July 23, 2007
SHANGHAI – China is set to cut export incentives on close to 3,000 different products, including polluting industries such as bulk pharmaceuticals, beginning this month.
The Ministry of Finance and the State Administration of Taxation cut the tax rebate rate 13 percent to 5 percent for some active pharmaceutical ingredients as of July 1. As a result, prices of most APIs have already gone up.
These include antipyretic and analgesic categories such as paracetamol, aspirin, ibuprofen, quinolones of ciprofloxacin, levofloxacin, citric acid and cortical hormones, perindopril and losartan categories, synthetic statins and sulfonamides. In addition, antibiotics for animal use and plant extracts also came under the cut.
At a press conference last month, a Ministry of Finance official told reporters that the reason for the cuts was excessive trade surplus and excess liquidity.
“The trade surplus has grown too fast,” said the official. “This not only intensifies trade friction but it increases the domestic liquidity surplus and adds to the pressure to revaluate the yuan.”
During the first five months of this year, China exported goods worth over $443 billion, an increase of 28% over the same period last year. As a result, China’s accumulated surplus rose to $85.7 billion, an increase of 83% over last year, the official said.
“With the reduction in incentives, the market in China is responding by raising prices,” IPS Principal Patrick Bucklen told PharmAsia News. “Earlier, lowered costs for goods was possible since the government heavily incentivized companies to export products, but now they must raise prices to compensate for the lack of funding.” IPS is a pharmaceutical industry consulting firm based in Lafayette Hill, Pa.
However, the price rise has not been across the board.
“Not all API product prices are increasing,” Wu Huifang, a senior analyst with Beijing-based pharmaceutical industry research firm Orient Health Ecommerce Ltd. told PharmAsia News.
“Only the larger market share products have gone up, like penicillin G and vitamin C,” Wu said. “The prices of products with high costs and no technical advantage might actually go down.”
A spokeswoman for a major Tianjin-based API manufacturer confirmed that her company has already increased its prices – but may rethink this policy.
“The price increase began after Chinese authorities reduced the export incentives,” the spokeswoman, who declined to be quoted by name, told PharmAsia News. “We increased prices for most products by 8 percent.”
However, overseas customers are not happy with the increase, and the company may have to reduce its prices, she said.
“Our foreign clients are in a wait-and-see period,” she said. “They’re testing the market – and we may have to adjust prices by lowering our profit margins in order to remain competitive internationally.”
According to the China Chamber of Commerce for Import and Export of Medicines and Health Products, API exports reached $4.155 billion during the first four months of 2007, up 22 per cent over the same period last year. The major export markets are the United States, India, Japan, Germany and the Netherlands.
In addition to the rebate cuts, there is a second reason that Chinese API prices may be going up – increased attention from U.S. regulators According to Dave Robinson, CEO of Gardner, Mass.-based New England Peptide LLC, China’s recent wave of food and drug safety problems are causing the U.S. FDA to step up enforcement overseas.
“China has the SFDA,” he said. “And they have a lot of issues right now and are working through eliminating corruption. But the U.S. FDA also has it own guidelines, and in order for a drug company to bring a drug to market in the U.S., the plants that produce the materials have to be registered with the U.S. FDA. That requires the U.S. FDA auditors to travel to China to conduct audits.”
Although this has always been the case, “in light of all the issues of late, it’s likely that the U.S. FDA will tighten its restrictions on items imported from China.”
Robinson is currently conducting a study to evaluate whether to source raw materials and pharmaceutical products from low-cost Asian countries such as China. New England Peptide designs and manufactures custom peptides and antibodies used in protein-based drugs for major global drug manufacturers.
“As U.S. companies seek U.S. FDA registration in China, you can’t avoid increased overhead costs,” he said. “Sourcing, quality materials, disposing of waste, and hiring qualified managers all cost significant amounts of money.”
– Ying Huang
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