationwide. The resource of traditional Chinese medicine in Chongqing is mostly featured by quite a number of species, small size of single specie and big potential for development, of which coptis, radix saussureae, cortex moutan, atracctlylis lancea lancea, Bitter Orange Fruit, Farfarae Flos, Codonopsis, fructus foeniculi, rhizoma gastrodiae, pinellia, Sweet Wormwood Herb, etc are the national key development species while flos lonicerae, gingko, cortex phellodendri, fructus citri sarcodactylis, yew, magnolia, Peucedani Radix, etc, are the provincial key development species. (see Table 6 for distribution of category on construction of Chinese medicinal materials bases) The tradition of planting and processing Chinese medicinal materials is pretty common in vast rural areas of Chongqing. The planting of coptis and codonopsitis, etc has over a thousand years old. Wuxi County and Wushang County were selected as state base of Chinese medicinal materials in 1950s. Chongqing possesses Taiji Group, leader of large-scale enterprise of traditional Chinese medicine production, Chongqing Academy of Chinese Material Medicine, ranked in advanced position nationwide over overall performance, Chongqing Institute of Materia Medica, the only research institute

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nationwide engaging in traditional Chinese medicines. High attention is paid by government to combination of development of Chinese medicinal materials and Reforesting formerly cultivated land, exploration relocation and poverty-relief, as part of restructuring of agricultural sector. Therefore, it is a prominent advantage for Chinese medicinal materials in Chongqing in terms of rich productive resources, good natural condition, traditional culture, science and technological backup, leading enterprise and government’s attention, etc. Currently, the planting bases of Chinese medicinal materials in Chongqing are distributed in the following areas: Three Georges Reservoir and Daba Mountains medicinal materials area, include Wushan, Wuxi, Yunyang, Fengjie, Wangzhou, Chenkou county, etc, where there are high mountains, deep valley, crossed gully and 75% of hillside with lowest sea level of 73m and highest sea level of 2797m, relative height difference of 2700m. The climate there is comfortable, 4 seasons well defined, sufficient rainfall and long frost-free period. Major medicinal materials are radix codonopsitis, taibai bulb of fritillary, fengjie bulb of fritillary, radix saussureae lappae, Strobilanthes forrestii Diels, gingko, bark of eucommia, cumin, Bitter Orange Fruit, pinellia, etc. The major Daodi medicinal mateials are radix codonopsitis produced in Wushan and Fenjie, radix saussureae lappae in Kaixian, bulb of fritillary in fenjie, Strobilanthes forrestii Diels in Wushan and Wuxi, cumin in Yunyang, wild pinellia in Zhongxian and Wangxian. Wulin Moutains medicinal materials area: located at northwest of Wulin Mountains, including Shizhu, Youyang, Xioushan, Qianjiang, Penshui, etc with lowest sea level of 118m and highest 1938m, the terrain rises and falls greatly, steep slope, well defined 4 seasons, sufficient rainfall with not evenly distributed, big change on vegetation ecology vertically, abundant medicinal resources, including coptis, Peucedani Radix, attractlylis lancea formallyrata, rhizoma gastrodiae, bark of eucommia, pinellia, flos lonicerae, etc. Famous Daodi medicinal materials are coptis in shizhu, Peucedani Radix and evodia rutaecarpa in Youyang, pinellia in Penshui, flos lonicerae and attractlylis lancea formallyrata in Youyang and Xioushan, etc. Low mountains medicinal materials regions in the middle of Chongqing, including Fuling, Nanchuan, etc, dominated by low mountain and hills, hillside accounting for 60%, with lowest sea level of 150m and highest 1900m. Yangtze River and its tributary, such as Wu river, Gaotan river, Daxi river, Furong river run through the region, providing rich water resource with rainfall reaching 1300-1400mm, humid climate, short sunshine, long frost-free period and fruitful soil. Major medicinal materials are aster sorliei, radix scrophularise, houttuynine sodium bisulfite, radix saussureae lappae,

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cortex moutan, bark of eucommia, Magno1ia officinalis Rehd, etc. Hill medicinal materials region in the west of Chongqing, including Hechuan, Jiangjin, tongliang, etc, with lowest sea level of 154m and highest 1973m, hill accounting for 59.2%. there are several rivers going through the region, providing sufficient water resource. The climate is early spring, flexible temperature change, long summer and frequent drought, lots of rain in autumn, warm winter with foggy, frost-free period as long as 310days, big environment temperature, relative temperature of 77-83%, more cloudy days and less sunshine days, located at the area with least sunshine hour in the country. Major medicinal materials are cortex phellodendri, bark of eucommia, Fructus Gardeniae, evodia rutaecarpa, Bitter Orange Fruit, red plum, chaenomeles lagnenaria, purging croton, quisqualis, Glossy Privet Fruit, Kudin sea, etc. The particular Daodi medicinal materials under key development and planting are Fructus Gardeniae and Bitter Orange Fruit in Jiangjin, quisqualis in tongliang and Hechuan, fructus psoraleae in Hechuan, red plum, chaenomeles lagnenaria in Qijiang, cortex moutan in Changshou. Table 6: Distribution of category on the construction of Chinese medicinal materials bases in Chongqing

area unit: 10,000 mu

No.

name of species

planting area

distribution of place of origin

remark

key species

1 coptis 5.00 Shizhu Daodi medicinal material ∨

2 Artemisinin 5.00 Youyang pharmaceutical medicinal material

∨

3 paeono

5.00 Dianjiang, Changshou

Daodi medicinal material

∨

4 Rhizoma Atractylodis Macrocephalae

5.00 Xiushan, Youyang

commonly used medicinal material

∨

5

Pilose Asiabell Root Moderate Asiabell RootSzechwon Tangshen Root

5.00 Wushan, Fengjie, Wuxi

Daodi medicinal material ∨

11

6 Pinellia ternata 5.00

Dianjiang, Wuling mountains, Nanchuan


∨

7 Fructus Gardeniae

5.00 Jiangjin, Qijiang, Wanshen


8 flos lonicerae 5.00

Xiushan, Youyang, Qianjiang, Fulin

patent medicine, crude medicine

∨

9 houttuynine sodium bisulfite

5.00 around Wuling Mountains


10 hogfennel root

5.00 Youyang, Wuling, Wulong,etc


11 Cochinchinese Asparagus Root

1.00 Pengshui, Youyang


12 bark of eucommia

5.00

Wuxi, Chenkou, qianjiang, Liangping


13

Magno1ia officinalis Rehd

5.00

Wuxi, Chenkou, Youyang, Kaixian


14 Farfarae Flos

2.00 Wushan, Wuxicommonly used medicinal material

∨

15 gingko 2.00 Nanchuan, Kaixian


16 Bitter Orange Fruit

2.00 Jiangjin, Yunyang


17 bulb of fritillary

2.00 Fenjie, Wuxi Daodi medicinal material

12

18 quisqualis 1.00 Hechuan, Tongliang


19 aster 1.00 Fulin, Wulong, Pengshui

raw material for patent medicine

∨

20 F.tataricum 1.00 Nanchuan, Wulong


∨

21 Folium llicis Chinensis

2.00 Pengshui raw material for patent medicine

∨

22 FRUCTUS PERILLAE

1.00 all districts and counties


23 red plum 1.00 Qijiang Daodi medicinal material

24 radix saussureae lappae

1.00 Kaixian, Wushan, Nanchuan


25 fructus psoraleae

1.00 Hechuan Daodi medicinal material

26 radix scrophularise

1.00

Youyang, Xioushan, Wushan, Shizhuo

Daodi medicinal material ∨

27 Strobilanthes forrestii Diels

1.00 Wuxi Daodi medicinal material ∨

28 evodia rutaecarpa

1.00 Youyang, Xioushan, Qianjiang


29 rhizoma curculiginis

0.20 Banan, Nanan, Nanchuan


30 rhizoma gastrodiae

0.20

Chenkou, Wuxi, Wulin Mountains, Wushan


31 Bergamot 0.50 Hechuan, Qijiang, Jiangjin


32 rhizoma 0.20 Wangxian, commonly used medicinal

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curcumae lognae

Xioushan material

33 gallnut 0.10 all districts and counties


34

Dysosma pleiantha (Hance) Woodson

0.10 Nanchuan, Wuxi

pharmaceutical raw material

35 ganoderma lucidum

0.10 Youyang, Hechuan

locally-grown folk medicine ∨

36 epimedium 0.10 Wushan

37 forest musk deer

0.10 Nanchuan

38 Dendrobium 0.50 Fulin, Banan, downtown


∨

39 others 15.00

Total 98.10

1.1.5 Advantage of competition in workforce cost and its quality There is abundant of workforce resources in Chongqing where the price of workforce is low, which is one of the advantages for investment in Chongqing pharmaceutical sector. With the rapid growth of economic development in Chongqing and popularization of nine-year system of compulsory education, residents’ cultural level of Chongqing has greatly risen. The census shows that there are 19,437,000 population of labor age in Chongqing, of which there are 2,415,500 persons with senior school graduation and secondary specialized student or above, 805,700 persons with university, each accounting for 12.4% and 4.1% of population of labor age. In 2003, there were 11271 professional students of school of medical sciences across the universities of higher learning in the city, accounting for 4.4% of university students, with 3.5% of undergraduate, 5192 students. In 2003, there were 1696 students graduated from medical sciences, of which 692 undergraduate, which are sufficient enough to meet the demand for specialized workforce. In terms of labor payment, Chongqing enjoys more advantages than coastal regions. According to the information from Population Depart. of Chongqing Municipal Statistic Bureau, the on-job staff members in Chongqing enterprises were paid RMB12440 on an

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annual average in 2003, ranking the 16th position among provinces(cities) across the country, much lower than the average level, ie, RMB 14040 in the country, also lower than that in coastal regions and some western regions over the same period. In the pharmaceutical sector, on-job staffs were paid RMB 13449 on an annual average in pharmaceutical industrial enterprises and RMB 10258 on an annual average in pharmaceutical commercial enterprises. (see Table 7) The salary guiding price of workforce in Chongqing in 2004 issued by the Chongqing Labor and Social Assurance Bureau in the first half of 2004 also shows the same trend. In 2004, the salary guiding price for some positions issued in Chongqing specified that the salary guiding price was RMB1200-10000/month man for senior management, RMB750-3000/month man for middle-level management, RMB900-3500/month man for technical person, RMB700-2000/month man for pharmaceutical engineer, RMB800-3000/month man for chemical engineer, all lower than that at the same position issued in other coastal regions over the same period. Information shows that guiding salary for technical staff in chemical engineering in Shanghai averaged 36,429yuan/year man in 2004 with the highest, moderate and lowest level being 96,362, 30,958, 14,313yuan/year man respectively; guiding salary for technical staff in chemical engineering in Anhui was 23,000, 15,000, 9,300yuan/month man for the highest, moderate and lowest level respectively; the highest, moderate and lowest salary for pharmaceutical engineers in Hunan were 3,583, 1,333, 830yuan/month man respectively and that for chemical engineers were 2,783, 1,342, 725yuan/month man respectively. Table 7: Average salary for on-job employees in major cities across the country in 2003 unit: yuan

Region Average salary for on-job employees

Ranking

the whole country 14040 Shanghai 27304 1 Beijing 25312 3 Zhejiang 21367 4 Guangdong 19986 5 Tianjin 18648 6 Jiangshu 15712 7 Yunnan 12870 13 Sichuan 12441 15 Chongqing 12440 16

(Source of information: Chongqing 2004 Statistics Yearbook)

