Tax changes by the Chinese government aimed at reducing the country’s
export levels are likely to increase pharmaceutical prices globally,
and particularly for drugmakers in India.
On July 1, China announced that tax rebates on a wide range of export
categories - including active pharmaceutical ingredients, bulk
drugs and intermediates - would be cut or removed altogether,
increasing the costs of these products by up to 15%.
The Chinese government has taken this action in order to reduce its
trade surplus, which reached $112.53 billion in the first half of
this year, up 83.1% (and more than $61.45 billion) over first-half
2006. Moreover, June’s trade surplus was $26.91 billion, the highest
ever monthly figure. About half of China’s trade surplus is with the
These huge increases are largely due to exporters increasing their
activities ahead of the July 1 tax changes, which have been brought
in to restrain exports of products whose manufacture utilises high
levels of energy and resources, and are big polluters.
Problems for contract manufacturers
Indian drug manufacturers import APIs from China because their prices
are around 15% lower than those available from domestic makers; many
Indian API producers also import raw materials from China because
they are significantly cheaper. Both nations’ drug industries have
expressed their unhappiness with the tax changes, which Indian firms
say will increase their costs 10%-15% and substantially raise the
retail prices of their formulations. This will be a particular
problem for India’s contract manufacturers, which have created a
massive outsourcing industry based partly on their low costs.
China is the world’s leading supplier of APIs, with sales of $4.4
billion in 2005 and, before the new tax changes, Italy’s Chemical
Pharmaceutical Generic Association had forecast that its sales
would rise 17.6% to $9.9 billon by 2010. Italy is the world’s second-
biggest producer, with 2005 turnover of $3.2 billion, but this is
stagnating, says CPA, which does not expect Italian sales to rise to
more than $3.3 billion by 2010. India’s API manufacturing industry is
now in third place worldwide, with sales of $2 billion in 2005, but
these will grow 19.3% a year to total $4.8 billion by 2010, the
Italian industry group has forecast.