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Source: China Daily China Daily

Getting medicine right for long-term growth

Published: 25 Feb 2015 01:21:11 PST

Getting medicine right for long-term growth

Man buys medicine with the help of a pharmacy sales person in Chongqing municipality, Southwest China, July 21, 2014. [Photo/IC]

Export tax rebates will sharpen competitive advantage of health product companies in overseas markets.

The recent export tax rebate adjustments announced by the government will buoy the fortunes of Chinese medical product exporters and sharpen their competitive edge, industry experts said on Monday.

The Ministry of Finance last year announced adjustments in the export rebate rates for some goods, including 67 medicines and health products. Tax rebates for 55 Western medicines, four traditional Chinese medicines and eight medical devices have been revised upwards to between 2 and 13 percent, depending on the type of product.

About 6,100 companies from China are set to benefit from the new regulations, with the total value of their exports and imports being about $9.426 billion during the first 11 months of 2014, according to statistics provided by the China Chamber of Commerce for Import and Export of Medicines and Health Products.

Meng Dongping, vice-chairwoman of the chamber, said the tax rebates have come at an opportune time for the medical products industry, as it has been seeing slower growth rates in the past years. Medical product exports fell from a relatively high growth rate of 20 percent in 2012 to about 7 percent last year.

Breaking down the numbers further, Deng said the expected total volume of China's medicine exports and imports for 2014 would be about $100 billion and that there has been a slowdown in exports. The chamber estimates that exports will remain relatively subdued this year, while the global market growth rate would be around 4 to 7 percent.

According to Meng, the rapidly shrinking global market, rising costs and currency appreciation pressures are hurting exports.

In addition, domestic factors like higher human resource costs, raw materials, energy and environmental protection costs are fast eroding the price advantage of Chinese companies.

"The higher export rebates will help companies recoup some of the additional costs and also enhance the competitive advantage to some extent." The measures are especially beneficial for the biomedicine industry, she said.

"The adjustments mainly focus on the products with high added value and high technology, which means the government will encourage enterprises to develop such products," Meng said.


Zhejiang Medicine Co Ltd, which exports benflumelol, an antimalarial drug, to global drug pharma major Novartis AG, said it will enjoy higher export rebates of about 17 percent, compared with 13 percent now.

"The higher rebate will boost the company's plan to explore new clients and markets," said a top company official, on condition of anonymity.

Li Kun, chairman of Shenzhen Oriental Pharma Co, whose main product is Phenylephrine HCL, used in the manufacture of decongestants, said following the tax rebates, his company will save costs of about 1.5 million yuan ($240,000) and the same would be used to expand production.

"We have already identified land in Shandong province to build a new facility for our raw material needs," he said.

That marks a sharp contrast from a few months ago, when the company was planning to raise funds from external sources to fund its expansion plans, Li said, adding that the company did not get any export rebate earlier because of Customs' classification issues.

Shenzhen Oriental Pharma, which has a 25 percent global market share through exports of about 20 metic tons of Phenylephrine HCL every year, was facing rough times as its competitors were cutting prices frequently. "The export rebate is a godsend for us as we can now offer competitive prices," Li said.

However, there have also been some concerns among industry experts whether the new measures would lead to monopoly dumping.

Li from Oriental Pharma, however, begs to differ. "Our prices will still be higher than our competitors in India. But we hope to make inroads with our better quality products," Li said.

The export rebates will have a limited impact on product prices, as it will not be enough to offset the losses from renminbi appreciation, said Tan Shengcai, deputy secretary-general of the chamber.

Tan said the increased export rebate will just balance the enterprises' rising costs as other countries, such as India, also provide high export rebates to medicine manufacturers. On the other hand, the adjustment shows the government's keenness to support the entire domestic medical product industry rather than giving such benefits to some companies, as only a few China-made medicine products are exported to global markets, the sources said.


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