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1.1.6 Good foundation on pharmaceutical science and research Vulnerability in ability of scientific and research for pharmaceutical industrial enterprises across the country causes them only to do some simple transplant and simulation, splitting of production, research and study, and poor efficiency of transformation of achievement in scientific research, let alone carry out highly positive scientific research activities in accordance with market demand or potential demand. In recent years, the input ratio of development of new medicines to gross sales volume always maintains 0.5% across the pharmaceutical sector nationwide, about RMB700 million, distributed in thousands of enterprises with low efficiency. Research and development condition in Chongqing pharmaceutical sector follows the same step of that nationwide. In 2003, the total cost on research and development worth of RMB58 million was input by the above-scale pharmaceutical industrial enterprises across the municipality, accounting for 1.4% of sales incomes and the output value of new products arrived at RMB1.577 billion, accounting for 32.0 % of gross output value. According to R&D survey information across the city, there were 574 R&D projects (research subject) for pharmaceutical scientific field in Chongqing in 2002 and input fee of RMB51 million. The project participants are 1422.5 man year if converted to full-time working equivalent, of which scientists and engineers are 910.9 man year. In terms of scientific and research institutes, the 3rd Military Medical University, one of the most important pharmaceutical scientific and research institutes in Chongqing, is a key medical institute of higher learning under General Logistics Department, PLA, possessing 4 departments and 8 specialities or disciplinary orientations covering the clinical medicine department, preventative medical department, medical laboratory technology, public utility management. The 3rd Military Medical University is composed of 3 affiliated hospitals. The 1st affiliated hospital, ie. the Southwest Hospital, enjoys a high reputation in and outside the military field thanks to its complete setup of specialized departments and strong technological force, with focus course of study on burn, hepatobiliary surgery, dermatology, digestion medicine, infectious disease, image diagnosis, etc. Half of burned patients can be cured up to 94%, reaching an international level. The 2nd affiliated hospital, ie. Xinqiao Hospital, focus his course of study on respiration medicine, nephridium medicine and surgery, cardiovascular medicine and surgery, tumor treatment, etc. The 3rd affiliated hospital, ie. Dapin Hospital, is merged with the Field Surgery Research Institute and is expertised in battle injury and trauma. The three hospitals own 42 teaching and research departments, 113 clinic and science and technology departments, 12 research departments, 7 military medical specialized technology centers and 4 military key disciplinary labs, 2 military medical training

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bases and 2 military clinic pharmacy bases, the biggest low temperature and low pressure oxygen capsules, hyperbaric capsules, the only biological shock tube, biological zone for fire in the country, 3 military specialized research institutes. In terms of individual, the enterprise with excellent scientific and research performance goes to Chongqing Taiji Group, which Beijing design center is composed of 10 doctors and assistants responsible for development and design of new product and setup offices in Germany, USA, Australia, Macao(China) to collect local pharmaceutical information. Taiji Group also has technological cooperation units such as Peking University, Tsing-Hua University, West China University of Medical Sciences, Fudan University, China Pharmaceutical University, Shenyang Pharmaceutical University, Chongqing University of Medical Sciences, the third Military Medical University and China Academy of Military Medical Sciences, Shanghai Institute of Pharmaceutical Industry, China Academy of Traditional Chinese Medicine, Chinese Academy of Medical Sciences, etc. Taiji Group is also the cooperative unit for 15 post-doctor workstation and jointly enroll doctor with domestic 15 famous universities to carry out scientific and research activities and now there are over 20 post-doctors working there. In 2003, Taiji Group spent RMB102 million in research and development, up 9.8% over the preceding year, involving 668 research and development staff, up 1.7% over the preceding year; with per capita possession of science and research funds RMB7,684, up 12.3%. Foundation is played for relocation of research and development center of international pharmaceutical Co.s from excellent scientific and research conditions and talent resources in Chongqing. 1.1.7 Infrastructures in good condition Thanks to the gradual improvement of infrastructures, a comprehensive transportation system of combined railway, express highway, waterway, aviation and pipeline has become the biggest Hub of communications of land,water and air in the upper reaches of Yangtze River and southwestern region. (1) aviation: Chongqing Jiangbei International Airport has increased its cargo-handling capacity after expansion project and was granted by the State Council in 2000 right of issuing visa on landing of entry port. Now there are 23 airliners starting operation here on 108 domestic and foreign routes, linking 53 destination cities and totaling 745 flights every week. Expansion project on station site has started in the terminal area of Chongqing Jiangbei International Airport. Wanzhou Wuqiao Airport was put into operation in 2003 and construction of Qianjiang Zhoubei Airport will start soon. Till then, there will be 3 airports available in Chongqing with one in a large size and other two in a small size,

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making travel by air more convenient. (2) railway: the railway port of Chongqing is the national class II port, connecting to the national railway network via 3 electrified railway arteries. ie. Chenyu(Chendu-Chongqing), Xiangyu(Hubei-Chongqing), Chuanqian(Sichuan-Guzhou). (3) express highway: there are 21 artery railways including Chenyu Express, 17 of which link Yunnan, Guizhou, Sichuan, Hunan, Hubei, Shanxi, forming the highway communication network extending in all direction. (4) waterway: supported by Yangtze River golden watercourse, there are dozens of port and passenger-cargo jetty in place with exploring fast transportation course on hydrofoil, opening the river-sea combined business to foreign countries via Shanghai, so that the 3,000 -ton steamer can go downstream along river to foreign countries in the year. After completion of Three Georges project, 10,000-ton fleet is able to directly go upstream to Chongqing. Compared with similar cities in western region, great changes have taken place on energy assurance after hard efforts over the past few years in Chongqing, providing enterprise sufficient supply of water, electricity and gas with reasonable price. Currently in Chongqing, the water for industrial production is priced at 2.68yuan/te, gas for industry at 1.00yuan/m3, electricity for mass industry: 1-10kv 0.461yuan/kwh，below 35-110kv 0.441yuan/kwh，110kv 0.426yuan/kwh, 220kv or above 0.416yuan/kwh. What is particularly worth mentioning is the shortage of electricity supply becomes slightly protruding due to acceleration of economic growth. In order to secure the interest of investors, Chongqing municipal government has already made the principle of making overall plans and taking all factors into consideration, guaranteeing the priority, supplying according to qualifications so as to assure the electricity supply to key enterprises and major foreign-funded enterprises. 1.2 Areas of concern with Chongqing pharmaceutical industry 1.2.1 Limited enterprises in a small size As mentioned above, pharmaceutical industrial enterprises of Chongqing only account for 1.0% of industrial enterprises across the whole city and above-scale pharmaceutical industrial enterprises only account for 2.1% of above-scale industrial enterprises across the whole city. In terms of size, there are 37 enterprises with average assets below RMB 200 million and 41 enterprises with annual output value below RMB 200 million. In 2003, the total assets of top 10 pharmaceutical industrial enterprises ranked based on asset account for 74.7% of total assets of above scale pharmaceutical industrial enterprises. The total output value of top 10 pharmaceutical Industrial enterprises ranked based on output value account for 65.7% of total assets of above-scale pharmaceutical industrial enterprises.

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Similar with pharmaceutical industrial enterprises, Chongqing pharmaceutical commercial enterprises are limited and commonly small-sized. In 2003, there were 48 above limited medicines and medical equipment wholesale/retail enterprises with each possessing an assets of RMB100 million and each sales volume of RMB184 million, totaling profits of RMB1.48 million and showing 50% in deficit. The current development situation for Chongqing pharmaceutical enterprises causes an incomplete competition in Chongqing pharmaceutical industry and a fixed pattern has not been established in the market, not even dominated by a few of super large-scale enterprises, which to a certain extent can offer more favorable survival environment and more opportunity for new adventurers. 1.2.2 Low input and level of research and development for enterprises Taking Year 2003 as an example, the fund input on research and development was only RMB58 million for above-scale pharmaceutical industrial enterprises in the city, accounting for 1.2% of output value of the year and shared by dozens of enterprises. Shortage of input on research and development directly lead to technological innovation centered by enterprise unable to be established and cause the pharmaceutical Industry across the city is commonly featured by more old products, less new products; more low-level and low added value products, less high-tech content and high value added products; more repeated variety and less exclusive brand. 1.2.3 Low export for the industry In 2003, the export value on delivery was only RMB 374 million for Chongqing pharmaceutical industry, only accounting for 7.6% of output value of the year. Currently, the pharmaceutical trade of our city has not got rid of the traditional imports and exports mode yet and export goods are predominated by low added value and primarily processed products. In 2003, the above-limit medicines and medical equipment wholesale/retail enterprises achieved export value of RMB896 million, accounting for 10.6% of annual sales amount for the above-limit pharmaceutical commercial enterprises. 1.2.4 Famous enterprise brand and industrial cluster not established Development of pharmaceutical industry in Chongqing, an economic center in the southwester regions, also takes a leading position in the southwester regions, for example, a couple of economic indicators for Chongqing Taiji Group leap into the front ranks among the pharmaceutical enterprises across the country. But, from the overall point of view, there is no nationwide renowned leading pharmaceutical enterprise available in Chongqing, no famous brand with proprietary intellectual property rights, even no establishment of pharmaceutical industrial cluster driven by the leading

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enterprise. 1.3 Potential for development of Chongqing pharmaceutical industry 1.3.1 Tremendous potential for development of Chongqing pharmaceutical industry As the 4th municipality, Chongqing has made a considerable leap on its economic integral level in recent years. After 2000, the economy in the city has entered a new economic circle of growth, during which the economic development in the city has witnessed Western Development Program, Relocation of Three Georges Reservoir, increased demand of domestic market, etc, and couples of policies have consolidated the foundation of economic development while promoting economic growth and development in the city. In 2003, Chongqing reached a total output value of RMB225.011, up 11.4% over the preceding year, 1.1 percent points higher than that in 2002, which is a fastest year on economic growth since the founding of municipality. Calculated based on permanent population, per capita output value is RMB8075 (US$972), RMB1041(US$125) more than 2002. Fueled by continuous investment and consumption, it is expected that the economy in Chongqing in the next long period will maintain proactive growth and development momentum and upgrading of consumption structure will bring new vitality for growth of Chongqing’s economy. Since 1999 to 2002, social total volume of retail sales in the city rose on a year-on-year basis, up 7.7%、7.9%、8.7%、9.1% respectively over the past 4 years and up 8.8% in 2003 even though it was affected by SARS outbreak in the year. The ability of social consumption is gradually rising and the structure of consumption is continuously improved. Compared with 1999, Engel Coefficient for urban and rural residents in the city dropped by 4.8 and 4.9 percent points respectively in 2003. The spendings on traffic communication, housing, medical healthcare, education and cultural entertainment, etc have been rapidly increased, proportion of which is becoming bigger. Compared with that prior to establishment of municipality in 1996, per capita consumer spending reached RMB7118.06 in 2003, 61.6% higher than 1996, which was RMB4,403.62, the growth rate is 7.1% on a year-on-year basis. With the increased residents awareness of medical healthcare, the spending on medical healthcare of residents in the city is rising fast. In 2003, per capita urban resident spending on medical healthcare in the city reached RMB459.69, 2.4 times that in 1996 which was RMB137.15, showing a growth rate of 18.9% on a year-on-year basis. In the same period, per capita rural resident spending on medical healthcare in the city reached RMB89.42, 1.1 times that in 1996 which was RMB43.44, showing a growth rate of 10.9% on a year-on-year basis. Of medical healthcare consumption, consumption of medicines accounts for 50-60%.

