China Tries To Curb Rising TCM Ingredient Prices, But Hikes Persist

HONG KONG - The prices of basic ingredients in traditional Chinese medicines used across China and various other countries in Asia are rising rapidly. Authorities in China have stepped in to control prices but a combination of factors, including the potential profits available in trading TCM ingredients and the growing popularity of TCM globally are driving prices upwards.

Prices of some of the more common TCM products have skyrocketed. In May, the price of Li Fei Pian, used to eliminate phlegm, doubled to RMB 50.90 ($7.90). Prices of ginseng tablets have soared. Researchers at Chengdu University found that mature Rhizoma Paridis, used in a medicine for snakebites, has jumped from a few RMB in the late 1990s to more than RMB 200 ($31.10) per kilogram now.

The China Association of Traditional Chinese Medicine found in a study completed earlier this year that about four-fifths of 537 commonly used products have more than doubled in price in the last year.

Part of the blame lies in increasing demand. Some of the herbs used are rare and have been overharvested. Rising labor and production costs as well as environmental degradation all add to production costs. Another reason is speculative investment.

Authorities in China are concerned about the steep price hikes. In July, the National Development and Reform Commission ordered ingredient vendors and distributors to unload stockpiles to slow surging prices. A total of 54 companies were ordered to sell about 1,000 tons of asiabell root, a commonly used ingredient, before the end of the year. NDRC set a cap of RMB 60 ($9.28) for a big portion of these stockpiles.

NDRC has drawn attention across industries for its attempts to suppress inflation. Consumer goods company Unilever was fined RMB 2 million for suggesting to media it would have to raise prices due to increased costs for raw materials, which NDRC said led to panic buying, amounting to price manipulation (Also see "What Does China's Price Manipulation Ruling On Unilever Mean For Global Pharma? (Part 1 of 2)" - Scrip, 19 May, 2011.).

TCM growth in Hong Kong is driven by a combination of factors. First, confidence in TCM has grown since 2004 when the government started registering products. Second, in the past few years insurance companies have started accepting and paying for Chinese medicicine claims. Third, as living standards rise, so do efforts to improve health and TCM is more focused on prevention than treatment.

Imports of TCM into Hong Kong grew 10.8% to HKD 29.6 billion in 2010. Exports jumped 6.6% to HKD 26.3 billion.

TCM Price Increases Also Growth Opportunity

The rising prices have helped companies expand. Tong Ren Tang, the largest manufacturer and distributor of TCM products, has a full-fledged research and development department, a full pipeline of products, international distribution and multiple listings (Also see "Traditional Chinese Medicines Seen As Global Growth Opportunity" - Scrip, 19 Aug, 2011.).

"Most Asian markets are growing," says Evan Lam, of Tong Ren Tang, China's largest maker and distributor of TCM products. "Although it is hard to say which market is growing fastest."

A smaller peer, Tongjitang Chinese Medicines Company combines modernized TCM products with Western medicines. Shandong Buchang Pharmaceutical paid Sihuan Pharmaceutical RMB 638 million for a 50% stake in Vinise Pharmaceutical to develop more TCM products for cardiovascular diseases.

In Mainland China, about two-thirds of consumers prefer TCM over Western medicine, according to a survey by analysts at CLSA. David Maris, managing director of CLSA's pharmaceutical practice noted that TCM is incredibly popular among patients, even if Western trained doctors have not quite come on board yet.

"Consumers prefer traditional Chinese medicines but doctors prefer Western medicines," he said.

- Alfred Romann ([email protected])