Market Overview Understanding the Hong Kong and China Market Although Hong Kong is officially part of China, the pharmaceutical market scenes of Hong Kong as a Special Administrative Region (SAR) and Mainland China differ significantly. Hong Kong Market The Hong Kong pharmaceutical market with a population of around 7 million people is estimated to be US$550 million in 2002. "Dispensing doctors" and pharmacies are two of our major sectors, accounting for 22% and 33% of the market respectively. There are around 10,000 registered doctors in Hong Kong and about half of them are in private practice. According to Hong Kong Laws, private practitioners can also dispense drugs and a single fee is normally charged for both consultation and medication. Hence the term "dispensing doctors" was coined. On the other hand, there are around 2000 pharmacies and western drug stores selling not only prescriptive and OTC, but also toiletry items. Public hospitals formed the largest single sector of the market with 38% market share. Majority of their expenditure went through tenders and only GMP-certified manufacturers are eligible to enter into a public tender. Imported drugs are likely to continue dominating the market, with a current market share of nearly 80%. Hong Kong manufacturers are facing increasing regulatory restrictions, such as the GMP standard and rising costs. On the other hand, overseas GMP-certified manufacturers with a reasonably large domestic market and low cost can benefit from Hong Kong's duty free policy. Sales of nutritional supplements, or health foods, are still small compared with the total pharmaceutical market. However, sales of a single top-selling health food can exceed US$4 million in Hong Kong alone and it is believed that with increasing consumer interest in improving physical and mental well being, sales in this category is expected to grow. Mainland China Market Huge potential exists for the health-care market in Mainland China with a population of over 20% of the worldwide total. Government statistics estimated that the total consumption in China for healthcare products in 1995 was only US$8.3 billion, a mere 3.2% of the worldwide consumption of US$259 billion. However, the same Government statistics estimated that the consumption of healthcare products in China reached US$25 billion and US$89 billion in the year 2000 and 2001 respectively. Moreover, in view of the continuing improvement in living and health care standards, double-digit growth can be foreseen in the next ten years. However, it should be noted that the pharmaceutical market in Mainland China is experiencing a U-turn from under-regulation to over-regulation in the last ten years. Unlike Hong Kong, there is a huge barrier for importing pharmaceutical products into Mainland China. On top of a heavy tariff, there are stringent regulatory requirements for importing drugs, even more stringent than that of most developed countries. Our recent experience shows that it takes at least 18 months and US$100,000 for registering a new imported prescriptive drug in China. Nevertheless, we predict that this barrier will be lessened as China is joining the WTO (World Trade Organization) and improving its health policy.