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Therefore, it is inferred that the growth rate of the medical healthcare consumption spending move on the fast track among the major kinds of consumption spending, which creates vast space for development of pharmaceutical sector. 1.3.2 Tremendous potential for Chinese pharmaceutical market Currently, the sales volume in China’s pharmaceutical market stays US$15 billion. Experts predict that China’s pharmaceutical market will maintain a rapid growth of 15-20% in the next 5 years and the sales volume will approach US$50 billion by 2010 and US$120 billion by 2020, surpassing US and becoming the biggest pharmaceutical market in the world. The development of domestic pharmaceutical market is influenced not only by international market, but mainly by change of domestic factors as follows: ► Increasingly rising standard of pharmaceutical consumption. Currently, per capita medicine annual consumption in developed country such as USA reaches US$300, US$40-50 in moderately developed country, only US$10 in our country, which highlight the gap of medicine consumption between our country and developed country and reflect the potential for development of pharmaceutical market in our country as well. With the implementation of the Step 3 strategic target of modernization drive in our country, increased living standard and quality, change of concept of pharmaceutical consumption, the growth of pharmaceutical market in our country will be faster than that of international pharmaceutical market. ► Comprehensive application of reform of medical insurance system. Reform on medical insurance system for urban workers will be put into operation extensively during the Tenth Five-Year Program and the guiding principle of the system is low level and extensive coverage. The implementation of the system will on one hand expand the scope of people covered by medical insurance from existing 160 million to 300 million, on the other hand restructure the pharmaceutical consumption in order to manage import of expensive medicines and use of large medical apparatus, to promote the application of common domestic medicines of low price and effective remedy. Reform of medical insurance system in general promotes the consumption of pharmaceutical product and then pull pharmaceutical economy forward. ► Increasing demand for pharmaceutical products from fast development of urbanization. In 2000, there were 460 million urban population, up 2.7% on a year-on-year basis. With the fast urbanization move, there will be 10 million urbanization population more annually during the Tenth Five-Year Program. The ratio is 7：1 of per capita urban medicine consumption to medicine consumption in rural area and development of urbanization drive will increase the demand on pharmaceutical

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products. ► Increasing demand for pharmaceutical products from net growth of population and Aging population. There were 1.295 billion population in China in 2000 and will be 1.33 billion in 2005. Net growth of population will raise new demand for pharmaceutical products. The census conducted in 2000 shows that the people aged over 65 account for 7% of the total population, reaching 88.12 million, demonstrating that our country has entered an aging society. The population will be expected to increase by 3% on a year-on-year basis during the Tenth Five-Year Program, reaching over 100 million by 2005. The total amount of pharmaceutics consumed by aged people will be on a high rise during the Tenth Five-Year Program. ► The vast rural regions will become a new point of growth for pharmaceutical market. Establish and improvement of rural cooperative medical system, reinforcement of rural hygiene preventive network at 3 levels, increased income for farmers, create space for pharmaceutical market. Demand of consumption of rural medicine is the major point of growth in pharmaceutical market. Based on a combination of above-mentioned factors, it is expected over the next long period that the growth rate of pharmaceutical market in our country will be higher than that of international pharmaceutical market. Under the macro environment, pharmaceutical sector in Chongqing intended to advance towards the whole country will maintain the fast growth momentum. 1.3.3 Room opportunity available for foreign investment in Chongqing pharmaceutical industry Currently, there are 22 foreign-funded pharmaceutical enterprises in Chongqing, accounting for 2.4% of total no.s of foreign-funded enterprises in Chongqing, with registered capital funds totaling 407 million yuan (55.7% of foreign capital), assets averaging 16 million yuan each, employing 867 people, output value of 226 million yuan and annual sales incomes of 167 million yuan. ► Joint-venture as the major investment mode. According to existing foreign-funded pharmaceutical enterprises in Chongqing, 72.7% of foreign investors select joint-venture mode and foreign investors selecting wholly foreign-funded or cooperative operation only account for 22.7% and 4.6%. ► Cash as the major investment approach. Of the three common investment modes, existing foreign-funded pharmaceutical enterprises in Chongqing prefer investment in cash. By the end of 2003, foreign fund investment in pharmaceutical sector across the city is split as 81.2% of cash, 1.7% of input from physical depreciation and 17.1% of input from intangible asset after price assessed.

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► Small size and good benefit. There is 1 foreign-funded enterprise with assets higher than RMB100 million, 10 enterprises with asset s more than RMB10 million and the rest are all enterprises with assets varying around RMB1 million. In 2002, foreign-funded pharmaceutical enterprises in Chongqing achieved a profit of RMB26.3 million, up 84.8% over last year, of which foreign-funded pharmaceutical manufacturing enterprises reached a profit of RMB25.25 million, up 86.5%. ►Main focus on pharmaceutical manufacturing. Out of 22 foreig-funded pharmaceutical enterprises in Chongqing, manufacturing enterprises take majority and account for 95.5%, dominated by pharmaceutical manufacturing, about 81.0%, shared by 17 pharmaceutical manufacturing enterprises, 4 medical appliance manufacturing enterprises and 1 medial appliance retail enterprise. Out of medical appliance manufacturing enterprises, there are 5 chemicals raw material manufacturing enterprises, 3 chemicals preparation manufacturing enterprises, 5 biological products enterprises and 3 TCM sliced medicinal herbs and Chinese traditional patent medicines manufacturing enterprises. It shows that foreign-funded pharmaceutical enterprise in Chongqing place their focus on chemicals manufacturing or medical appliance manufacturing. Attention has not been paid to Chinese medicinal materials planting and processing despite of abundant resources of Chinese medicinal materials in Chongqing. 1.3.4 Trend on relocation of international research and development center to China Experts predict that China will surpass UK, Germany and Japan in the next 5 years and become the 2nd biggest research and development base in the world only following USA. Ministry of Commerce of PRC announced on October, 2004 that there are over 800 research and development institutes in China funded by foreign corporations. In the pharmaceutical manufacturing field, there are 3 new trends on foreign investment in China: more investments are made in China; production of pharmaceutical products is gradually relocated to China; international corporations are shifting their focus on industrial investment in the past to investment in research and development. Regarding the perspective of more investment, now top 20 international pharmaceutical corporations in the world have already established their joint-ventures in China and even exclusively foreign-owned enterprises. Out of the biggest 500 foreign-funded enterprises in China, there are 14 pharmaceutical enterprises, 13 of which are share controlled by foreign partners. Foreign investors control 52% of shares in Xi’an Janssen and 55% of shares in Tianjin SK&F. For newly founded foreign-funded enterprises, foreign investors always ask for more than 90% of shares. Foreign investors are making more investment in China as they take a positive point of view towards China’s tremendous pharmaceutical market.

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Regarding the perspective of pharmaceutical research and development, input of research and development normally account for 4-5% of sales volume in common industries while that go up to about 20%. For any new pharmaceuticals, which start with lead compound showing value worth of research and development until eventual success and sale in the market, the rate of success is only 3%, requiring 10 years in research and development and US$800 million of input. With such tremendous input and high risk, the returns are always much lower than expected. In the developed countries, the prices of pharmaceuticals are paid by government or insurance Co. Therefore, the price of new pharmaceutical on sale is strictly controlled, which restrict the room for profit for pharmaceutical enterprises. In order to reduce risks, international corporations start to relocate research and development process operating on strict international criteria to the developing country, such as chemical synthesis and animal experiment, etc. In China, experienced doctors are always paid 1/4 of their foreign counterparts with the same diploma and clinic experiment cost is 30% lower than countries in the Europe and America. Furthermore, there are many diseases only occurring in China rather than the European and American countries, which benefit exploring new economic highlights. Quite a large amount of university graduates finish their study in medical universities with the 3rd Military Medical University in the center in Chongqing, a central metropolis in the southwester regions of the country. All kinds of research institutes and hospitals across the municipality enable Chongqing to own robust research and development foundation and medical condition in pharmaceutical field and a huge amount of population in the southwester regions offer unique disease resources. Meanwhile, the clinic cost in Chongqing is not only much lower than foreign countries, but lower than many developed regions in coastal cities. Therefore, establishing pharmaceutical research and development center in Chongqing is worth considering from its comparable advantage. 1.3.5 Gradual improved environment of investment in Chongqing After the municipality is formed, more efforts are input in Chongqing to improve investment environment and to speed up construction of hardware and soft environment and subsequently great changes have taken place. On one hand, a large amount of investment was utilized to speed up construction of urban infrastructures; On the other hand, construction of soft environment is strengthened in Chongqing where relevant regulations and policies are developed and improved. Focus One consultation service is applied to foreign investment in Chongqing and associated services with respect to medical advice of foreign investors, enrollment of their children, etc are properly made

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available. The latest research report issued by the World Bank, Improvement of Investment Environment for Enhanced Competitive Power of the City: ranking of China’s 23 cities in terms of Investment Environment, shows, based on overall evaluation of combination of enterprise business performance, sales, labor productivity and rate of investment amount, etc, that Chongqing finish the 5th position in the country and 1st position in the western regions on urban investment environment. 1.4 Analysis of risks on investment in Chongqing pharmaceutical industry 1.4.1 Competition from imported medicines Analysis on source of medicines procured by the sampled hospitals shows that the restriction of use of imported medicines are gradually removed on China’s WTO accession. With declined tariff on imported medicines, involvement of foreign pharmaceutical commerce and founding of foreign-funded hospital and private hospital in the country, the usage of imported medicines will go up, particularly imported medicines used in some metropolises and coastal regions are higher in terms of category and price. According to survey conducted in 2000-2002 over top 100 medicines procured by the sampled hospitals, its total price account for about 65% of price for all medicines procured. Imported medicines take quite a big proportion in top 20 medicines used by the sampled hospitals in 2002, exceeding 35 in some sampled hospitals in the country. Proportion of imported medicines even surpass 50 in the sampled hospitals in 4 cities while that of domestic medicines is higher than 35 in Tianjin only, below 30 in Shanghai, Nanjin, Guangzhou and vary between 30-35 in the other cities. It demonstrates that imported medicines are quite frequently used in hospitals in some metropolises, taking a big share. Regarding the structure of medicines, tracking statistics and analysis conducted for many years show that antiinfective medicines always take a leading position, followed by medicine for cardiovascular system, digestive system, blood and hematopoietic system and antineoplastic and immunomodulator, which pattern is not changed for many years. The gross currency amount of first 3 medicines used exceeds 50% of that for all medicines procured by the sampled hospitals, even 60%. The above-mentioned 5 kinds of medicines not only take a robust share of 3/4～4/5 of all medicines used in hospitals, but present a steady change to shares. 1.4.2 Compressed room for profit from fierce domestic competition China is a big nation on production of pharmaceutical products. Over the past 5 years from 1998 to 2003, production of pharmaceutical products in the country witnessed a fast growth with output of pharmaceutical products surging from 353,700te in 1998 to

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803,500te in 2003, output of Chinese patent medicines from 342,800te to 602,900te, export value for pharmaceutical products from US$3.8 billion to US$9.02 billion. In these 5 years, incomes from production and sales of pharmaceutical products went up by 18.4% on a year-on-year basis, profit up by 28.8% on a year-on-year basis. However, there is no medicines with proprietary intellectual property rights in China. As a result of that, over competition always exists on production of pharmaceutical products and common pharmaceuticals, for example, there was a case that over 1000 preparations factories produced fluperacid. Therefore, without pharmaceutical products of proprietary intellectual property rights, investment in production of pharmaceutical products and common pharmaceuticals will suffer from fierce competition and cause compressed room for profit. Regarding TCM processing, there are 6 corporation setup in China for TCM-based Japanese pharmaceuticals. Tong Ren Tang also setup TCM processing plants in Shanxi, Hu’nan, Yun’nan, etc. Therefore, establishing TCM processing plants in Chongqing will face competition from these enterprises. Regarding pharmaceutical commerce, there was a case that more than 13000 pharmaceutical wholesale Co.s were founded in China. Experts predict that gross profit for pharmaceutical commerce will drop only and will not rise in the next 5 years, down from existing 8%*9% to 6% or 7% or lower and percent of circulation expense also will drop from current 8.75%. Now there are some good wholesale enterprises available with percent of circulation expense down to 1% or 3%, such as Anhui Huayuan Renji Pharmaceutical Co. Hubei Jiuzhoutong Pharmaceutical Co. etc. The no.s of this kind of enterprises will increase in town, county and village level. In order to reduce percent of circulation expense, Shanghai Lei Yong Shang Pharmaceutical Co. Ltd under Shanghai Pharmaceutical Group Co., Ltd, Guangzhou Pharmaceutical Holdings Ltd joined together to form an alliance for resource sharing, simultaneous action and mutual benefit. This is an important direction for domestic pharmaceutical circulation. 1.4.3 Risks from foreign anti-dumping China’s area of expertise is chemical pharmaceutical products and China is the 2nd biggest country following USA on the production of pharmaceutical products in the world, which has strong competitiveness in the global market. In 2003, China exported pharmaceutical products worth of US$3.714 mainly to USA, Japan, Germany, etc. Due to its price lower than foreign equivalent, anti-dumping is often imposed. According to statistics from China Chamber of Commerce of Medicines and Health Products Importer and Exporter, there were 44 anti-dumping cases occurring to Chinese medicines and health products between 1990 to Sept. 2004, 90% of which is related to

