Beijing – The China Medicine Material Group merges with SinoPharm to face competitions from multinationals, says the China Daily on Friday.

The move would be a prelude to a larger-scale wave of mergers and acquisitions in the fragmented industry according to experts. Because of the fragmentation of the industry pharmaceutics in China cannot cope with the competition from multinationals.

Creating big pharmaceutical groups would reinforce the sector and keep up competition with foreign giants that will get more access to the Chinese market under the regime of the WTO (World Trade Organisations). Also the larger American and European pharmaceuticals have seen a process of consolidation to be able to put enough funding in the R&D for new medicines.

The State-owned Assets Supervision and Administration Commission, that supervises State-owned enterprises on behalf of the State, gave its approval to the China Medicine Material Group (CMM), traditional Chinese medicine producer to merge with China National Pharmaceutical Group Corp (SinoPharm). The latter is specialized in the production and distribution of Western medicine and medical equipment.

The two companies intend the merger to be market-driven and will form a comprehensive conglomerate. The CMM is the country's top player in the production and distribution of traditional Chinese medicine. The company intends to modernise its traditional medicine production and the promotion of traditional medicine exports. The SinoPharm is a sturdy merging partner with its yearly sales income of up to 10 billion Yuan (US$ 1.21 billion) last year and its exports of medicine at US$ 200 million, reports the newspaper.

A reshuffle of the industry is just taking shape. Insiders said the merger is part of a State plan to stimulate national pharmaceutical products. The government's 10th Five-Year Plan (2001-05) for the medical industry foresees the set up of ten conglomerates, each with annual sales of more than 5 billion Yuan (US$ 604 million).

A company like Pfizer, the largest pharmaceutical enterprise in the US after its merger with Pharmacia, had in 2002 a turnover of US$ 32 billion.

SinoPharm’s China National Medicines Corp Ltd subsidiary went public on the Shanghai Stock Exchange last November and raised 252.25 million Yuan (US$ 30.48 million). In January this year, SinoPharm joined with the Shanghai Fosun High-Technology (Group) Co Ltd, a big local medicine producer, to form a medicine group.

The State also plans to form 40 regional medicine circulation groups, each with annual sales of more than 2 billion yuan (US$242 million) by 2005.

According to Wang Jinxia, secretary-general of the China Commercial Medicine Association, the State also plans to form 40 regional medicine circulation groups, each with annual sales of more than 2 billion Yuan (US$ 242 million) by 2005. "These groups and the 10 large companies are expected to control more than 70 per cent of total medicine sales in China by then." Said Wang being quoted by the china Daily on Friday.

Merging and acquisition operation are on their ways at local medicine groups in Beijing, Guangzhou and Shanghai. Wang said demand for medicine in China, currently at US$ 21 billion, will increase significantly as the national economy grows rapidly.

The merger operation will begin next week, SinoPharm said.