Southern Medicine Economic Institute (SMEI) under the SFDA reported recently that it estimated the broad Chinese pharmaceutical retail market (composed of pharmaceutical chemicals, formulated TCMs, health foods, medicinal herbs, devices and others) to be CNY 90.1 billion (US$11.6 billion) in 2006, up 14.2% over 2005.  The same figure is expected to jump 22% in 2007 to reach CNY 110 billion (US$14.1 billion). 

Among the total, SMEI estimated that the shares of pharmaceutical chemicals (or Western medicines) and formulated TCMs were 41.5% and 33.4% respectively in the first half of 2006.  The following table demonstrates the composition of broad pharmaceutical retail sales in China in the past two years.

Composition of Retail Pharmacy Sales in China – 1H/2005 & 1H/2006

Source: SMEI

SMEI reported that the total number of retail pharmacies rose to 270,000 in 2006 from 230,000 in the previous year despite many independent pharmacies volunteered to close down recently.  More than 60 independent pharmacies applied for closure in Wuhan alone in 2006.

But retail pharmacy chains continued to grow, and in some cities the share of retail pharmacy chain outlets in the total number of retail pharmacies rose fast.  For example, 80% of Shanghai’s retail pharmacies are now chained outlets, while the same figure for Hangzhou rose to 50% in 2006 from only 30% in the prior year.  In some other cities such as Nanjing and Guangzhou, however, the figure was lower than 40%.

The fast development of retail pharmacy chains is stimulated by encouraging government policies and improving logistical and distribution capabilities of Chinese retail pharmacy chains.

The largest Chinese retail pharmacy chains in China are also getting bigger, according to SMEI.  The share of top ten retail pharmacy chains in the total revenues of the top 100 retail pharmacy chains reached 51.6% in 2005, up from 37.5% in 2002. 

Despite rapid growth, none of the leading Chinese retail pharmacy chains have national coverage of the Chinese market yet.

Recent trend indicates that leading pharmaceutical retail pharmacy chains are increasingly seeking to raise capital through either the stock market or alliance with foreign companies.  Large capital injection will help these chains and the sector to grow even faster. 

However, a number of negative market environmental factors, such as low profitability and regulatory turbulences, are bottlenecking the organic growth of the sector and holding back many foreign investors.  Walgreen, the largest pharmaceutical retailer group in the US, recently said that it is not considering market entry into China due to “a completely foreign market environment and negative policies placed on the industry”.