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chemical pharmaceutical products. India, USA and EU are among the top 3 countries imposing anti-dumping measure to China. 1.4.4 Risks of environmental protection and market access for TCM processing industry Resource advantage is the biggest advantage for Chongqing TCM processing industry. Exploring TCM resource in a massive way will damage ecological environment to a certain extent, particularly exploration of some rhizome-related resources will damage vegetation cover. Therefore, quite a number of people oppose to explore TCM resources. While investing in development and processing of medicinal materials, attention must be paid to the relations of wild development and environmental protection, artificial planting and maintenance of ecological balance. We have to be clear that what processing items are prohibited by the government while attracting foreign investors in Chinese medicinal material processing. Included in the Guiding Catalogue on Foreign Investment Industry as prohibited pharmaceutical manufacturing are processing of Chinese medicinal materials defined as protected resources, such as musk, licorice, jute; application of preparing technique of traditional Chinese medicines sliced medicinal herbs ready for decoction, and production of the products of secret recipe of traditional Chinese patent medicines. Foreign investors shall be kept informed of such requirements while investing in TCM processing item. 2. Analysis of policies on the pharmaceutical industry 2.1 The state industrial policy According to current general condition, related WTO clauses, the Tenth Five-Year program on pharmaceutical sector, and some policies designed to restructure medicine administration, standardize the development of pharmaceutical sector are the biggest impact to pharmaceutical sector in Chongqing. 2.1.1 Terms and conditions in WTO agreement related to pharmaceutical industry According to some clauses as stipulated in Sino-American agreement and Sino-European agreement, the further opening to the outside for pharmaceutical sector after WTO membership mainly covers the followings: ► On Jan. 1st, 2003, the import tariff for pharmaceuticals dropped from 9.6% to 4.2%, of which the tariff for imported bulk pharmaceuticals dropped from 14% to 6% and import tariff for medical apparatus down from 9.9% to 4.7%. ►Removal of non-tariff measure. Removal of import quota for medical apparatus includes getting rid of regional protectionism for import of large medical apparatus. Export request is also removed for direct investment in medical apparatus and product import.

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► Opening of service trade and investment field. Open foreign trade right and distribution right for pharmaceuticals, medical apparatus within 3 years after WTO accession. Except that the medicine distribution organizations beyond 20,000 m2 and chain enterprises more than 30 do not allow for foreign fund domination, there is no restriction imposed to the rest. Open medical service and dentist service. ► Reinforcement of IPR protection. IPR protection of pharmaceutical products is designed to protect pharmaceutical industry related property rights of invention-creation and intellectual labor achievements, covering 1. patent and technical secret; 2. trademark and trademark secret; 3. pharmaceutical enterprise related computer software; 4. right of authorship of compilation financed and supported by people in the pharmaceutical sector taking responsibility; 5. operation and management related technology, product information and pharmaceutical manual, requiring confidentiality with respect to research and development, marketing, technology transfer, investment, etc during cooperation with other Co.s. Immediately implement Trade Related Intellectual Property Right Agreement(TRIPS) as inked in the Uruguay Round after WTO entry. As a municipality and center in the southwester regions in the country, Chongqing is sure to closely follow the nation’s commitment to open the market in line with relevant policy and will set a good example in terms of IPR protection concerning foreign investors. 2.1.2 Major targets on pharmaceutical sector as stipulated in the Tenth Five-Year program The overall development target for pharmaceutical sector in 2005 as stipulated in the Tenth Five-Year program is to play a solid foundation to achieve the strategic aim for conversion of medical big country to medical strong country. The detailed development target for pharmaceutical sector during Tenth Five-Year Program is to achieve an average annual growth rate of 12% for gross output value of pharmaceutical industry, 13% for added value, 13% for profit, 9% on gross value of sales for pharmaceutical commerce, 6% for medicine import/export value. In addition, the development target in the pharmaceutical sector has been defined in terms of product restructuring, technical restructuring, organization restructuring in the enterprise, etc. By meeting these targets, play a solid foundation for achieving a strong pharmaceutical nation in terms of development of biological pharmaceuticals, TCM industrialization, innovation of medical appliance and market competitiveness for overall pharmaceutical products. As a municipality, Chongqing should be much higher than the average level in the country on the urban overall foundation and economic

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performance. Therefore, growth of overall performance and rate of increase for Chongqing pharmaceutical industry, one of the pillar industries under development in priority in Chongqing, is sure to reach or surpass the target as defined in the Tenth-Five Year Program for the pharmaceutical sector in the country. 2.1.3 Industrial policy for foreign investment In order to suit economic development and new situation since WTO entry, Guiding Catalogue for Foreign Investment Industry was updated by Chinese government in 2002 in an attempt to encourage investment in pharmaceutical industry in China. Included in the updated Guiding Catalogue for Foreign Investment Industry and defined as prioritized development are: ► planting and cultivation of TCM(joint-venture, cooperative only); ► Production of pharmaceutical products under patent and administrative protection in our country or chemical pharmaceutical products which we have to import; ► vitamins: production of niacin ► amino acid: production of serine, trytophan proteinochromogen, histidine, etc; ► production of antipyretic analgesic drug on technology and equipment; ► production of anticarinogen medicines, as well as new cardiovascular and cerebrovascular

drug; ► production of new, high efficient and economic contraceptive medicines and devices; ► production of new drug on biological engineering technology; ► production of vaccine of gene engineering(AIDS vaccine, Hepatitis C vaccine, contraceptive vaccine); ► development and production of oceanic drug; ► production of diagnosis reagent on AIDS and radioimmunity; ► medicine preparations: production of new products on new technology such as slow-released, control-released, targeting, transdermal absorption, etc; ► development and application of new drug adjuvant; ► processing and production of Chinese medicinal material, TCM extracts, Chinese traditional patent medicines(with exception on traditional preparation technology on TCM sliced medicinal herbs)； ► production of biomedicine materials and products ►production of animal antisepsis pharmaceutical product(including antibiotics, chemical synthesis) ► development and production of animal antibacterial, antiscolic, pesticide, insecticide; included in the prohibited category in the pharmaceutical manufacturing are:

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► processing of Chinese medicinal materials defined as protected resources, such as musk, licorice, jute; ► application of preparation technology for traditional TCM sliced medicinal herbs and production of arcanum of Chinese Patent Medicines 2.1.4 Other policy In addition to the above-mentioned WTO agreement and the Tenth Five-Year Program, the general theme of other policies is to encourage innovation, reinforce supervision, get rid of out-of-date small-scale enterprises, check malignant competition as a result of low-level repeated construction, enhance integral performance of the sector. The main things are described as follows: Firstly, encouragement of innovation and reinforcement of IPR. Approval Approach on New Medicine revised in 1999 highlighted that innovation be encouraged and protection of new medicine be reinforced, extend the protection period for Class 1-5 new medicine, during which only the enterprises obtaining certificate of new medicine can produce and sell the new medicine in order to protect the enterprise researching new medicine to enjoy benefit from innovation and not to suffer severe price competition; specified that new medicine can be entitled to higher gross profit margin when fixing price in order to enable the enterprise of new medicine can access better profit; strictly managed and controlled transfer of certificate of new medicine, allowing to process medicine within the Group by consignment or process medicine outside Group, etc, in order to improve research environment in pharmaceutical enterprises, promote help input of new medicine development and speed up industrialization of new medicine. Secondly, restriction of approval and compulsory implementation of GMP. In view of serious low-level repeated construction in pharmaceutical enterprises and poor general performance in the sector, the state through the replacement of medicine manufacturer certificate and the compulsory implementation of GMP(Good Manufacture Practice) and GSP（Good Supply Practice）certification intend to increase the threshold of pharmaceutical manufacturer entry and restrict no.s of enterprises so as to protect medicine quality, get rid of out-of-date enterprise, enhance enterprise intensity, promote the development of regional pharmaceutical sector with good pharmaceutical base and strength. Thirdly, implementation of medicine classification management system and pharmaceutical operation in separate manner. Since 2000, medicine classification management system was put into operation and pharmaceutical operation in separate manner started trial on some regions, promoting rapid growth of retail drugstores. With further implementation of OTC and increased ability of patient self treatment by

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pharmaceutics, drugstore will capture more market shares. 2.2 Regional industrial policy 2.2.1 Regional industrial policy Decision on Accelerating Process of New Industrialization released by Chongqing Municipal Party Committee, CPC on June 30th, 2004 pointed out to place emphasis on the development of major 4 industries. With respect to development of resource processing in priority, the Decision pointed out “optimization and enhancement of modern TCM industrial chain, consolidation and development of Daodi Chinese medicinal material bases with prominent regional features, promotion and application of Chinese medicinal material standardized planting and processing technology, accelerating research and development of TCM extract, separation and purification and other key technology, founding of leading modernized large-scaled TCM group and TCM industrial cluster in the country”. With respect to development of hi-tech industry, the Decision pointed out “accelerating cultivation of 3 leading industries, ie. information engineering, biological engineering, environmental protection engineering, based on the target of building hi-tech industrial base in the upper reaches of Yangtze River”, “regarding biological engineering industry, placing focus on research of key technologies such as new antibiotics, significant fermentation drug, gene engineering drug and vaccine, biological processing and biological engineering drug, biological medical material, etc. in an attempt to build an important industrial base on biomedicine engineering in the country. Therefore, investing in modern TCM and biological engineering in Chongqing is in line with industrial development direction of Chongqing and sure to obtain more support from local governments. 2.2.2 Chongqing is entitled to preferential policies for Western Development Program According to Catalogue of Advantageous Industry for Foreign Investment in the Middle and Western Regions updated in 2004, included in the Catalogue are “production of semi-finished products and finished products on Chinese medicinal materials, Chinese traditional patent medicines”. The following preferential policies are applied to foreign-funded enterprises which are founded in the middle and western regions and among the category of encouragement by the state: foreign invested productive enterprises, under a business license of ten years or upwards, will be exempt from corporate income tax for two successive years starting from the first year in profit, and liable for 50% of the normal rate for the following three years (“two-year’s exemption and three-year’s half”); After the expiration of the stipulated corporate income tax

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exemption and reduction period, if enterprises of advanced technology type funded by foreign investment is still categorized that of advanced technology type, then they are still entitled to 50% cut for another 3 years. During this 3 years, if the enterprises are confirmed to be export-oriented enterprises with its export value taking up more than 70% of the total output value of the year, they are liable for 50% cut of corporate tax income based on tax rate stipulated by the Tax Law, but not lower than 10% after 50% cut. This policy is applied the same as that used in special economic zone and economic and technological development zone. In addition to the same preferential policy as applied to local enterprises, foreign-funded enterprises also are liable to other preferential policies promulgated by central government and Chongqing government to encourage foreign investment. Also Chongqing Economic and Technological Development Zone and Chongqing High-tech Industrial Development Zone at the state level offer more preferential terms. 3. Key investment fields on pharmaceutical sector in Chongqing and proposals on the way of investment 3.1 Guideline for determination of key investment field For any investment, excellent return of investment can be achieved only by meeting the local economic development. Therefore, investigating the demand of local economic development is required when selecting investment field and investment project, and based on which good return of investment can be guaranteed. According to current economic development condition and trend of pharmaceutical sector in Chongqing, we propose to consider the following factors when determining investment field and investment project within pharmaceutical sector. 3.1.1 If in accordance with restructuring strategy of pharmaceutical sector in Chongqing and China; 3.1.2 If meeting the purpose of complementary advantage in Chongqing via input of foreign investment; 3.1.3 If the intention that Chongqing can make available internationally advanced technology, product access international market, substitution of import, or technical innovation of domestic enterprises, improvement of product quality, technical level and saving of energy and raw materials, can be met; 3.1.4 If meeting the requirement of environmental protection. 3.2 Key investment fields According to the Tenth Five-Year Program of pharmaceutical industry and in combination with actual condition in Chongqing, the investment in pharmaceutical

