Foreign investment in pharmaceutical companies

China’s pharmaceutical industry has drawn the attention of numerous international pharmaceutical companies. As at the end of 2006, there were approximately 1,500 joint venture and wholly foreign-owned pharmaceutical enterprises in the country, accounting for about 30% of all pharmaceutical enterprises. Wholly foreign-owned pharmaceutical enterprises have been growing through both greenfield projects and acquisitions. This article will briefly analyse the legal issues that arise when foreign investors consider acquiring Chinese pharmaceutical companies.

China has gradually been deregulating foreign investment in the industry. The Foreign Investment Industrial Guidance Catalogue, amended in 2007, specifies that foreign investment in the manufacturing of biological pharmaceuticals and high technology is encouraged, but the production of pharmaceuticals that use lower-level technology, are of general use and may entail high risk (such as certain antibiotics) is restricted. Generally, foreign investment in the production of such pharmaceuticals is only permitted in the form of equity or cooperative joint ventures in which the Chinese party has a controlling interest.

Foreign investment in the production of pharmaceuticals that damage natural resources or use proprietary Chinese production processes or technologies is prohibited. This includes the processing of traditional Chinese medicinal materials cited in the Protection of Wild Medicinal Material Resources Regulations and the List of Chinese Rare and Endangered Protected Plants; technology involved in the processing of soft lozenges of Chinese traditional medicine, such as steaming, parching, frying and calcination; and the production of secret formulations of patented traditional Chinese medicines.