China has announced that it will reduce the retail prices of 174 medicines produced by more than 60 drugmakers on December 12, in a move which it says will save consumers around 2 billion yuan a year.

Drugmakers had been permitted higher prices for certain products before 2005 in order to encourage technological upgrades, but the costs of production have declined considerably in recent years as a result of such upgrades and market expansion, according to a statement issued by the National Development and Reform Commission (NDRC). Therefore, as part of official moves to curb health care spending, it has been decided to set lower caps for the maximum retail prices of these widely-used products, added the NDRC, which is China’s supreme economic planning body.

Some of the drugs whose prices are to be cut are made by local units of western drugmakers such as Bristol-Myers Squibb, Eli Lilly, Merck & Co, Novartis, Pfizer, Roche and others, said the Commission, adding that they will include antibiotics and medicines used in the treatment of heart disease.

And some reductions will be more than 19%, such as Bristol-Myers Squibb’s hypertension and congestive heart failure treatment Capoten (captopril), whose price will drop 35%, and Roche’s Rocephin (ceftriaxone), used in the treatment and prevention of bacterial infections, down 30%.

Research firm Datamonitor comments that the price cuts represent “mixed messages” for multinational pharmaceutical companies. One the one hand, some firms are pushing for their products to be included on China’s National Reimbursement Drug List (NRDL), despite the risk of price reductions, while others are “lobbying for the Chinese government to introduce a more balanced system and to reward innovation and quality,” said the firm.

China is currently the world’s third-largest pharmaceutical market, behind the US and Japan, and sales by both multinational and local drugmakers are expected to continue showing spectacular growth. A new report from Sinolink Securities forecasts that  revenues and profits for China’s pharmaceutical industry next year could rise 20% and 25%, respectively, while IMS Health projects that the market will grow by as much as 27% in 2011 to reach a value of more than $50 billion, and that by 2015 China will have overtaken Japan to become the world’s second-largest market.