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sector should mainly focus on followings: 3.2.1 Pharmaceutical manufacturing In the next 5-10 years, pharmaceutical market is dominated by chemical pharmaceuticals, followed by traditional Chinese medicine, biopharmaceuticals, which pattern would not be changed. Therefore, the key investment field for pharmaceutical manufacturing should be selected in a manner that development of modern biopharmaceuticals, promoting of modernization of traditional Chinese medicine and advancement of advantageous pharmaceutical products are prioritized. ► Explore modern biologic pharmaceuticals. As one of the 3 leading high-tech technical industries under prioritized development, the development target for bioengineering of Chongqing during the Tenth Five-Year Program is to advance the development of biopharmaceuticals, leading chemical pharmaceuticals, high-tech medical apparatus, traditional Chinese medicine and added value transformation of particular resources for ecological agriculture in accordance with the aim to build biopharmaceutical and new medicine base at upper reaches of Yangtze River, modern base of traditional Chinese medicine and new style of medical apparatus. Chongqing municipal government pays high attention to it and has generated a couple of preferential policies and assistance policies to work on major 4 items (biopharmaceuticals and new medicine, modern traditional Chinese medicine, new medical apparatus engineering and added value transformation of particular resources) and a few of key projects and construction of 3 major parks (Chongqing Biopharmaceutical and New Medicine Park, New Medical Apparatus Park and Southwest Ecological Agricultural Technology Demonstration Park). To this end, consideration should be given to investment in Chongqing biopharmaceuticals in combination with above factors: ——To make use of Recombinant DNA Technology and protoplasmic integration technology to form new culture collection, or to reform culture collection for antibiotic, amino acid, vitamin, etc, to improve technical process level, to reduce consumption. ——Explore the new vaccine, diagnosis reagent and biotechnological pharmaceuticals against prevention, diagnosis and treatment of malignant tumor, heartbrain blood vessel disease or immunologic deficiency and other diseases seriously affecting human’s life and health. ——In combination with genetic engineering, cell engineering and traditional process, produce the rare Chinese medicinal materials. ——Explore new version of existing biotechnological product. ► Advance modernization drive of traditional Chinese medicine. Currently, faced with

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low modernization level, poor industrial foundation and intensified market competition, in order to realize standard, commercial and intensified production and planting of Chongqing traditional Chinese medicines, we must adopt advanced technology to explore new type or new product of traditional Chinese medicines, improving process, updating or upgrading technical equipments, enhancing technology applied to traditional Chinese medicines. To this end, consideration is given to the following fields when investing traditional Chinese medicine sector in Chongqing: —— improvement of production technology and process for traditional Chinese medicine and development of new technology; ——development of Chinese traditional patent medicines preparation formulation and new equipment; ——standardized production management of TCM sliced medicinal herbs and technical development; ——standardized and commercialized production of TCM extracts; — — based-, standardized, industrialized and intensified production of Chinese medicinal materials; ——Commercialization and management of Chinese medicinal materials standard system on production quality and good agriculture practice (GAP). ►Develop advantageous pharmaceutical products and formulation category. Production of chemical and medicinal materials in Chongqing has experienced a long history and formed an industrial basis. Currently, the major demand is hopefully to further expand production scale, improve technical level, enhance integral quality of the sector via foreign investment so as to increase the market competitiveness of chemical pharmaceutical materials. The key fields worth of consideration are listed as follows: ——production of urgently needed products nationwide, or export products with high added value; ——key technology for production of bulk pharmaceutical products; ——technical innovation and process improvement for old pharmaceutical enterprises; ——development of universally recognized advanced technique and process in the sector in terms of improving product quality, productivity, practicing energy economy and reduction of energy, reducing cost. ——Research and development of new preparations category and spec, secondary development of common medicines and improvement of preparations spec. 3.2.2 Medical apparatus and instruments, pharmaceutical equipment and packing materials sectors Medical apparatus and instruments sector,which is a high-tech sector with knowledge

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intense, fund intense, multi cross disciplines, fierce competition and challenge, is one of the indication that a country has reached the most advanced level on manufacturing sector and high-tech. It has huge potential for growth. Consideration should be given to the following fields when investing manufacturing sector of medical apparatus and instruments. ——development and production of new medical apparatus and its key components, disposal consumables; ——development and production of household small equipment on detection, monitor, first-aid, rehabilitation, healthcare; ——development and production of pharmaceutical equipment with high efficiency, high yield, highly auto, multifunctions, continuously enclosure and in accordance with GMP criteria; ——Development and production of medicinal packing materials ( such as new type of plastics, new type of synthetic rubber raw materials), packing process. 3.2.3 Pharmaceutical commercial sector In recent years, establishment of new medical insurance system, separation of medical sciences and pharmaceutics, issue of non OTC regulation, generation of catalogue of reimbursable medicines and other a series of medical system reform greatly speed up growth of pharmaceutical commercial sector while the current pharmaceutical commercial sector in Chongqing is still a premature virgin land. The following fields are firstly considered when investing pharmaceutical commercial sector in Chongqing: ——establishment of large pharmaceutical logistics distribution centers; ——exploration of rural pharmaceutical market; ——export agency for medicine and medical apparatus; — — Information-based transformation of traditional pharmaceutical commercial enterprises. 3.2.4 Setup of pharmaceutical research and development center In view of scientific and research talent resource, medical treatment resource, Chinese medicinal material resource in Chongqing and frequent outbreak of diseases in the southwester regions, exploring new chemical drugs and Chinese traditional patent medicines will be much more likely to succeed. 3.3 Proposals on ways of investment Investing Chongqing pharmaceutical sector should take flexible mode of investment strategy based on strong fund support, effective marketing skill, advanced management concept, excellent brains, to introduce mechanism and high-tech. Propose to take following ways according to each condition:

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——JV, cooperation, or solely-operated and other direct investment mode: taking JV or cooperation mode for pharmaceutical sector is a shortcut for improved technical level, leading to rising level of integral sector. Foreign enterprises owned with advanced management technology, management concept and strong fund support can cooperate with Chongqing enterprises for JV or cooperative development, using existing basis and advantages Chongqing pharmaceutical sector has in place, to benefit to enhanced enterprises’ performance and competitiveness. ——purchase stock, run business by sharing stock or purchase valued security; ——carry out compensation trade, processing of import materials; ——obtain land use right according to law, explore business or explore planting base on a large scale; ——Lease or purchase medium- or small-scale pharmaceutical enterprise; Same as the mode of investment, foreign investors can flexibly choose the mode of input based on the particular condition of the enterprise and the principle of mutual benefits. The followings are for your information: ——cash input; ——input of equipment or other materials after being assessed on price; ——proprietary technology, patent product; ——Input of trademark, brand or intangible assets after being assessed on price. Conclusion In the light of Chongqing pharmaceutical industrial foundation, pharmaceutical commercial foundation and their positions in the country, there is a solid foundation for Chongqing pharmaceutical industry, high ability to make profit on TCM products, abundant resources on Chinese medicinal materials, properly established foundation for scientific and research. As a result of that, industrial pattern on the integration of production, study and research has been properly formed. In combination with workforce quality, cost in Chongqing and geological advantage for Chongqing as an economic center in the southwester regions, the competitiveness of Chongqing pharmaceutical industry is well recognized across the country. Despite of many areas of concerns, such as limited no.s of enterprises in a small scale, low level on enterprises’ research and development, low export for the industry, inavailability of industrial cluster, etc., it is more likely to witness a double-win situation which occur in an unusual way, providing that we can achieve complementary advantages by attracting foreign investment and advanced technology plus tremendous development potential on China’s pharmaceutical market. Of course, investing in pharmaceutical field in Chongqing also

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face risks of over competition, foreign anti-dumping, low export in the sector, etc. However, these concerns mainly lie in the market on sales of products adopting out-of-date technology. Assuming that foreign investors are able to invest in production of hi-tech products with proprietary intellectual property rights and able to establish research and development centers in Chongqing, then those concerns can be bypassed. Furthermore, in order to attract foreign investment, the state and Chongqing developed quite a number of preferential policies, which provide assurance and confidence for foreign investors to start their business in Chongqing. Therefore, investing in Chongqing pharmaceutical sector will meet a brilliant prospect. Appendix 1: Key projects on investment in pharmaceutical industry of Chongqing

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Table of contents Text Brief introduction…………………………………………………………………….…….………1 1 Analysis of competitiveness for Chongqing pharmaceutical industry…………………………..1 1.1 Advantage of competition for Chongqing pharmaceutical industry…………….…..…………1 1.1.1 Solid foundation of pharmaceutical industry…………………………………………………1 1.1.2 Position of Chongqing pharmaceutical industry in the country………….……..……………4 1.1.3 Properly established foundation of pharmaceutical commerce …………….…………..……6 1.1.4 Prominent advantage on Chinese medicinal materials resources………….…………………9 1.1.5 Advantage of competition in workforce cost and its quality……………...…………………14 1.1.6 Good foundation on pharmaceutical science and research………………….………………16 1.1.7 Infrastructures in good condition……………………………………………………………17 1.2 Areas of concern with Chongqing pharmaceutical industry……………..…………………18 1.2.1 Limited enterprises in a small size…………………………………………….……………18 1.2.2 Low input and level of research and development for enterprises……………..…………..19 1.2.3 Low export for the industry…………………………………………………………………19 1.2.4 Famous enterprise brand and industrial cluster not established…………………….………19 1.3 Potential for development of Chongqing pharmaceutical industry…………………………20 1.3.1 Tremendous potential for development of Chongqing pharmaceutical industry……………20 1.3.2 Tremendous potential for Chinese pharmaceutical market……………….…………..….…21 1.3.3 Room opportunity available for foreign investment in Chongqing pharmaceutical industry.22 1.3.4 Trend on relocation of international research and development center to China…………...23 1.3.5 Gradual improved environment of investment in Chongqing…………………………….…25 1.4 Analysis of risks on investment in Chongqing pharmaceutical industry……………….…..…25 1.4.1 Competition from imported medicines……………………………….……………..…….25 1.4.2 Compressed room for profit from fierce domestic competition……..……….……………26 1.4.3 Risks from foreign anti-dumping……………………………………..………...……...….27 1.4.4 Risks of environmental protection and market access for TCM processing industry……….27 2 Analysis of policies on the pharmaceutical industry…………………………………………..27 2.1 The state industrial policy………………………….…………………………………..……27 2.1.1 Terms and conditions in WTO agreement related to pharmaceutical industry……………...28 2.1.2 Major targets on pharmaceutical sector as stipulated in the Tenth Five-Year program……..28 2.1.3 Industrial policy for foreign investment……………………………………………..……29 2.1.3 Other policy……………………………………………………..……………………..……30 2.2 Regional industrial policy……………………………………………………………...……31 2.2.1 Regional industrial policy………………………….………………………………………..31 2.2.2 Chongqing is entitled to preferential policies for Western Development Program…..…..…32 3 Key investment fields on pharmaceutical sector in Chongqing and proposals on the way of investment…………………………………………………………………………………..……..32 3.1 Guideline for determination of key investment field…………………………………..……32 3.2 Key investment fields………………………………………………………………..………33 3.2.1 Pharmaceutical manufacturing…………………………….…………………………..….…33 3.2.2 Medical apparatus and instruments, pharmaceutical equipment and packing materials

sectors ………………………..…………………………..……………………..……………..…35 3.2.3Manufacturing sector of medical apparatus and instruments……………………………..…35 3.2.4 Setup of pharmaceutical research and development center…..…………………………..…36 3.3 Proposals on ways of investment…………………………..…………………………….….36 Conclusion……………………………………….………………………………………………..36 Appendix 1:Key projects on investment in pharmaceutical industry of Chongqing………..….…37 Tables and Charts in the text Chart 1: Trend showing gross output value, added value for pharmaceutical industrial above-scale enterprises in Chongqing from 2000 to 2003………………………………………………………2 Table 1: Ranking in the country on main economic indicators of Chongqing pharmaceutical industry in 2003…………………………………………………………………………….………5 Table 2: Ranking in the country on main economic indicators for Chongqing chemical medicines industry in 2003………………………………………………………………………….…………5 Table 3: Ranking in the country on main economic indicators for Chongqing Chinese Traditional Patent Medicine in 2003…………………………………………………………………….…...…5 Table 4: Ranking in the country on main economic indicators for Chongqing sliced medicinal herbs in 2003……………………………………………………………………………………..…6 Chart 2: Trend of sales incomes for above-limit pharmaceutical commercial enterprises from 1999 to 2003……………………………………………………………………………………….…..…7 Table 5: Ranking in the country on main economic indicators for Chongqing pharmaceutical commercial enterprises in 2003………………………………………………………………….…8

