At present, only about 80 of the 16,500 medicine distribution companies in the country have obtained the GSP certificate, according to a mainland medicine industry association.

An earlier survey conducted by the association said only 27 percent and 20 percent of the 300 medicine distribution companies interviewed to date met the basic requirements outlined by the GSP certificate in terms of hardware and software systems, respectively.

To advance the country's drug distribution development following accession to the World Trade Organization (WTO), the State Drug Administration (SDA) requires all pharmaceutical firms, both specialized and non-specialized, to have qualified for the GSP certificate by the end of 2004, otherwise those firms will have to cease operation. According to the mainland's Drug Administration Law and other relevant laws and regulations, the GSP certificate has been introduced to strengthen quality control in the distribution of drugs and to ensure the safe and effective use of drugs by the public.

A GSP certificate center was officially launched in Sichuan Province at the end of 2002, after others were launched in Guangzhou and Shanghai. This implies that the state has reassigned the power of issuing the GSP certificate to the provinces, while the power remained solely with the SDA in the past.

However, of the 20,000 drugstores in Sichuan Province, only one pharmaceutical firm, Sichuan Pharmacy, has obtained the GSP certificate. After the local government conducted assessments of all such firms in the province, it found that only 5.1 percent of drug wholesalers, 9.1 percent of chain drugstores and 0.53 percent of drug retailers could realistically hope to pass the test to obtain the certificate.

The number of bankruptcy cases and failing medicine firms has risen significantly since 2002 - around 4,400 wholesale drug enterprises were closed down last year in China. Sources within the industry said reform of the country's drug distribution system could be anticipated as the power of the GSP extends into the provinces.

"The best thing about this GSP certificate is that it will ensure an environment of fair competition in the industry," said Yang Fei, deputy general manager of Nep-Star Health Drug Store in Sichuan.

Nep-Star first set foot in Sichuan back in 2001. Now the company owns 10 chain stores in the province with a total investment that amounted to not more than 5 million yuan (US$604,098).

Nep-Star has been putting more money into development of both hardware and software in order to meet the necessary standards, but this is often quite a costly prospect for firms that grew up in the unregulated sector which preceded the advent of the GSP certificate.

"Many of the unqualified drugstores do not have quality control in their services and management, but they can operate at a lower cost," Yang said.

Especially with the recent trend of price cuts to pharmaceutical products, firms like Nep-Star have no choice but to follow suit.

Small firms in particular are suffering from the price-cutting trend, because the reduced-price products are generally the 100 most commonly used medicines, which happen to be the products these firms buy and sell the most. By contrast, big firms can still make a profit from other regular-priced products.

According to statistics from the local Sichuan government, the gross profits of its drug enterprises stood at an average of more than 30 percent before the price-cut war began, but these have fallen to less than 20 percent since then. Sources inside the industry said gross profits should be around at least 25 percent to keep enterprises going. They said the current phenomenon was extremely abnormal for the market.

"The GSP certificate system is the standard, the minimum requirement for entering into the industry," Yang said.

Along with Nep-Star, large to medium-sized drug enterprises, like Sichuan Tongrentang Pharmacy and Chengdushi Pharmacy, are preparing for the GSP certificate, which is seen as the lever which will raise the standard for pharmaceutical firms in the mainland.

(China Daily February 4, 2003)