Manufacturers of
TCM are adapting to survive in the global marketplace
Beijing Tongrentang Group Co Ltd opened its first Middle East pharmacy
in Dubai, the luxury port in the United Arab Emirates, in October.
Covering more than 300 square meters, the pharmacy of China's leading
company in traditional medicines is situated in the Dubai Healthcare Center - a
free zone for comprehensive medical and healthcare treatment - which has
attracted investment of $1.8 billion.
In addition to selling TCMs, including some medicinal sliced herbs and
nine formulary medicines that have been granted local authority approval, the
pharmacy also offers an onsite health consultancy.
Meanwhile, the building also doubles as a museum, displaying TCM
processing tools, such as mortars and pestles, while old photos depict both TCM
culture and Tongrentang, a Chinese brand with a history of 343 years.
According to Ding Yongling, deputy-general manager of Tongrentang, the
company has also joined hands with Confucius Institutes in Abu Dhabi and Dubai
to conduct lectures on traditional Chinese healthcare and offer free TCM
consultancies. Confucius Institutes are non-profit academies aimed at the
global promotion of Chinese language and culture.
"We combine our products with history and culture to help foreign
people get a real understanding of TCMs, and to help establish our premium
brand in the international market," said Ding.
Tongrentang started its overseas expansion in 1993, when its first
non-mainland outlet opened in Hong Kong. It now runs 64 pharmacies in 16
nations and regions, including the United States, the European Union and Asia.
The Beijing-based company is now China's largest exporter of formulary
TCMs by volume after its combined exports registered annual double-digit growth
for 15 consecutive years, reaching $28 million in 2010.
"Despite our robust growth, we are facing many challenges and
uncertainties in the international market," said Mei Qun, Tongrentang's
general manager, at the end of 2011. He cited a lack of internationally unified
technical standards for TCMs, constant changes to the registration rules,
difficulties in research and development and the current global economic
slowdown as examples of the problems the company faces.
While the development of Tongrentang reflects the growth of the TCM
sector, the difficulties it has experienced are also causing headaches for many
other exporters of TCMs.
Robust growth
China exported TCMs valued at $2.33 billion last year, an increase of
36.2 percent compared with 2010. At the same time, the export volume increased
by 14 percent and prices by 23 percent.
The 2011 figures follow on from several years of expansion: China's TCM
exports increased to $1.8 billion in 2010 from $600 million in 1996, according
to the China Chamber of Commerce for Import & Export of Medicines and
Health Products. TCMs include formulary medicines, raw materials and medicinal
sliced herbs, plant extracts and healthcare supplements.
"The renminbi's rate of appreciation in 2011, which was about 7
percent, helped the value of TCM exports to hit a record last year," said
Liu Zhanglin, vice-president of the chamber, adding that the export value is
expected to rise by more than 10 percent annually during the next five to 10
years.
He attributed the continuous growth to the increasing demand in the
international market as more Westerners adopt a "green and natural"
lifestyle and regard TCMs as a safer and greener alternative to synthetic
pharmaceuticals.
According to the World Health Organization, global sales of organic
medicines totaled $60 billion in 2010, accounting for around 30 percent of
global pharmaceutical consumption. The WHO has predicted that consumption of
organic treatments will see annual growth of more than 10 percent over the next
decade, with the international trade in TCMs increasing by around 10 percent
annually over the same period.
Tongrentang said it will expand its overseas chain to 100 pharmacies by
2015 and maintain its dominant position in China's formulary TCM export sector.
Challenges ahead
For China's TCM exporters, the main challenges are technical standards,
which are especially stringent for formulary TCMs, and registration in
developed markets.
In terms of raw materials, sliced medicinal herbs and plant extracts,
each product has its own individual characteristic, and so the task of
formulating technical standards and obtaining market registration isn't too
difficult.
However, the formulas for TCMs are complex, usually involving several
or possibly dozens of ingredients, each with its own individual characteristic.
That means that drawing up a unified industrywide code of standards and
establishing a standard for each medicine is virtually impossible.
Because of their limited knowledge of TCMs, many overseas authorities
apply the standards relating to synthetic medicines to TCMs, thus necessitating
chemical indexing and data garnered from clinical trials. However, scientific
research into TCMs, especially into compound formulary medicines, only started in
the mid-1980s and so no long-running databases are available.
"In addition to using modern technologies to carry out
pharmaceutical studies into raw materials and formulary TCMs to provide the
data required by foreign medical authorities, we also have to combine the
popularization of TCM culture with product promotion," said Tongrentang's
Mei, adding that helping to improve foreign consumers' knowledge of TCMs will
be a crucial requirement in the internationalization of the medicines.
In addition to the technical problems, new rules concerning market
registration are also hindering Chinese companies' attempts to enter some
overseas markets. In May 1994, the European Union imposed new registration
rules for TCMs, which required a registration period of seven years. During
that probationary period, the health department tests and retests the
effectiveness of formulary TCMs. However, the strict data requirements and high
registration fee - nearly $1.3 million for a formulary TCM containing only a
small number of ingredients - mean that few Chinese companies have bothered to
register.
"I don't think the EU is setting barriers and intending to make
TCMs withdraw from its market," said Guo Fanli, a pharmaceutical analyst
at China Investment Consulting Co Ltd. "The EU government is aiming to
standardize the market to meet the increasing demands of European consumers in
terms of both health and safety, and Chinese companies should actively adapt to
the mechanism."
