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China tightens drug approval oversight and raises export taxes

China's State Food and Drug Agency (SFDA) has created stiffer penalties for the marketing of counterfeit medicines and at the same time has dampened down its export activities by raising taxes in the hope of reducing its trade surplus

China's State Food and Drug Agency (SFDA) has created stiffer penalties for the marketing of counterfeit medicines and at the same time has dampened down its export activities by raising taxes in the hope of reducing its trade surplus.

Since the execution of Zheng Xiaoyu, the chief drug regulator, the Chinese government has been trying to clean up an industry riddled with fraud and corruption.

New laws will see companies which submit fake medicine samples for approvals fined up to CNY 30,000 (USD 3,967) and accept a three-year ban from drug tests, according to Wu Zhen, the deputy head of the SFDA's supervision department, in a statement on the agency's website.

Wu said: "Supervision was inadequate under the old rules. Some applicants submitted research materials that were not standard and even fraudulent, making it difficult to ensure drug safety."

China, who is the world's largest exporter of consumer goods, is trying to save its reputation and improve consumer confidence after reports of toxic substances in food, drugs and children's toys.

Tax changes reduce export levels
The cost of pharmaceuticals is likely to increase as the Chinese government institutes changes in tax levels to reduce the region's export volume. The government revealed at the beginning of July that rebates for export items, including active pharmaceutical ingredients (APIs) and bulk drugs would be reduced substantially or even waived. The effect of this change could see costs increase by anything up to 15 per cent.

China needs to reduce its trade surplus desperately in its over-heated economy, while exporters hurriedly completed operations in anticipation of the tax changes. In H1 2007, the surplus stood at USD 112.5bn, an increase of 83.1 per cent, or USD 61.5bn billion on the equivalent quarter of 2006. About half of China's trade surplus is with the
USA.

The effects of this export slow down will be most keenly felt by the burgeoning Indian pharmaceutical industry which buys its APIs cheaply from China. It is anticipated that import costs could increase by up to 15 per cent in the region.

China's APIs sales in FY05 reached USD 4.4b, making it the worlds largest supplier, followed by Italy with FY05 sales of USD 3.2 bn, while India is third with sales of USD 2bn in the same time period. India's API market is the only one cited to exhibit growth, with sales set to increase by 19.3 per cent year on year, with a possible sale figure of USD 4.8bn for 2010.

18th July 2007

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