China Relaxes Drug Price Control: Is Pharma Euphoria In India Misplaced?

On May 5, 2015, the National Development and Reform Commission (NDRC) of China announced that price controls on most drugs sold there would be lifted from June 1, 2015. This move was believed to tackle issues of drug quality and to encourage innovation among domestic companies. Only narcotics and some listed psychotropic drugs would continue to be controlled by the government.

Quite like in India, Chinese price controls for most drugs were blamed by the industry for low quality and even adulterated medicines that seem to threaten public health.

Apprehension expressed:

Almost immediately after the announcement for ending price control on most drugs, many started expressing serious apprehensions that this decision of the Chinese Government would lead to higher drug prices for the consumers at the retail level.

Without taking any chances, the Chinese Government immediately switched to a high decibel communication process to allay such fear.

Chinese Government quickly acted on allaying the fear:

Xinhua reported, China’s top economic planner, almost simultaneously, asked the country’s price watchdogs to organize a six-month check on the movement of medicine prices, following the above decision.

The NDRC said the move is intended to detect any illegal practices disrupting market order, such as price fixing and artificial inflation of prices.

The agency also urged local authorities to create an online platform for better price monitoring. The NDRC also said the key intent is to curb illegal practices, such as price fixing and manipulative changes to increase drug costs.

Gigantic role of Chinese ‘Universal Health Care’ system highlighted:

The following explanations also came from the Chinese Government to highlight that this decision is not likely to have adverse impact on its citizens:

  • China has a function Universal Health Care (UHC) system in place
  • According to NDRC, 80 percent of drugs are sold through hospitals in China and not through retail channels. Thus, public hospitals are the places where most transactions take place and drugs are procured through a process that involves tough price negotiations with the pharma companies.
  • In addition to control of prices at the local procurement level, most of the freed drugs would still be controlled somewhat by various medical insurance plans even before they reach the Chinese hospitals, where 80 percent of drugs are dispensed.
  • With this announcement, the Chinese Government would lift controls on the price of about 2,700 medicines from June 1, 2015 that accounts for just about 23 percent of medications available in the country.
  • Experts also said they expected medicine prices to remain unchanged.

Has the pricing pressure in China increased, on the Contrary?

On May 26, 2015 in an article titled, “Foreign Drug makers Face Pressure to Lower Prices in China”, Bloomberg reported:

“Starting June 1, 2015 most drugs in China will be liberated from government-set price caps. For foreign drug makers, though pressure to cut prices is rising. Since late last year, many provincial governments have introduced new bidding systems to bring down the cost of medicines they procure, and they’re pushing multinationals to compete more directly with cheap local generics on price.”

Chinese healthcare scenario is different from India:

From the above scenario, it is abundantly clear that Chinese drug procurement, distribution and consumption scenario is quite different from India.

  • China’s UHC is well in place and over 80 percent of its population gets medicines from public hospitals. Whereas, UHC seems to have been virtually jettisoned in India by the incumbent Government, at least for now, and around 75 percent of the populations purchase medicines from the retail market, out of pocket.
  • Whereas, the National Health and Family Planning Commission (NHFPC) of China announced in May 2015 that it would increase healthcare subsidies this year by 19 percent, i.e. just over US$ 60 per person, India decided not to make any increase even on its abysmal low expenditure on health, in its Union Budget 2015.
  • According to the National Health Policy 2015 (Draft) of India, total per capita health expenditure of the country was at US$ 62 in 2011, against China’s US$ 274 for the same year. This gap is likely to increase significantly with China adding to it another US$ 60 per capita through increase in healthcare subsidies in 2015.
  • Chinese Government believes that this step would help improve economic growth and boost domestic consumption, whereas Indian Government obviously thinks differently.

‘Why not in India’ type of reaction is misplaced:

There are many other critical differentiating factors in the comparative healthcare scenario between India and China.

Be that as it may, keeping only the above differences in mind, when one comes across some weird reasoning in a section of the Indian media stating, no wonder that raises many other eyebrows simultaneously. More so, as pharma related Indian media is not just vibrant, a large section of it is mostly on the ball, with up to date domain knowledge, and presenting incisive analysis.

A bizarre report: “Comparing apples to oranges”?

That said, I recently noted, while flipping through some pharma related business reports, a bizarre and seemingly uninformed comment on this subject. The article recently published in a leading business daily questioned, why the drug pricing policies of India and China are different? Obviously the author does not seem to be aware of the differences in the overall healthcare scenario between India and China, as deliberated above.

If the above question is taken as benign and laced with a dash of ignorance, it certainly raises the good old and much often repeated question, “Are we comparing apples to oranges”?

This is because we are comparing medicine procurement, distribution, usages and consumption scenarios of those two different countries that cannot be practically compared at all, especially in this regard.

An equally bizarre comment?

To make such ‘off the cuff’ reports spicy, some news-unworthy masala is also usually sprinkled on it. If I remember correctly, I read somewhere in one such typical report, probably a head honcho of the Indian unit of a pharma MNCs making blissfully ignorant, equally bizarre, attention hungry, ‘shooting from the hip’ type of remarks. The person most probably commented something like; the decade long ‘draconian price control in China’ failed to improve access to medicines. Thus, Indian Government, he imagines, should strongly introspect on its drug price control and allow free pricing for all drugs. I am not very sure, whether this is the representative view of the pharma industry in India or probably not.

Domain experts’ eyes on the ball:

Fortunately and most likely in the same piece, the real domain experts made very pertinent and sensible comments on India China comparison on this critical issue.

I hasten to add, this is my personal view, and may be the author concerned meant something different, which I would accept with due respect and humility.


Just because China has relaxed drug price control in the context of its own environment of a reasonably well-functioning ‘Universal Health Care’ system, India should not toe the line with its abysmally poor public healthcare products and services offerings. As a result of this, the country records one of the highest, if not the highest, out of pocket expenditure towards medicine in the world.

The bizarre reports and comments in this regard, as above, probably need to be taken, not with a pinch but loads of salt, and trashed for abject ignorance in the specific area.

Moreover, the Indian Government too does not seem to be in any mood just yet, to pay attention in the area of ‘Universal Health Care’ to ensure health for all in the country. The situation is not expected to improve in this year either, as the Government has not made requisite budgetary allocations for health, to play the ball as the time demands.

Does all these not mean that, going by the Chinese example, the ill-informed euphoria of a section of the Indian pharma industry is unrealistic, if not absolutely misplaced?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.