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.