Appendix: Key projects on investment in pharmaceutical industry of Chongqing

1、Pharmaceutical industry 1.1、Finely processed pueraria root project by Chongqing Geen Biotechnology Development Co., Ltd Project description: mainly covers radices puerarire isoflavone, pueraria root amylum, radices puerarire isoflavone capsule, widely used in healthcare and cosmetics field. The Co. mainly adopts the technology developed by Professor He Zhaofan entitled to the state council subsidy in the field of food and medicine, which is featured by high industrialization level, low cost, high efficiency, creativeness. The technology of the project is owned by the Co. Market prospect: The finely processed pueraria root products are widely used as healthcare food and raw materials

for pharmaceutics, which have a positive effect not only on treatment of cardiovascular disease, reduction of

blood pressure and blood-fat, but have an effect of estrogens without side-effects. It is the first choice for

substitution of hormone therapy. Currently, foreign markets every year import a large amount of pueraria root

primary products from China and then process and produce high quality and expensive healthcare foods,

healthcare medicines of all kinds. In domestic market, with the increasing of living standard, the people come to

pay more attention to health and the demand for green foods without public nuisance and biopharmaceutics is

increasing rising, consumption soaring greatly and having wide market prospects.

Competition advantage: extracts with high purity, low impurity, low cost, enjoy a high competitive position

nationwide.

Financing note: total amount of investment for the project is RMB 145.86 million, RMB 50 million of which is financed through bank loan. 1.2、Technical innovation project on heart/brain-invigorating oral liquid and 3# cantor bladder pulmanary tonic and fritillaria extract tablet by Chongqing Xingyi Dongfang Pharmaceutical Co., Ltd.Project description: heart/brain-invigorating oral liquid and 3# cantor bladder pulmanary tonic and fritillaria extract tablets are the key products of the Co. and were sold mainly in the southwest market. The sales information in the past shows that the medicines, pure traditional Chinese medicine without any toxic side-effect, has a properly curative effect with an appropriate price and really appreciated by customers, creating a high reputation and fixed customers colony in southwest regions. The Co. intend to further explore eastern and southern markets and try to achieve annul sales amount of more than RMB100million for single medicine within 4-5 years, becoming the famous brand and renowned trademark in the country. To this end, the Co. decide to expand the capacity of existing oral liquid and tablet production line to meet the need of sales.Heart/brain-invigorating oral liquid was originally named Zhengzhong brain tonic oral liquid, which is the product uniquely produced by the Co. and includes the composition of panax ginseng, astragalus root, tortoise shell, radix polygonati officinalis, etc. The medicine is suitable for body

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physical and mental health and promotion of blood circulation. It is mainly used for the treatment of mental exhaustion neurasthenic caused by renal weakness, declined memory, senile dementia, encephalatrophy, sequela of cerebral infarction and cerebral thrombosis, cerebral circulation dysfunction due to hypertension, dysmnesia due to cerebral trauma and dysgenesis of children with mental deficiency and elder dementia. The medicine can be used for people at different ages, specification of which is 10×10ml capsules /box, 12×10ml capsules/box. 3# cantor bladder pulmanary tonic and fritillaria extract tablet has been defined as the traditional Chinese medicine under national protection and approval No. is Z50020044. The major compositions are cantor bladder, fritillaria cirrhosa, pinellia, coptis, etc, suitable for expelling wind and cold pathogens, promoting the dispersing lung function, and resolving phlegm. It has good treatment effect for patient of different ages. Major specification is 0.25g×12capsules×2 sheets/box. Market prospect： ① Comparison with other similar products in the country such as Naobaijing, Sanajon, Naoqingshong, brain cerebral tonic liquid, etc, shows that heart/brain-invigorating oral liquid is complete in function, suitable for people of different ages with medium price, prone to be accepted by customers, and is an excellent medicine of combined integration of healthcare and treatment able to be administered on a long time. ② According to China Food Network of August, 2002, heart/brain-invigorating oral liquid produced by the Co. ranks the 4th among the sales of sleep products in the country. ③ According to the consumption demand by people of different ages in the country, the customers requiring a product good for memory, growth, anti-fatigue and sleeping account for quite a big proportion, in particular those aging below 40 and varying from 40-60. therefore, the market prospect for the product is bright. Analysis of market for 3# cantor bladder pulmanary tonic and fritillaria extract tablet： ① Comparison with similar products in the country shows that the product is prices low and has price advantage, good for opening market. ② The product has an outstanding effect in treating cough and is the pure traditional Chinese medicine. Competition advantage： Heart/brain-invigorating oral liquid: ① 100% pure traditional Chinese medicine without toxic side-effect; ② there is no hormone and chemical hypnosis composition; ③ high biological use of oral liquid type and proper curative effect; ④ product is safe without addiction and is an excellent medicine of combined integration of healthcare and treatment. 3# cantor bladder pulmanary tonic and fritillaria extract tablet: ① pure traditional Chinese medicine without medicine of western style and toxic side-effect; ② good for treating cough caused by fever buildup; ③ easily dosed and carried, appropriate price, reliable quality. Financing note: total amount of investment RMB 40million, financing amount RMB 40million,

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taking cooperative mode. Return of investment： Heart/brain-invigorating oral liquid will see 6million boxed of sales in the 1st year, creating profit of RMB 1.38million, and see 8.5million boxes of sales in the 2nd year and profit of RMB 10.58million. Achieve a profit of RMB20million on a average in the following 3 years. 3# cantor bladder pulmanary tonic and fritillaria extract tablet will see 5million boxed of sales in the 1st year, creating profit of RMB 0.8million, and see 7million boxes of sales in the 2nd year and profit of RMB 3million. Achieve a profit of RMB 8million on a average every year in the following 3 years. Return of investment is 5-6 years. 1.3 Compound dihydroartemisinin project for Chongqing Tonghe Pharmaceutical Co., Ltd Project description: compound dihydroartemisinin, new generation of malaria-resistant drug, has an positive effect on prevention and treatment of pernicious malaria. The drug was entitle to certificate of new drug and production approval on Jan. 2001 and mass production has started. The drug was jointly developed by Chongqing Tonghe Pharmaceutical Co., Ltd and Tropical Disease Research Institute under Guangzhou University of Traditional Chinese Medicine and has applied for the national patent. Market prospect: compared with similar products, compound dihydroartemisinin has the advantage of short treatment course, high efficiency, small rate of recurrence, low toxicity and no resistance to drug, etc, price of which is not higher than that of other malaria-resistant drug. There are 300-500 million people suffering from malaria every year worldwide, spending over US$1-1.5 billion on anti-malaria drug every year in the world. If compound dihydroartemisinin can capture 5-10% of market share within 5 years, sales incomes will exceeded US$100 million. Competition advantage: the product has been defined as one of the leading anti-malaria drugs by WHO and received market access permit by some countries in Africa and South America. Since compound dihydroartemisinin itself possesses very strong advantage on technical performance and price comparison, it will take a leading position in the market competition in a long period. Financing note: financing amount RMB20-40 million, adopting JV mode. Return of investment: 3 years later, incomes of sales will reach US$10 million and profit US$3 million. Regain investment in 2-3 years. 1.4、Large volume I.V solution production project for Chongqing Shengtian Pharmaceutical Co., Ltd. Project description: Large volume I.V solution(described as massive inject below) is one of the most common used important preparation formulation of pharmaceuticals. Tablet, capsule, injection, powder needle are daily used products for each medical institute. In developed countries, per capita massive injection is 3 bottles or more and over 4 bottles in Japan. Massive injection is very lacked

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in some domestic regions, even worse in western areas, and some are supplied from eastern regions. Therefore, there is potential for massive injection in China based on increased variety. The Co. is one of the first enterprises in Chongqing entitle to large volume I.V solution GMP certification and has strong competition on production and sale of massive injection medicines. Market prospect: (1) the massive inject products made by the Co. has passed GMP certification and occupied 50% of rural market of Chongqing and 5% of urban pharmaceutical market in Chongqing by establishing wide sale network based on shareholders network. (2) population advantage: the most important regions of marketing by the Co. are Chendu and Chongqing where there are totally 114.19 million people, which are the core belt for drug sales, in particular massive injection products and have a vast market. (3) improved pharmaceutical sales network: the major shareholder of the Co. is Chongqing Changlong Medicinal Estate Managerial Co., Ltd, which has established robust cooperation relations with over 6000 large- or medium-scale pharmaceutical production enterprises and over 10,000 hospitals nationwide, sales covering 22 provinces and cities in the country, and its drug chain stores have more than 300, forming regional distribution center in Chongqing and taking a market share of 50-75%. Competition advantage: comparable sector advantage; advantage of purchase force; policy advantage applied to relocation enterprises from Three Georges relocated immigrants; flexibility advantage. Financing note: adopting JV mode.

2、Planting base of Chinese medicinal materials 2.1、Project on establishing modernization planting and industrialization demonstration base for taxus madia by Chongqing Yuanda Zoology Agriculture Development Co., Ltd by making use of ecological resources along Three Gorges Reservoir Project description: the no. of wild yew is extremely limited and it has been listed as worldwide protective plants under imminent danger. Taxus madia is a plant of high add-valued pharmaceutical raw material and afforesting fancy, and is a cross-breeding specie of European yew and yew in Northeastern China with fast growing rate, taxol extracted from which is the most welcomed natural anti-cancer pharmaceuticals in the international market. Shortage of taxol can be effectively resolved by manually planting yew. The project adopts efficient breeding technique on microbody of taxus madia to allow for breeding of taxus madia. Now we have established taxus madia technical industrial park of 1000 mu in Jinfo Mountains in Nanchuan, adopting intensified production with annual nursing capacity of 5 million. There is 1 planned industrialized scientific and research building with construction area of over 1000 square meter, 1 clone makeup workshop building with construction area of over 1200 square meter, and intelligent nursing greenhouse of 4000 square meter all being under construction.

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With the implementation of Chongqing industrialized engineering on Chinese medicinal materials of million mu, the Co, operating in a manner that Co.+technology+base+farmer and integration of forest/drug are performed, help to promote relocated people along Three Georges Reservoir to artificially plant taxus madia in order to restructure rural industry, increase farmers’ income and promote the development of economy in the reservoir region. Market prospect: yew is classified Class I plant under protection in the country with high economic and social values. Over recent years, wild yew across the country suffered devastating ruin. In order to protect resource of precious wild yew, it is really necessary to promote artificially planted taxus madia with high taxol content on a large scale. Therefore, the prospect for the product is quite optimistic in the domestic market. The demand for taxol product in international market is always on the rise and the trade amount for taxol maintain at over US$1.5 billion. Every year, the total number of people dying of cancer in the world is as high as more than 6.3 million while it is expected to consume about 1500-2500kg taxol for treatment of these cancer patients, 300kg of which are used in USA alone and he can only produce abount 50kg of taxol. The latest international statistics in 2000 show that the total sales amount for taxol raw material in the world was US$147 million while taxol preparation formulation market was US$1.3-1.4 billion, 90-95% of which was consumed by USA. It is predicted by 2007 that chemical and medicinal materials for taxol would be doubled based on exiting level of sales volume, reaching more than 700kg and about US$200 million on total sales amount. Therefore, there is quite potential in international market and production of taxol and construction of yew base have the huge market opportunity. Competition advantage: the Co. was founded in 1997, mainly engaging in research, nursing, development of taxus madia and other precious and rare plants worldwide. The Co. possesses a properly structured and highly technical professional team, including 18 research staff, 3 of whom are foreign specialists, 2 domestic specialists, 13 senior engineers and professional staff. The Co. is attached to Chongqing Heige (Industry) Group which runs 3 major businesses, ie, real estate, electricity and agriculture with total assets exceeding more than RMB500 million, providing strong financial support to the project. Efficient breeding technique on microbody of taxus madia developed by the Co. on its own is highly novel, reaching the advanced level over the research of same kind in the country. Therefore, advanced innovative breeding technique offers the basis for fierce competition. The advantage of project location enables the project to survive in the western region and provide proper regional platform. There is huge potential for development. Financing note: total amount of investment is RMB61 million, adopting stock financing.

