While having lunch in a trendy restaurant in Beijing's 798 contemporary art district where the most avant-garde artists in China gather to exhibit their innovative talents and energy, my friend in the environmental business, who was a senior US politician and a professor with Yale and Princeton, warned me about the ecological crisis ahead for China which can potentially be catastrophic to the country’s economy. 

This reminded me the importance of knowing the big picture of China at all times. Today, China and its leadership are facing many grave challenges which can not be easily fixed using the famous doctrine left by the late paramount leader Deng Xiaoping - "crossing the river by feeling the river stones". When my friend asked me to comment on it, I suggested that the country might be in need of a serious but gradual reform to its political and governing systems as a long-term remedy to its daunting problems.

The 17^th Congress of the Chinese Communist Party (CCP) will be held in the second half of 2007, and all signs indicate that this event may well become a critical turning point for China with historical decisions to be made about the country’s future including certain advances in political reform.

The current standing of China’s healthcare sector can probably be described as "feeling the river stones without crossing the river". The government has tried many "stones" but failed to find a way across so far.

This month has seen no progress on the front of China's new healthcare reform plan, except local press reported that the 8^th healthcare reform proposal from the People's University is gaining most popularity, while more voluntary proposals from other reputable sources continue to emerge.

Local press reported that the 8^th proposal suggests a more balanced approach to healthcare reform and emphasizes the balance of interests ?this seems to match the conventional wisdom of China ?"always treading the middle road"!

Despite the lack of progress, signs show that a decision on the future direction of China's healthcare reform will be made before the CCP's 17^th Congress which is in its final preparation and likely to be held soon.

Recent appointment of Chen Zhu as the new Minister of Health and appointment of the former acting Minister of Health Gao Qiang as Vice Minister of Health and MOH Party Leader also offer us some clues about the future direction. Gao is a strong proponent of government funded basic healthcare and government leadership in healthcare, while Chen is believed to be in favor of a market-oriented healthcare system and the approach of the National Institute of Health in the US.

Some local experts predict a change of wind in the future healthcare reform direction following Chen’s appointment, while others say market-orientation will at least become an option in future.

In a separate development, the Chinese government is getting ready to launch the trials of urban resident basic medical insurance program with the trials to be initiated this year and expanded in 2008. The launch of this program may put additional pressures on the Chinese government to conclude the future healthcare reform direction, without which the trials seem to be meaningless.

A recent investigation by a delegation of representatives of the National People’s Congress discovered that 342 commonly-used drugs are in serious short supply at 42 hospitals under the 3A category in 12 major Chinese cities as a result of repeated government price cuts.

I am not sure about the Mandarins, but I feel chill in my spine when I hear news like this, just as when I hear about China’s environmental self-destructions or execution of Zheng Xiaoyu.

Despite such chilling failures, NDRC may still go ahead expanding the regulation of drug prices in the foreseeable future. The agency will soon begin a trial in Guangdong province where the local provincial price control authority will regulate all prescription drug prices in the province. This is likely to be a precursor for NDRC to exercise control on prices of all prescription drugs nationally.

The new move may be connected to the healthcare reform plan too ?it is widely believed that the government is now inclined to fund or partially fund the basic healthcare in China, under which circumstance it needs to regulate the prices of all prescription drugs to keep its expenditures under control.

In a separate development, NDRC defended publically its differential pricing policies for off-patent originator drugs and local copy products, while the local pharmaceutical industry stepped up its attack recently on this policy at various industry events and in local media.

News in July has been filled with execution, death sentences and prison terms for corrupt officials together with international panic of food and drug products from China. The bloodshed and severe punishments of corrupt officials were meant to calm the anger of the Chinese populace who has no choice but to become subjects in China’s healthcare experiments. 

But hope is just around the corner ?the ?I>new?SFDA promised to increase transparency, raise accountability, improve management and heighten drug regulatory control. Despite my inclination to distrust the long term sustainability of such promises without introduction of checks and balances in the system, I believe the lessons of Zheng Xiaoyu and other corrupt officials should serve as powerful lessons to other Mandarins and sufficiently warrant a cleaner and more transparent drug regulatory system in the immediate future.

However, it may be unrealistic to expect the SFDA, now under new management, will also improve its efficiency. Our inside sources suggest that more than 30 existing and retired SFDA officials are still under investigation for suspected corruption. The SFDA, as a result, is undergoing extensive personnel changes. A shortage of experienced drug regulators may become a new challenge faced by both the SFDA and the pharma industry.

One day after execution of Zheng, the SFDA announced the launch of a new "Provisions for Drug Registration". In my opinion, the primary motivations of the SFDA for developing this new regulation is firstly to differentiate itself from Zheng Xiaoyu’s regime and policies, secondly to redefine the meaning and scope of “new drug? thirdly to block loopholes in the previous regulation, and fourthly to impose certain restrictions on registration of generic drugs. In addition, the new regulation delegates the approval power for supplemental applications to provincial level food and drug administrations so as to reduce the workload of the SFDA.

When I shared time with a number of senior executives of state-owned pharmaceutical companies and representatives of multinational pharma companies in China this month, I was impressed with their rare light-heartedness and positive attitudes. 

Major pharmaceutical companies, both local and foreign, seem to have fared well in the first half of this year, while many smaller companies are being forced out of business. Widespread concerns over the safety of drugs have boosted sales of brand name products and well-known companies.

Many state-owned pharmaceutical companies reported high sales growth in the first half, while multinational pharmaceutical companies seem to have benefited particularly from a new rule that requires hospitals to purchase from only two manufacturers for each drug. Under such a circumstance, hospitals usually choose one foreign supplier and one local manufacturer, thus improving the hospital market access for foreign companies. 

The business prospects of major drug companies are looking up as indicated by their recent growth. With the ongoing regulatory corrections winding down and the future direction of healthcare reform likely to be clarified soon, the Chinese pharmaceutical market is likely to become a paradise for the dinosaurs (large pharma companies), just as I predicted in our founding issue of Pharma China in July 2006.