A number of Chinese government departments, including the Ministry of
Commerce, the Ministry of Health and the State Food and Drug Administration,
have been in negotiations with EU health authorities. They have selected 10
medicines made by three large TCM companies in an attempt to secure
registration. In this way, they hope to explore a practical and efficient way
for TCM products to re-enter the EU market.
Liu from the import-export chamber said that TCM manufacturers are
making strenuous efforts to upgrade their technologies, optimize their export
structures and establish brands that will support expansion over the long term.
Technological
upgrading
Located in the Chengdu High-Tech Zone, Sichuan Neautus Traditional
Chinese Medicine Co Ltd is virtually indistinguishable from every other
high-tech company in the district: the only difference is the bittersweet
herbal smell emanating from its premises.
Founded in 2001, this well-known processor of medicinal herbs moved
from a small factory in rural Chengdu, where production was undertaken mainly
by hand, to modern buildings in 2009. In the new complex, there are not only
machine-dominated workshops, but also labs for research and development and
quality supervision.
The company's annual production of medicinal sliced herbs was 400 tons
six years ago. During the past two years, the annual output exceeded 5,000
tons. Now, the capacity is 8,000 tons and the facility can produce more than
1,000 varieties of sliced herbs.
"We pay great attention to maintaining, but also innovating,
traditional processing techniques, while promoting standardization. We have
employed a number of sophisticated, experienced pharmacists to conduct research
into the production process and to study the international standards,"
said Jiang Yun, chairman of the company, which has become one of China's top 10
exporters of medicinal sliced herbs.
As the traditional importers of sliced herbs, such as South Korea and
Japan, have raised their quality thresholds, many small businesses have quit
the market. In response, Neautus has initiated an alliance with some smaller
producers of sliced herbs.
"We help them increase their technological capability and raise
quality to meet the new standards overseas, and they help us meet the orders.
It's mutually beneficial," said Jiang.
The company declined to disclose any financial details because it's in
the process of applying for an IPO on the Chinext, China's Nasdaq-style second
board, but insisted that its export growth is stable.
Guo of China International Consulting said that combining with other
companies to raise quality and realize industry upgrades is one way that
Chinese producers of sliced herbs can maintain their businesses in the
international marketplace.
The pace of growth of exports of medicinal sliced herbs and other raw
materials with lower added value, is slowing. According to Liu of the
import-export chamber, China exported $767 million of raw materials and sliced
herbs in 2011, a year-on-year increase of 17.7 percent. During the first nine
months of 2010, the export volume of these products amounted to $509 million, a
rise of 25.93 percent from a year earlier.
"Chinese companies are seeking more added-value products, such as
plant extracts. This type of product is easier to transport and widely used in
the whole healthcare industry, involving "energy" products, such as
the drink Red Bull, nutritional supplements, pharmaceuticals and
cosmetics," said Liu, who forecast that the sector will see annual growth
of around 20 percent during the next decade.
New trend
Founded in 2013, Xi'an Hao Tian Bio-engineering Technology Co Ltd is a
young TCM manufacturer and China's biggest exporter of plant extracts by sales.
The company's export volume has increased by 50 percent annually during the
last few years and hit 600 million yuan ($95 million) in 2011.
According to Zhang Chengwen, general manager of the Shaanxi
province-based company, Xi'an Hao Tian plans to become a leading producer of
herbal extracts, with five of its products each occupying more than 40 percent
of their respective international markets within five to 10 years.
Zhang said that the global demand for plant extracts is currently
valued at between $1.5 billion and $2 billion, and the figure is expected to
increase by around 10 percent annually in the next few years.
In 2006, Xi'an Hao Tian developed Coenzyme Q10, an oil-soluble,
vitamin-like substance, which also occurs naturally in the body. The move broke
Japan's monopoly on the product, which is used in the treatment of
cardiovascular and metabolic diseases.
"China's plant-extracts industry is based on traditional Chinese
theories as well as rich plant resources and cultivation experience, advantages
that are unique," said Zhang.
The company is keeping a close eye on the fluctuating global economy.
"The slowdown in the developed economies may result in a drop in demand
for some types of products, including healthcare supplements, which will force
us to adjust our export structures and reduce costs," he added.
Meanwhile, India and Brazil have also entered the international market
for plant extracts. "We need to speed up and explore more local plant
species, while working within the framework of environment protection and
biological conservation," said Zhang.
As more competitors arrive on the international scene, TCM
manufacturers are also exploring emerging markets, such as Australia, Russia,
Eastern Europe and Africa.
In 20011,Guangzhou Pharmaceutical Holdings Limited joined with two
Australian counterparts to establish a registration and sales center for
traditional herbal medicines in the country. "Australia, the US and the EU
are multi-recognitional in terms of the registration of medicines, thus we hope
to take a shortcut and enter the US and EU markets via Australia," said Li
Chuyuan, the general manager of Guangzhou Pharmaceutical.
In September, Liu's import-export chamber organized a visit to Russia
for officials and companies. The trip included negotiations with local
governments and trading agencies. "We discovered that the local people are
very interested in TCMs, and the Russian government has implemented policies to
help Chinese TCM makers introduce their products and services to the nation. I
believe Russia will become a promising market for Chinese companies in the
future," said Liu.
With regard to Africa, Liu said the expansion of TCMs will depend on
local economic development and it will take some time for Chinese TCM makers to
turn a profit on the continent. Meanwhile, Guo said the government's policies
in support of Sino-African trade and economic cooperation will pave the way for
Chinese TCM makers to enter the African market.
Liu Jie in Xi'an
China Daily
Business & Investment Opportunities
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