Return of investment: realize industrialization in 2008 with sales volume 12 million kg of yew dry leaves and sales income RMB120 million.

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2.2、Fructus Citri aurantii GAP production, research, planting and promotion project by Tongliang Zhiqi Medicinal Materials Co., Ltd Project description: Fructus Citri aurantii is an important Daodi medicinal material in Chongqing region and also named Citrus aurantium L or Fructus Citri wilsonii. It has the functions of expelling wind and cold pathogens, promoting the dispersing lung function, and resolving phlegm, clearing away heat and reducing phlegm, treating prolapse of anus, hysteroptosis. It can be dosed or pasted outside. Fructus Citri aurantii is a widely used traditional Chinese medicine with proper curative effect on many cases and mainly used for tablets. With development of technology, Fructus Citri aurantii is used more in study, development and extract of Chinese Traditional Patent Medicine of all formulations. It is also widely applied in the clinic research and is an important composition of integral Chinese medicinal medicines. The proposed project is designed to perform a series of scientific study on soil, semen, seed, fertilizer application, use of pesticide, environment(sunshine, air, humidity), pesticide residue and on-spec product composition necessary to plant Fructus Citri aurantii and associated analysis and promotion. Also Fructus Citri aurantii is planted and produced in accordance with GAP to enable to reach Pharmacopoeia of the People’s Republic of China criteria and to become green pharmaceuticals. Scientific study shows that the project reaches more than 1000mu on promotion of planting with annual output of 1800te and take part in international competition to meet the need of market at home and abroad for higher social and economic benefits. Market prospect: in recent years, it is in a short supply in markets at home and abroad and out of stock for foreign export, not meeting the market demand. Therefore, Fructus Citri aurantii can only be produced in accordance with GAP to meet Pharmacopoeia of the People’s Republic of China to become green drug for further development. The project is not only to meet the market demand at home and abroad and to improve economic benefits, but to have the remarkable ecological and social benefits, enjoying far-reaching significance. Competition advantage: Fructus Citri aurantii is planted strictly in accordance with GAP on mountains of sea level of 800m and without pollution. There are over 30,000 7-years-old trees covering almost 200 mu with annual output of more than 200te. There are more than 100,00 quality seeds able to be planted on 700 mu under the instruction of specialists from Southwest Academy of Agricultural Sciences. The project has started long time ago with good quality and fast achievement, favorable to market competition. Financing note: total amount of investment RMB4 million, financing amount RMB1 million, stock financing, JV, cooperative development, transfer of technical achievement, use of permit, etc. 2.3、Coptis chinensis Franch GAP planting base construction project by Chongqing Shizhu Coptis Co., Ltd Project description: establish standardized coptis planning base and detection center for ecological monitor(air, soil, water), coptis seed quality and product quality. Establish coptis seed breeding base.

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Establish primary processing, and packing, storage, sales system for coptis products. Market prospect: according to prediction on information of the national medicine and foreign trade department and specialists concerned, the annual demand for coptis is 1500-2000te, 1000-1200te of which is used domestically and 500-800te exported abroad while the total annual output of coptis nationwide is only about 1500te, hundreds of tons less than market demand. Shizhu coptis is a Daodi medicinal material and has been approved by the state for protection of product on place of origin. Furthermore, coptis GAP aimed to protect product quality being implemented and applying for will enable Shizhu coptis which is always famous for large-scale planting and quality to become more renowned and further to enhance market competitiveness. Since 1999, the sale price of coptis at place of origin often maintain at RMB100-200 per kg, 220-240 maximum and it is always short of supply. Market prospect is bright. Competition advantage: Shizhu coptis is listed as product of origin under protection, classifying as a Daodi medicinal material and will soon pass the national GAP certification. The production accounts for 68% of the country and 40% of the world, governing coptis market for a long period. Shenlong Brand coptis is a renowned brand of Chinese medicinal material with effective composition and good quality and enjoys a high reputation. Financing note: total amount of investment RMB33.065 million, financing amount RMB10 million, JV or cooperation mode. Return of investment: output value of the project RMB120-180 million, profit tax RMB10-15 million, return rate of investment 20%, return period of investment 5 years. 2.4、Construction project on quality Chinese medicinal materials base covering 30,000 mu by Youyang Wisdom Pharmaceutical Co., Ltd Project description: establish quality Chinese medicinal materials base of 30,000 mu, 8000 mu of which is Rhizoma Atractylodis Macrocephalae commercial base, 2000 mu Rhizoma Atractylodis Macrocephalae GAP planning demonstration base, 10,000 mu Scrophularia ningpocnsis Hemsl commercial base, 8000 mu cortex phellodendri base and 2000 mu fructus evodiae base. Market prospect: with WTO accession and more attention paid by the nation to traditional Chinese medicine, our country successively issued guideline on modernization drive of traditional Chinese medicine, regulation on protection of traditional Chinese medicine, and quality management criteria on traditional Chinese materials(GAP), etc, to create pretty good condition for development of course of traditional Chinese medicine in the country. traditional Chinese medicine has gained access permit by 127 countries and regions around the world, exploring more open market for traditional Chinese medicine and promote traditional Chinese medicine to advance globally. Currently, the industrialized size for Chinese Traditional Patent Medicine is bigger and bigger with annual sales amount jumping from nearly US$1 billion in 1980 to existing RMB40 billion(about US$5 billion). Purely natural plant drugs are the hot spot in international market, up over 10% on a

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year-on-year basis. By 2010, trade of natural drug and healthcare food will exceed US$200 billion with big demand for traditional Chinese medicines. The population in the country accounts for 1/5 of the world, forming a huge market population. Rhizoma Atractylodis Macrocephalae, Scrophularia ningpocnsis Hemsl, cortex phellodendri, fructus evodiae are all one of the mostly common used traditional Chinese medicines. Currently and even in the future, the above 4 species is still short of supply and they are huge potential for development. Competition advantage: Youyang County, a leading county in the city implementing “Industrialized project on quality Chinese medicinal materials of million mu” is very suitable for the growth of Chinese medicinal materials due to his unique geology and climate condition, such as Rhizoma Atractylodis Macrocephalae, Scrophularia ningpocnsis Hemsl, cortex phellodendri, fructus evodiae, artemisinin, rhizoma gastrodiae, aster, polygonatum canaliculatum, etc, well known for quality and quantity in and outside the municipality and the county has become a distribution center of Chinese medicinal materials in the southeastern Chongqing. Financing note: total amount of investment RMB15 million, financing amount RMB4.8 million, stock financing, JV or cooperation mode. Return of investment: output value RMB30 million, sales income RMB36 million, tax RMB1.8 million, profit RMB10.5 million. 2.5 Construction project on Coptis, Tuber Fleeceflower Root, corni fructus planting base by Shizhu Chinese Medicinal Materials Co., Ltd Project description: Tuber Fleeceflower Root is the herbage of Polygonum multiflorumThunb and currently there is no main production region in the country. The Co. has the 400 mu of Tuber Fleeceflower Root planting base, which may extend to 60,000 mu by 2007. Corni fructus belongs to cornaceae. Dry and mature pulp of corni fructus is able to makeup blood supply to liver and kidney. There are planting area of 18,000 mu and 60,000 mu more by 2006. Shizhu coptis is a Daodi medicinal material and there are planting area of 30,000 mu, 6000 mu more every year and totally 50,000 mu planting area. Against Good Agricultural Practice for Chinese Crude Drugs (GAP), it has reached the requirement as specified in Good Agricultural Practice for Chinese Crude Drugs (GAP) and we are applying for GAP certification. Market prospect: Prediction of coptis base: Chinese coptis is a special local product in Shizhu, known as the Homeland of Coptis. If coptis planted in standardized manner is calculated on 200kg per mu and is picked on 6000 mu per year, its annual output will be 120,000kg and annual sale incomes will be RMB160,000 million per year and net value RMB100,000 million calculated on the basis of 140yuan/kg. Prediction of Tuber Fleeceflower Root base: 100 mu of breeding in 2003. from 2004 to 2006, every year plant 20,000 mu and totally plant 60,000 mu. 3 years later, every year pick 20,000 mu.

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Calculated on 800kg/mu dry product, annual output is 16,000te. Calculated on lowest price 6yuan/kg, added output value is RMB96 million and profit tax RMB18 million. Prediction of corni fructus base: there are 18,000 mu now. plan to plant 20,000 mu of corni fructus every year since 2004 and totally plant 60,000 mu until 2006 across the whole county. Based on 80 per mu, each will yield 1kg. Realize output value of RMB48 million in 2009 and RMB144 million by 2011 and profit tax RMB 28 million. Competition advantage: Shizhu medicinal materials after industrialized implementation can realize output value of more than RMB600 million, of which traditional Chinese medicine slice RMB85 million, dosage granule of traditional Chinese medicine slice RMB100 million, Tuber Fleeceflower Root RMB96 million, corni fructus RMB144 million, extraction of effective composition from traditional Chinese medicine RMB100 million, operation of Chinese medicinal medicine based on coptis RMB100 million. Annual profit tax is more than RMB100 million and a large of employment can be resolve from it. Financing note: total amount of investment RMB90 million, financing amount RMB50 million, stock financing, or cooperation development mode. 3、Medical apparatus and instruments manufacturing 3.1 5.0 medicinal neutral glass bottle investment project by Chongqing Beibei General Glass Apparatus Factory Project description: innovate a glasses tank furnace. Adopt Vello glasses process line for innovation of existing ampoul and flasket equipment with an expected capacity of 2billion pieces for new type of ampoul and flasket. Market prospect: annual consumption of ampoul around the country was 30billion pieces in 2003. The capacity of ampoul is 3.5billion pieces each year in the factory and same as flasket. Initially intend to complete the neutral innovation on 2billion of ampoul and flasket to enable to explore the vast international and domestic markets. Competition advantage: the factory is located at the intersection of the middle and west region with obvious regional advantage and is supported by abundant natural gas resource in Chongqing, which is vital to glasses sector. Furthermore, the availability of water supply, electricity supply and traffic system and other facilities can provide sustainable development for the project and the glasses sector. Financing note: total amount of investment RMB36 million, financing amount RMB25.2 million, JV or cooperation mode. Return of investment: annual profit tax RMB8 million and 3 years for return on investment. 3.2 Disposal bacterial-free medical apparatus and instruments project by Chongqing Medicinal Equipment Plant

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Project description: disposal bacterial medical apparatuses include disposal injector, disposal transfusion, blood transfusion device, disposal bag transfusion, widely used in clinical application of hospital and they are the products which are most commonly used and consumed mostly. The plant has built a purification workshop of Class 100,000, has the advanced production and ability of managing production and organization, which are able to meet the research and production for the project. Market prospect: with the high attention paid to the medical hygiene course and more input by the government and in combination with huge consumption market in China, vast development space and strong advancement momentum are available for medical apparatus and instrument, in particular the demand for disposal products. The opportunity of X-ray machine due to SARS and establishment of national epidemic prevention system at 4 levels promote growing demand in the market and products for family planning are particularly specified products. The plant, the only certified enterprise able to produce combined medical apparatus and instruments in western region, has the vast market prospect and potential for development in terms of the above-mentioned 3 types of products. Competition advantage: medical apparatus and instrument sector is a sun-rising sector with strict restriction on market access. There is a vast room for medical apparatus products. The plant is the only certified enterprise able to produce combined medical apparatus and instruments in western region so that he governs the sector advantage, product advantage and regional advantage. Financing note: total amount of investment RMB25 million, JV or cooperation mode, or reorganization and restructuring. Project availability: all required permits in place and all conditions required by market access are met. Production condition and equipment are in good condition.

