Summary
In the recent two years the imports of Chinese pharmaceutical products to Poland have recorded dramatic increase. In 2017 the value of imported goods amounted to 71 mln usd with the 73 pc growth dynamics. Only in the first six months of this year the value of imports exceeded 52 mln usd. The game changer in 2017 and 2018 was the dramatic increase in imports of medicaments that marginalized the first aid kits as well as medical and pharmaceutical accessories, that had dominated the imports structure before.
Chinese authorities consider dependence on the imported drugs as a critical concern. They consider development of the domestic industry as absolutely necessary to achieve the self sufficiency. Beijing also sees the pharmaceutical manufacturing as the innovative industry that creates well paid jobs. Innovations and can lift China up in the global value chains form the intermediate products supplier to the position of the major drug producer. While China is one of top exporters of API the export of the finished pharmaceutical products are still limited and Chinese authorities and companies are poised to change this situation.
Pharmaceutical industry has been included in the Poland’s national Responsible Development Plan as one of the the prospect champions of the Polish export. Growth of China’s pharmaceutical industry, rising exports and difficulties, that foreign companies face on the Chinese market increase the challenges for Polish pharmaceutical companies wishing to enter China. Those factors resulted in the increase of Poland’s trade deficit with China in pharmaceuticals in general and medicaments in particular.
In terms of value pharmaceutical products do not play significant role in the total amount of imports from China. The sharp rise in both amount and quantity as well as new structure of the pharmaceuticals imports from China is however important signal how the trade exchange between China and Poland has changed in recent years and how the China’s domestic industrial policies impact Poland as China’s trading partner.
Chinese export policies and limited market access for foreign companies
Communist leadership in Beijing considers dependence on the imported drugs as a critical concern and the development of the domestic industry as absolutely necessary to achieve the self sufficiency [1]. Beijing has stepped up efforts to boost the R&D and manufacturing capabilities of the domestic manufacturers to help them meet domestic demand and compete effectively with foreign players [2] Chinese authorities also see the pharmaceutical manufacturing as an innovative industry with high added value that creates well paid jobs. However in 2017 China has not been yet the major player in the international sales of drugs and medicines (classified under HS codes 3003 and 3004) as its exports in terms of value were far behind the top 15 world exporters [3].
While China is one of the top exporters of APIs, the export of the finished pharmaceutical products is still limited. The Chinese authorities and enterprises strongly wish to change this situation[4]. In 2017 Chinese generic drugs have already made inroads in the United States[5]. While Africa and Asia are the main oversease markets for Chinese companies, the exports of “western drugs”[6] to European Union in 2017 has raised dramatically by over 50 pc yoy to 670 mln usd according to Chinese statistics. The export of Chinese traditional medicine (TCM) products to EU was over 5 pc up yoy[7]. China also wants to speed up the process of internationalization of the products of TCM[8]. The promotion of TCM in Central and East European Countries has been repeatedly highlighted as one on the areas of cooperation within the framework of the 16+1 format[9]. All those efforts can lead to increased presence of Chinese products in foreign markets, also in the developed countries.
The development of the Chinese domestic manufacturers puts a significant pressure on the foreign companies that for years have eyed the opportunities in the fast growing Chinese domestic market. In 2017 imports of western FPP to China were valued at over 17 bln usd, five times higher than Chinese export amount[10].To meet the demand for wide range of cost effective generic drugs Chinese authorities have facilitated imports of selected drugs from India [11]. India is one of the top world manufacturers of generic drugs and Indian drugs are quite appreciated in the Chinese market. The Indian exports to China however are still modest and the new entrants from other countries still face difficulties. Complicated, time and money consuming and relatively opaque imported drugs registration system is still key obstacle for many small and medium size foreign companies including Polish. SMEs have much smaller financial and organizational capabilities than Chinese domestic giants and global behemots. Chinese policies favoring domestic manufacturers combined with the state controlled health care and drugs procurement system make the situation even more difficult.
Increase in Chinese pharmaceutical imports to Poland
In recent two years the imports of Chinese pharmaceutical products to Poland have recorded dramatic increase[12]. According to the statistics published by the Polish Central Statistical Office (GUS) in the first half of 2018 the value of imports of all pharmaceutical products from China amounted to almost 182 mln pln. This value was almost 47 mln pln (34 pc yoy) higher than recorded in the first six months of 2017. The growth in 2017 was already on the top of much more dynamic increase recorded in the first half of 2016, when the value of imports from China jumped from less than 70 mln pln to 135 mln pln (93 pc) yoy.
Comparison of the 2018H1 182 mln pln imports to 2016H1 70 mln pln imports shows the increase by 112 mln pln (260 pc) within only two years. If the growth of imports keeps up the pace the value of imports in 2018 can exceed 360 mln pln. Share of imports in pln terms in 16H1 in total 2016 imports was 44 pc. In 2017 the value of imports in H1 and H2 in pln terms were equal. The rough estimation of 2018 imports is made on the assumption that the amount for the whole year will be a doubled amount for the first half of the year.
