Billion dollar opportunity for Indian OTC drugs in China

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The Chinese OTC drugs market presents a lucrative billion-dollar opportunity for Indian pharmaceutical companies. In 2019, China’s National Medical Products Administration launched a trial program to introduce over-the-counter (OTC) products through bonded warehouses in CBEC (Cross-Border eCommerce) Free Trade Zones. This initiative, now expanded to multiple regions, enables the sale of OTC products via online platforms, exempting them from import tariffs and taxes.

With 152 CBEC pilot zones offering streamlined market entry, foreign companies can reach Chinese consumers more efficiently. The rising urban population in China increasingly relies on OTC products for minor health issues, driving significant market growth. The online retail segment, though currently the smallest, is rapidly expanding. Indian pharmaceutical companies, with support from government subsidies, can leverage CBEC channels for quick and cost-effective market access, bypassing lengthy general trade processes. Collaborating with logistics firms to establish presence in CBEC zones can facilitate entry into the growing Chinese OTC market.

There is a billion dollar opportunity waiting for Indian pharmaceutical companies within the giant Chinese OTC drugs market.

In 2019, the China National Medical Products Administration sanctioned a trial initiative for the introduction of over-the-counter (OTC) products in Beijing, initially through a bonded warehouse located in the CBEC (Cross-Border eCommerce) Free Trade Zone. This program, later extended to include Hong Kong and various other free trade zones, facilitates the sale of these products to consumers through CBEC platforms. Subsequently, in June 2023, the Shanghai Administration initiated a pilot program at the Yangshan Free Trade Zone for importing drugs and medical devices via CBEC. This initiative is expected to be adopted by other regional authorities progressively, expanding the market.

In China, imported goods can be warehoused in CBEC Free Trade Pilot Zones and marketed to consumers through online platforms. Currently, 152 CBEC pilot zones across regions like Beijing, Shanghai, Guangdong, Zhejiang, Jiangsu, Shandong, and Fujian offer Chinese consumers exemptions from import tariffs, VAT, and consumption taxes. Each Chinese national is allowed to purchase up to US$ 3,782 per year through CBEC platforms, duty-free. At present only a few abovementioned CBEC FTZs offer OTC for sale in 38 cities, but the numbers will increase in the future. Presently, there are more than 1,200 products available on e-commerce platforms, including OTC medicines, which can be found in the Positive List periodically issued by Chinese authorities.

As the urban population in China increases, individuals are encountering health issues such as insomnia, stress, weight gain, and fatigue. Rather than seeking medical attention at hospitals, many are opting to self-diagnose and treat minor health concerns through OTC products. Notably, Chemist Warehouse, a Chinese pharmaceutical wholesaler, along with several Hong Kong and Japanese pharmaceutical companies, has entered this market. Recently, a New Zealand company has also introduced health supplements. Previously, Alihealth stood as the primary platform for OTC sales in China.

Although the online retail channel for China’s OTC industry represents the smallest outlet, it is the fastest-growing segment in both online and offline healthcare products. The B2C online healthcare industry, which includes OTC categories, is projected to expand from US$ 89 billion in 2022 to US$ 300 billion by 2026. The overall OTC market is valued at US$ 11 billion, projected to grow to US$ 19 billion in 2030 at a CAGR of 7%.

Foreign brands interested in introducing OTC products into China through general trade channels must adhere to the complex and lengthy marketing authorization process, akin to prescription drugs, which may take 2-4 years. Cross-border channels, on the other hand, provide a simple process that takes only 2-3 months, enabling companies to reach consumers directly without altering packaging or specifications, though it is in the interest of sellers to provide information in Chinese language.

To market OTC drugs in China, some companies choose CBEC instead of general trade. A major reason is that CBECs take a shorter time for market access. Market Authorization conditions for sale on Chinese CBEC platforms are:

Overseas Marketing authorization: OTC drugs imported via CBEC to China must have overseas marketing authorization.
OTC status in China: If a drug is listed as an OTC drug in a foreign country/region, but as a prescription drug in China, such a drug cannot be imported via CBEC to China.
Classification of OTC products: If a product is an OTC drug according to overseas classification, but an OTC cosmetic or health product according to China’s classification, then the Chinese classification shall prevail for CBEC imports.
China NMPA’s marketing authorization is not mandatory for drugs qualified to be imported via CBEC. Exception: OTC drugs approved to be imported under Beijing’s or Henan’s CBEC pilot programs already have NMPA’s marketing authorization.
Commodities imported via CBEC into China are for personal use only and cannot be sold again.
The drugs must be stored in one of the authorised CBEC Free Trade Zones in bonded warehouses. Orders are executed through China Post.

The OTC drug market in China encompasses various categories, including cold drugs, cough drugs, pain relievers, gastrointestinal prokinetic drugs, gastric antacids, vitamins, anthelmintics, tonics, constipation drugs, drugs for external use, contraceptives, and skincare drugs. The National Medical Products Administration (NMPA) oversees the OTC Drug Catalog in China, which currently includes over 5,000 drugs, subject to occasional updates based on monitoring and evaluation.

In 2021, 140 OTC drugs, comprising 79 traditional Chinese medicines and 61 chemical drugs, each achieved estimated revenues exceeding US$ 14 million. The top five best-selling chemical OTC drugs therapeutic areas were the gastrointestinal system & metabolism, skin diseases, respiratory system, genitourinary system & sex hormones, and the sensory system.

Overseas medical suppliers are authorized to present and sell OTC drugs on Chinese CBEC platforms such as Tmall Global and JD Worldwide. Companies like BaiPharm have established online stores on these platforms, serving as licensed intermediaries to facilitate the sale of OTC drugs from foreign pharmaceutical companies to individual Chinese consumers. These companies can also assist foreign suppliers in establishing their own online stores and operate as local agents for online businesses.

This presents a valuable opportunity for Indian pharmaceutical companies to enter the Chinese medicine market at a low cost and within a short lead time. A recommended approach is for leading Indian companies to collaborate with a prominent logistics company, registering it as a Chinese entity within one of the CBEC Pilot Free Trade Zones. The associated formalities are straightforward and cost-effective. The Indian government offers subsidies up to Rs. 5 crores for establishing foreign warehouses. This joint entity can provide fulfilment services on Chinese platforms, importing goods into a free trade zone and subsequently shipping them to customers in 37 cities across mainland China. With its extensive range of OTC drugs, India is well-positioned for manufacturers and exporters to establish a significant presence in the Chinese market.