4 Pharmaceutical institute on scientific research 4.1、Project on Metronidazole Disodium Phosphate for Injection by Pharmaceutical Research Institute under Chongqing University of Medical Sciences Project description: Metronidazole Disodium Phosphate is used as an anti-anaerobic bacteria infection in clinical application. Metronidazole Disodium Phosphate, prosomal compound of metronidazole, is easily soluble to water and able to be injected with many drugs with good stability, which is rapidly metabolized inside the body to metronidazole to function and is safer and more convenient than using metronidazole indenpently so that it is widely applied in clinical aspect. It is a complex process to prepare Metronidazole Disodium Phosphate abroad, requiring strict reaction condition and big solvent amount, which is not suitable for industrial production. What is unusual for the project is industrialized production is met by simple process, reduction of production cost and appropriate reaction condition. The production rate is more than 80% from raw material to final

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product, higher than the value as reported on foreign literature. Market prospect: Metronidazole Disodium Phosphate, prosomal compound of metronidazole, is suitable for diseases from anaerobic bacteria infection and is intravenous injection delivery drug. After entering the body, it is rapidly metabolized to metronidazole and function by spreading in all structures and humors, safer and more convenient than using metronidazole indenpently. Therefore, big demand for Metronidazole Disodium Phosphate is obvious. Currently, there is no report saying that Metronidazole Disodium Phosphate is put into market abroad. In the country, the pharmaceutical drugs for Metronidazole Disodium Phosphate are approved for production by 2 pharmaceutical enterprises only(Shanxi Datong No.2 Pharmaceutical Plant and Shanxi Tongzhen Pharmaceutical Co., Ltd), and for supply to the enterprises themselves for preparation of Metronidazole Disodium Phosphate for Injection only, not for sales of pharmaceutical drug outside. Therefore, the pharmaceutical drugs for Metronidazole Disodium Phosphate greatly cannot meet market demand. Competition advantage: the preparation process of Metronidazole Disodium Phosphate is restricted to export by the State Scientific and Technological Ministry. The process has applied for invention patent in China and will soon obtain proprietary intellectual property rights. The technique used by the process has taken into consideration the domestic production condition and therefore, remarkable social and economic benefits will be achieved. Financing mode: cooperative production. 4.2 Construction project by State medicines(traditional Chinese medicine) clinic research base under Chongqing University of Medical Sciences & the Affiliated Chinese and Western Medicines Hospital of Chongqing University of Medical Sciences Project description: the project is designed to build State medicines(traditional Chinese medicine) clinic research base & the Affiliated Chinese and Western Medicines Hospital of Chongqing University of Medical Sciences, covering an area of 60 mu, providing 500 wardbeds, staffed with 400 people of medical care and management, featured by complete in diagnosis departments, excellent brains, advanced equipment and technology, standardized management, which is a combined complex of medical treatment on Chinese and Western Medicines, scientific research, teaching and clinical study of new Chinese drug. In accordance with Good Practice on clinical test of drug, perform hardware facility construction, GCP staff training, and documentation availability. Try to get kidney subject of traditional Chinese medicine and digestion subject of traditional Chinese medicine to pass the certification by the State Drug Administration, becoming the state medicines(traditional Chinese medicine) clinic research base

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Market prospect: the benefit of traditional Chinese medicine in Chongqing is pretty low, greatly fall behind against that in coastal developed regions. The key reason behind that is there is no specific base to train high-level traditional Chinese medicine brains, leading to generally low level of traditional Chinese medicine. Establishment of he Affiliated Chinese and Western Medicines Hospital of Chongqing University of Medical Sciences will become a modernization characterized Chinese and Western Medicines Hospital in the upper reaches of Yangtze River, change the condition that market benefit for traditional Chinese medicine and combined Chinese and Western Medicines is low, attract patients in Chongqing, even from upper reaches of Yangtze River and southwest region, and essentially remove the concern that there is no practice base for traditional Chinese medicine students under Chongqing University of Medical Sciences. Remarkable social and economic benefits are generated from that. There are totally only 6 hospitals nationwide obtaining the approval by the State Drug Administration for operation of State medicines(traditional Chinese medicine) clinic research base. Establishment of Chongqing clinical research base of Chinese drug and new drug will become the 1st standardized, high-level clinical research base of Chinese drug and new drug, attract the attention from drug research enterprises, scientific research institutues at upper reaches of Yangtze River, southwest regions and even the whole country. Completion of the project will fill in the gap on Chongqing clinical research base of Chinese drug and new drug, establish a complete platform for development of Chinese drug and new drug, greatly help promote development of traditional Chinese medicine sector in the city and modernization drive of pharmaceutical drug. Competition advantage: there is no high-level traditional Chinese medicine and combined Chinese and Western Medicines hospital in place locally. The new Affiliated Chinese and Western Medicines Hospital of Chongqing University of Medical Sciences will reach the 1st class level in terms of equipment, brains, technology, management, environment, etc., becoming the 1st standardized, high-level clinical research base of Chinese drug and new drug. Financing note: total amount of investment is RMB200 million, financing of which is RMB50-100 million. Return of investment: 500 wardbeds, 80% of use rate, out-patient volume 1000 men everyday, annual incomes RMB120 million, profit RMB30-40 million.

5 Pharmaceutical commercial aspect 5.1 Comprehensive development project on the decoction-free pelletized granule of locally-grown traditional Chinese medicine sliced medicinal herbs by Shizhu Chinese Medicinal Materials Co. Project description: build standardized production lines for traditional Chinese medicine slice, explore traditional Chinese medicine slice industrialization direction, produce 59 species of

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traditional Chinese medicine slices in accordance with the Practice on production of traditional Chinese medicine slice, meeting medicinal inspection criteria as specified by the state. Improve concocting technology research for Coptis, Tuber Fleeceflower Root, Rhizoma Atractylodis Macrocephalae, corni fructus, cortex phellodendri, Magno1ia officinalis Rehd． et Wils, fruit of corni fructus, Cochinchinese Asparagus Root, Dipsacus japonicus, Euodia rutaecaroa, Finger Citron, Epimedium brevicornum Maxim, pueraria root, analysis, detection of positive composition, heavy metal content, pesticide residue, and generation of slice quality criteria, so as to reach GMP. Market prospect: it is increasing emerged that people are fond of purely natural pharmaceuticals. American Congress passed food additive regulation in 1993 and worked out the approval law for pharmaceuticals in America in 1999. All kinds of typical institutes of traditional Chinese medicine have been setup in 124 countries and regions around the world. Demand for Chinese medicinal materials are on a extremely high rise and trade amount was tripled over the past 10 years with annual trade amount several US$100 million. The Authoritative experts predict that international natural pharmaceuticals market will maintain rising by two-figure number and the total amount of international trade will exceeded US$200 billion. The demand for traditional Chinese medicines slice, including traditional Chinese medicines slice recipe pelletized granule is valued at RMB40 million in the country while it is a historical trend which no one can stop by using traditional Chinese medicines sliced pelletized granule in lieu of decoction of herbal medicine prepared by traditional Chinese medicines slices. The traditional Chinese medicine sliced decoction-free pelletized granule, compared with traditional concocted slice and Chinese Traditional Patent Medicine, combines the advantages of two. For traditional Chinese medicines slice, it is inconvenient to concoct after doctor’s prescription, losing the feature of proper curative effect on traditional Chinese medicine. Therefore, decoction-free traditional Chinese medicine sliced pelletized granule by refining competitive Daodi medicinal Chinese pharmaceutical materials is stable in composition, straight on treatment, convenient on use, known as the second revolution of traditional Chinese medicine by industry insiders. Traditional Chinese medicine recipe slice pelletized granule has been applied to the clinic. There are 4 plants around the country producing decoction-free traditional Chinese medicine slice, far not meeting patient demand. Therefore, frying-free traditional Chinese medicine slice pellitized granule by refining competitive Chinese pharmaceutical materials is what is commonly expected and market prospect is very bright. Competition advantage: after implementation of industrialization of medicinal materials in Shizhu County, realize annual output value of RMB600 million, profit tax of RMB100 million, resolving large amount of employment. Financing note: total amount of investment RMB 14.71 million, financing amount RMB8 million,

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stock financing, cooperative development. Return of investment: annual output value RMB82 million and annual profit tax RMB10 million. 5.2 Project on pharmaceutical logistics center by Chongqing Pharmaceutical Industry Co., Ltd Project description: plan to build Chongqing Nanan Nanping pharmaceutical logistic center located at Shigongli, covering an area of 350mu. Market prospect: realize distribution by pharmaceutical enterprises, including pharmaceutical logistical distribution in Chongqing. Competition advantage: largest logistical distribution center in Chongqing. Financing note: total amount of investment RMB200 million, stock financing. 5.3 Commercial expansion project by Chongqing Huabo Pharmaceutical Co., Ltd Project description: cooperate to explore sale by hospital himself, pharmaceutical wholesale network, Huabo pharmaceutical chain network, Huabo traditional Chinese medicine hall chain operation, base construction of Chinese medicinal materials, pharmaceutical industry, traditional Chinese medicine product of characteristics. Cooperation mode: (1) product cooperation: the Co. provide platform while partner provide product resource, sharing the benefit. (2) Capital cooperation: partner provide fund to join cooperation for mutual development. (3) cooperation of single body: according to the project, partner operate independently and enjoy operation achievement himself. (4) shareholding reform: expand shareholders structure by absorbing new shareholder in order to establish improved stockholding enterprise.

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Contact: Investment Promotion Agency of Ministry of Commerce of PRC

Chongqing Foreign Trade & Economic Relations Commission

Address: Fifth Floor, No.82 Dong Changan Avenue, Dongchen District, Beijing, China

Address: No. 65 Jianxin North Road, Chongqing, China

Zip：100747 Zip：400020 Tel：0086－10－85226532 Tel：0086－23－89019455 0086－10－85226590 0086－23－89018014

Fax：0086－10－85226529 Fax：0086－23－89019397 website：www.fdi.gov.cn Website：www.ft.cq.cn

http://www.fdi.gov.cn/

http://www.ft.cq.cn/

Series of Promotive Report on Promotion of Investment in Regional

Advantaged Industries in China·Chongqing Municipality

Discrepancy of varying conditions in the regions determines differed

development of the same industry in different regions. Figuring out the

appropriate investment items suitable for the particular regions can not

only rationally guide investors’ investment behavior, but effectively

instruct local investment promotion organs to properly carry out work.

Investment Promotion Agency of Ministry of Commerce of PRC will

give full play to its role as industrial association and regional

investment promotion, draft and issue “Series of Promotive Report on

Promotion of Investment in Regional Advantaged Industries in China”

based on thorough investigation, and provide extension service for

followup investment promotion. “Report on Promotion of Investment in

Automobile and Motorcycle Spare Parts Industries in Chongqing”,

“Report on Promotion of Investment in Natural Gas Chemical

Industries in Chongqing” and “Report on Promotion of Investment in

Pharmaceutical Industries in Chongqing” jointly issued Investment

Promotion Agency of Ministry of Commerce and Chongqing Foreign

Trade & Economic Relations Commission are an attempt on a trial

basis carried out between investment promotion agency and local

government. In the near future, we will continue to work with related

departments of local governments to present investors Advantaged

industries in each region on “Invest in China” website and at

international and domestic investment promotion activities organized

by Ministry of Commerce and in leading medias as well.

Documents

Report on Promotion of Investment in Pharmaceutical ...images.mofcom.gov.cn/tzswj/table/chongqing_yiyao_e.pdf · Report on Promotion of Investment in Pharmaceutical Industries