In statistics values in pln are calculated basing on original import values in usd. The dynamics of the imports growth in usd terms was even much higher than in pln due to fluctuations of the currency exchange rates and method of the value calculations for statistical purposes. In the first half of 2017 imports in usd jumped 89 pc yoy, slightly lower number than recorded in pln but in 2018H1 the 52 pc yoy the increase was much higher than recorded in pln.
In terms of value pharmaceutical products do not play significant role in the total amount of imports from China. 71.5 mln usd in 2017 is just a droplet in comparison to the flood of Chinese goods worth over 24 bln usd. The sharp rise both in amount and in quantity as well as new structure of the pharmaceuticals imports from China are however important signals how the trade exchange between China and Poland has changed in recent years and how the China’s domestic industrial policies impact Poland as China’s trading partner.
For the reader’s convenience only headings’ of statistical codes are displayed on the diagram. The full descriptions of headings and subheadings are presented in the textbox.
In 2016 the structure of the pharmaceuticals imports was dominated by the pharmaceutical and medical accessories such as wadding, gauzes and bandages (heading 3005) and first aid kits (heading 3006). Those two groups in 2016 constituted over three quarters of the total pharmaceuticals imports from China. For many years Chinese suppliers have been competing with Polish domestic manufacturers and other foreign brands in those two groups. As for other pharmaceutical products – heparin and its salts played some role but they were the only products imported under subheading 3001. Medicaments under headings 3004 with 17.4 pc. were quite significant part of imports but far from being a dominant component.
The game changer in 2017 and 2018 was the dramatic increase in imports of medicaments under heading 3004. The structure of the imports has changed dramatically.
Medicaments have replaced waddings, gauses, bandages and similar products. In2018H1 they constituted almost two thirds of total imports in pharmaceuticals. In absolute terms the import of products under 3005 headings (waddings, gauses and bandages) decreased slightly from 100 mln pln in 2016 to 88 mln pln in 2017 with prospects for recovery in 2018 where 55 mln pln of imports have been recorded. Share of heparin dropped while first aid kits’ share has decreased two fold.
The key element of this structural change was the tremendous growth in medicaments imports. In 2016 products valued at 27 mln pln were imported to Poland with the majority of them (23 mln pln) in the second half of the year. In 2017 imports amounted to over 150 mln pln – over five fold increase yoy. In the first half of 2018 the Chinese medicaments worth over 116 mln pln entered Polish market. Due to negative image of Chinese drugs across the various groups of Polish consumers, additionally ignited by the recent serious quality problems with China made active substance Walsartan (Valsartan), importers conceal the origin of drugs and active substances. The recall of 40 products based on valsartan offered by more than 10 firms shows the tip of the iceberg of the rising imports of pharmaceuticals from China to Poland[13].
Polish export ambitions and trade deficit with China in pharmaceuticals
Pharmaceutical industry has been included in the Poland’s national “Responsible Development Plan” as one of the prospect champions of Polish export. Plan was designed by the Ministry of Infrastructure under the leadership of Mateusz Morawiecki[14]. The plan is a pet project of the current Polish prime minister who on several occasions highlighted the importance of the pharmaceutical industry as the driver of innovations. Polish government designs policies [15] and undertakes various actions to boost the development of the domestic pharmaceutical industry and to make it competitive on the domestic and foreign markets. The research projects in the Polish pharmaceutical industry shall be not only focused on the development of new innovative products but should also widely cover development of the cost effective generic drugs[16]. The EU policies supporting generic drugs development and manufacturing are also considered as an opportunity for Polish exporters to China and other emerging markets[17]. Polish authorities hope that pharmaceutical industry will be in the future one of the engines of the high value added and technologically advanced exports.
Export of pharmaceuticals recorded ups and down in the recent years but in 2017 it has grew significantly and the value for 2018H1 is in the line with numbers from previous year.
Polish industry experts however highlight, that some solutions included in the new policies, e.g. centralized procurement system with price as key decision factor will favor Chinese or Indian manufacturers of cheaper but lower quality drugs[18]. The policies could result in increased imports of generic drugs from Asian countries instead of boosting domestic production. The time will show what the impact of new policies will be but even before they are implemented the imports of medicaments from China have already grown at a blistering pace. The dynamic of the Polish exports to China however remains sluggish in comparison to imports from China with a downward trend in 2018H1.
As pharmaceuticals imports from China highly exceed Polish exports to China the huge deficit in 2017 and in first half of 2018 has been recorded, with the value in 2018H1 equal to total trade deficit in the whole 2017 and twice as high as trade deficit during first six month of 2017.
Booming Chinese exports have not been matched by much slower growth of relevant Polish exports. Main culprit was the dramatic fall of exports under the heading 3004 that comprises medicaments consisting mixed or unmixed products, both in bulk and retail packing. In this heading three groups of products constituted the core of exports: products based on insulin, hormonal preparations and other medicaments. Presenting the full picture of the exports structure requires inclusion of heparin preparations as it’s the only significant pharmaceutical product outside heading 3004 exported to China. In the first half of 2018 the new group of products has emerged: immunological preparations under sub heading 30021500 with exports worth nearly 800 thousand usd. They are also included in the diagram presnted below but they have not made the significant impact on the total exports value yet. The products included in the diagram below constitute nearly all Polish pharmaceutical exports to China.
