BMI View: 2012 is a very important year for the country as the government look to carry on their
achievements following the healthcare reform in 2009. We highlight that the expansion of the National
Essential Drug List (NEDL) slated to happen this year will bring strong opportunities for pharmaceutical
companies especially domestic firms while multinationals will benefit from the increase in medical
insurance coverage in the National Drug Reimbursement List. China’s 12th five-year healthcare plan, if
executed smoothly, will allow the country to maintain its position as the world’s most attractive emerging
Headline Expenditure Projections
?? Pharmaceuticals: CNY432bn (US66.7bn) in 2011to CNY520bn (US$81.3bn) in 2012; +20.4%
in local currency and +21.6% in US dollar terms.
?? Healthcare: CNY1,876bn (US$290bn) in 2011 to CNY2,073bn (US$324bn) in 2012; +10.5%
in local currency terms and +16.6% in US dollar terms.
?? Medical Devices: CNY140bn (US$21.6bn) in 2011 to CNY158bn (US$24.7bn) in 2012;
+13.3% in local currency terms and +14.5% in US dollar terms.
Risk/Reward Rating: China’s score of 62.5 is a decline from Q112, causing it to slip in ranking from
fourth on our proprietary index to fifth, ahead of Taiwan but behind Singapore. The country lags behind
Singapore in terms of per-capita pharmaceutical and health expenditure.
Key Trends And Developments
?? In February 2012, Pfizer signed a framework agreement with Chinese company Zhejiang Hisun
Pharmaceutical to set up a joint venture (JV) to develop, produce and commercialise generic
pharmaceutical products in China and other markets. According to the agreement, the JV will be
called Hisun Pfizer Pharmaceutical, with Hisun owning 51% and Pfizer owning 49%. The
aggregate investment and registered capital will total US$295mn and US$250mn respectively.
Both parties could contribute some existing products, cash, manufacturing sites and other assets
after the formation of the JV, which is subject to closing conditions, including the approval of the
authorities in China.
?? In January 2012, the State Food and Drug Administration approved Novartis' wet (neovascular)
age-related macular degeneration (AMD) treatment Lucentis (ranibizumab). Wet AMD causes
blindness and severe vision loss in patients over 50 and there are about 300,000 new cases
diagnosed a year in China alone. Novartis will also launch its oral type 2 diabetes treatment
Galvus (vildagliptin) in China as an additional medication to complement metformin. Type 2
diabetes affects 75mn Chinese people; more than in any other country. The release of both
treatments indicates Novartis' commitment to providing innovative healthcare solutions to
BMI Economic View: The spike is China's headline consumer price inflation figure in January to 4.5%
year-on-year (y-o-y), while a concern, appears to mask the underlying trend of disinflation evident in core
inflation and producer price inflation. With money supply growth still historically weak, and housing
market weakness gathering pace, we maintain our average CPI forecast of 3.1% for 2012, and still see
two 25 basis points interest rate cuts as growth and inflation fall further.
BMI Political View: China faces myriad economic, social and environmental challenges over the coming
decades that could seriously test the Communist Party’s ability to govern. The best-case scenario for any
eventual political transition would entail an elite-led liberalisation of the authoritarian system, while the
worst case scenario would involve a violent change of regime.
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