By Yuan Dongming, General Office of DRC and Li Guangqian, Department of Techno-Economic Research of DRC

Research Report No 132, 2012

In recent years, the market has witnessed numerous cases of unusual fluctuation of the prices of Chinese herbal medicines, the fake and shoddy medicinal products and the excess sulfur fumigation. One of the major reasons is that the trading market for herbal medicines has remained imperfect and supervision measures have not been thoroughly enforced. The management system for herbal medicine market was set up in mid-1990s with a view to straightening up the market and for the purpose of focusing on the establishment of a single and specialized market and the formation of the "individuality + multiplicity" supervision model on the premise of strict market access. Currently, significant changes have taken place in the market circumstances for the operation of the herbal medicines, and innovations have been constantly made on the means of exchange and structure of business. It is time to make adjustments in the present market structure and supervision model and actively boost the improvement of the market system, the transformation of the specialized market and the change of means of supervision so as to lay a foundation for the sound development of the traditional Chinese medicine industry.

I. Development of the Herbal Medicine Market since Reform and Opening Up

The Chinese herbal medicine market has experienced three phases of development since the implementation of reform and opening up policy:

1. The phase of natural development (before 1994)

After the implementation of the reform and open-door policy, the transition of the production, operation and sales of herbal medicinal products from under the previous planned economy system to the present market economy system greatly boosted the cultivation and trading of herbal medicinal materials, and the herbal medicine markets sprang up like mushrooms throughout China. In the beginning of 1990s, over 100 herbal medicine markets took shape spontaneously across the country, presenting a scene of prosperity. For lack of recognition of the importance of herbal medicinal materials and the decoction pieces (prepared herbal medicine in small pieces ready for decoction) the herbal medicinal products were only regarded as ordinary agricultural by-products. There was a lack of professionals and knowledge in the herbal medicine markets and the market management was terribly imperfect, leading to management chaos and deteriorating quality of the medicinal products. Many evolved into fair trade markets and even became terminals of shoddy products, severely impairing the sound development of the traditional Chinese herbal medicine industry.

2. Straightening up phase (1994～2003)

It was put forward in the Urgent Circular of the State Council on Further Strengthening the Pharmaceutical Administration Work promulgated in 1994 that the specialized herbal medicine markets should be rectified and standardized, and in 1995 the State Administration of Traditional Chinese Medicine, State Pharmaceutical Administration, Ministry of Public Health and the State Administration of Industry and Commerce jointly formulated the Standards for Straightening Up Specialized Chinese Herbal Medicine Markets. Later, various localities across the country straightened up their respective herbal medicine markets according to the Standards and closed the ineligible ones, and exercised reapplications for examination and approval of existing eligible markets. By 1996, 116 illegal medicinal fair trade markets had been banned one after another throughout the country and 17 markets were retained through reexamination and approval. The market order was greatly improved. 　　3. Enhancing market supervision phase (since 2003)

With the further development of the market economy and the ever-growing law-enforcement and supervision efforts, the obsolete means of exchange on the specialized markets turned out maladaptive and the markets were encumbered by a number of prevailing problems, such as management chaos, operation beyond the designated scopes and manufacturing and sales of fake and shoddy pharmaceuticals. A small number of markets even became collecting and distributing centers for shoddy herbal medicines and pharmaceuticals. In 2002, the State Food and Drug Administration made sampling inspection of the herbal medicinal materials sold on specialized herbal medicine markets and the amount of defective products reached as high as 31%, of which the defective products of some varieties even surged 83%, with both percentages being by far higher than the overall annual defective products of 3.3% of all pharmaceuticals. In 2003, the State Food and Drug Administration, the Ministry of Public Security, the State Council Office for Rectifying Illegal Market Orders and the General Administration for Industry and Commerce started the special rectification of 17 specialized markets and other illicit fair trade markets nationwide, with the focus being made on the enhancement of market supervision and on the standardization of market order.

Through cultivation and development for years, the herbal medicine markets have played an important part in enlivening medicine circulation, increasing farmers' income and promoting the local economy. At present, the number of permanent personnel involved in herbal medicines in 17 specialized markets has topped 100,000 and the number of those involved in trading has topped one million. The annual trading volume of herbal medicines has reached nearly 100 billion yuan.

II. Main Features of the Herbal Medicine Market

1. Diversification of the herbal medicine circulation patterns

Firstly, the specialized markets coexist with numerous geo-herbs and fair trade markets. Despite the 17 specialized markets retained countrywide, with the development of locally-supported herbal medicine markets and the expansion of the market demand, many unapproved markets have in fact turned up across the country. At present, there are over 100 specialized markets and thousands of fair trade markets in terms of seasonal and geo-herbal production nationwide.

Secondly, circulation patterns are emerging in large numbers beyond the trading markets. For example, some large manufacturers of decoction pieces and herbal medicines are making purchases directly from producing areas and signing purchase orders directly with farmers. Some big pharmaceutical companies are opening planting bases on their own and buy herbal medicines no more from the markets.

Thirdly, modern informationized means have expedited the parturition of many new herbal medicine circulation patterns, such as chain operation, online transaction and futures trading.

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