Sharp decline in insulin exports was recorded after the handsome growth in 2017. It happened in spite of the fact that Bioton, main Polish exporter to China, has Chinese owners holding majority of shares. Export of medicaments was reduced dramatically while the export of new group of immunological preparations was too low in value to weigh on the exports. The hormonal preparations, that had positive impact on the Polish exports in 2017, have not been exported in first six months of 2018. In 2018H1 only exports of heparin have grown significantly to 5.5 mln usd nearing the total exports in 2017 (6.7 mln usd) but this value was far too low to reverse the downward trend. The change in the structure of Chinese exports to Poland with huge rise of medicaments imports dramatically changed the situation in pharmaceutical trade with China. The increasing trade deficit has been recorded in the groups of products where Polish authorities and companies hoped to achieve a competitive advantage. Matching the exports of products under headings 3001, 3002 and 3004 with imports form China shows the rapidly increasing trade deficit.
The 16 mln usd surplus in 2016 turned into the trade deficit of 12,6 mln usd in 2017, In the firs half of 2018 the deficit was almost twice as high as in whole 2017. The data for the last two years are alarming. Tis deficit would not be so significant if caused by the products such as first aid kits, wadding gause and bandages but the key issue is that trade balance is now in red mainly due to deficit in medicaments and other products groups where Polish companies wanted to compete with the Chinese peers. The pharmaceuticals exports to China are quite volatile and the fluctuations in second half of this year are possible but the overall situation is worrisome. Statistical data send a strong signal that the trade with China in pharmaceuticals is no longer the two way street and some actions shall be taken.
[1] https://thediplomat.com/2018/03/china-prepares-for-big-pharma/
[2] http://www.who.int/phi/publications/2081China020517.pdf and https://www.scmp.com/news/china/society/article/2166462/why-china-going-all-out-invent-new-stronger-cheaper-drugs-its-not
http://www.worldstopexports.com/drugs-medicine-exports-country
[4] https://cn.reuters.com/article/usa-trade-china-india-drug-0712-idCNKBS1K20OL as a response to: https://timesofindia.indiatimes.com/business/india-business/chinas-plans-to-import-indian-drugs-fail-to-enthuse-indian-pharmaceutical-firms/articleshow/64144177.cms Indian drugs presence in China’s market is still very limited http://www.xinhuanet.com/globe/2018-07/02/c_137283743.htm
[5] https://www.ft.com/content/6645b174-2371-11e8-ae48-60d3531b7d11
[6] Chinese law differentiates between the so called western drugs and Chinese traditional medicine preparations. [7]
[8] http://www.satcm.gov.cn/fajiansi/zhengcewenjian/2018-03-24/2477.html and https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5807832/
[9] https://www.fmprc.gov.cn/mfa_eng/wjdt_665385/2649_665393/t1514534.shtml and http://english.gov.cn/news/international_exchanges/2018/07/16/content_281476224693086.htm
[10] The export value is calculated on CIF basis while exports on FOB. The gap between values reported by Chinese on import end and exporter’s country is to some extent caused by cost of freight and insurance added to value of imported products. However in case of drugs where those costs are insignificant in comparison to the products value and do not weigh on the size of the gap.
[11] http://news.hexun.com/2018-07-07/193384955.html
[12] The term pharmaceutical products comprises the HS-based category 30 for pharmaceutical products , more specifically, categories 3003 for active ingredients, 3004 for finished products. It shall be however noted that many substances that can be used in pharmaceutical industry as effectively active pharmaceutical ingredient (API) are included in Chapter 29 of the HS system where mainly products for other uses than pharmaceutical are included.
[13] https://ktomalek.pl/blog/40-lekow-z-walsartanem-wycofanych-z-obrotu/w-272
[14]https://www.miir.gov.pl/media/14840/Plan_na_rzecz_Odpowiedzialnego_Rozwoju_prezentacja.pdf According to some experts the situation in the Polish pharmaceutical industry not good and decisive steps for supporting it’s competitiveness are necessary http://www.medexpress.pl/krzysztof-landa-polski-przemysl-farmaceutyczny-chyli-sie-ku-upadkowi/71905
[15] https://www.gov.pl/web/zdrowie/ministerstwo-zdrowia-przedstawilo-strategiczny-dokument-polityka-lekowa-panstwa
[16] http://static.pb.pl/atta/3172-raport-debata-nt-polityki-lekowej.pdf
[17] https://www.rp.pl/Farmacja/305279941-Szansa-dla-polskich-producentow-lekow.html
[18] http://www.medexpress.pl/krajowi-producenci-lekow-oceniaja-polityke-lekowa-panstwa/71149 and it’s contradictory to the core assumptions behind the policy