On The Trail of Counterfeit Drugs in China

From Nation, page 9, issue no. 407, February 23, 2009
Translated by Tang Tang
Original article: [Chinese]

A trip down to a village pharmacy recently alerted Wang Yansheng - a traditional medicine practitioner - of the far-reaching infiltration of counterfeit drugs in China's rural areas.

To relieve his father's chronic throat problem, Wang asked for a popular brand of Chinese herbal medicine at the pharmacy in Anhui countryside. Instead, he inadvertently took home counterfeits.

Thanks to his habit of scrutinizing all the fine print on the drugs' packaging, he discovered tiny discrepancies. The medicine was in fact a copycat version of the popular brand, with a very slight twist in the brand name spelling and other label descriptions.

In China, copycat brands are commonly known as Shanzhai. They often mimic an established brand name in appearance and function, and coin a brand name with negligible spelling difference, hoping to draw in customers who have mistaken them for a well-known ones.

These copycat products have invaded almost every trade, from electronic gadgets and mobile phones to food items like instant noodles. Until recently, copycat drugs were mostly produced by licensed makers of nutritional food and sold openly, but China's State Food and Drug Administration (SFDA) have recently banned their sale in pharmacies.

The Out-reach of Copycats
To Wang's surprise, the pharmacist who sold him the fakes had unabashedly admitted to selling copycat "nutritional food", which formed the bulk of products displayed on the counters. But the pharmacist voluntarily replaced a box of genuine medicine for Wang when he revisited the shop demanding an explanation.

Wang recalled the pharmacist had told him that the copycat stocks were from pharmaceutical distributors, who claimed the products were authorized, posed no side effects, and had a bigger profit margin.

"I know the distributors from the cities were out to deceive me, but if I refused to stock the copycat products, they would cut me off from all other supplies," the pharmacist told Wang, adding that most village pharmacies had 80% of their stock in copycat brands, which were classified as "nutritional foods" instead of medicine.

The scenario, as it turned out, was not unique in rural areas but also in cities like Beijing.

A check at Beijing's Shilihe Health Care and Nutritional Food Market, a wholesale center catering to the needs of pharmacies in Beijing and Hebei province, found it full of copycat brands.

To trace the source of copycat drugs, the Economic Observer reporter posed as a sales representative and contacted a pharmaceutical agent named Xiaopeng in Taihe county, Anhui province. Taihe County is one of the biggest medicine wholesale ports in China.

Xiaopeng said booming demand for health care products in recent years had spurred the copycat market, adding that before the regulator clampdown, some 90% of the products sold in the city's pharmacies were nutritional food masquerading as medicine.

Since officials launched a clean-up over the past two years, sales in counterfeit drugs have gone underground. "The fakes business is not languishing though, there is still a huge outflow of copycat products to other parts of the country," said Xiaopeng.

Hundreds of purchasers converged in Taihe to buy medicine and other health care products everyday. "Taihe market is well known among industry players, this is the best place, copycat brands and types come in over 10,000 varieties. What's more, they are cheap," said Xiaopeng.

Acting as a sales representative, this reporter approached a distributor in the market and asked for a "substitute" for a well known brand of calcium tablets. A lady fished out a box and quipped: "Low price, high quality, wholesale price is 2.4 yuan a packet." The genuine product would have cost over 20 yuan at the retailer.

Licensed Copycats Versus Fakes
According to Xiaopeng, these copycat products were mainly produced by small and medium pharmaceutical factories located in provinces like Anhui, Henan, Jiangxi and Shaanxi. These manufacturers held licensed batch numbers for making drugs and non-medicinal products.

Products that came under the non-medicinal batch numbers were restricted by regulations from being openly advertised, and these products came in a myriad types, from eye-drop, pain-relief plaster to sore throat tablets.

The makers would send these products to Taihe for repacking, namely to be transformed to resemble some well-known medicinal brands to boost credibility and sales.

"As long as we can offer a high profit margin, sales agents will come to us," said one manufacturer who produced copycat pain-relief plaster in Henan province.

Some of these copycat products, which were classified as nutritional foods, had even found their way into national pharmaceutical trade expo, said one manufacturer who produced genuine drugs in Guangdong province.

While copycat drugs were generally produced by licensed makers who employed deceptive guerrilla marketing, its booming market had inspired some Taihe locals to set up makeshift backyard factories to churn out fakes made of wheat flour, water, and other sub-standard ingredients.

"These fakes are more scary than the copycat version, because there's no quality control at all," said Xiaopeng.

According to one local enforcer, the crackdown against copycats and fake medicines had only limited impact. "We once found a backyard medicine factory located next to a pigsty," he said.

Rural areas remained the main targets of counterfeit drugs, as makers and distributors felt that villagers would be easier to fool.

A Lack of Enforcement
The first to kick-start a campaign against counterfeit drugs were in fact the established brand names, whose interests were harmed by the copycats.

These established pharmaceutical companies went so far as to offer monetary awards for tip-offs on the locations of places where counterfeit drugs were produced or sold. These companies then joined hands with local enforcers to seize the fakes and shut down the backyard factories.

Several companies - such as Jilin Wantong Pharmaceutical Group and Xiamen Golong Group - also joined forces to share information and resources to crash the fakes.

Consequently, some local authorities developed a reliance on companies initiative to fight the problem. "The companies invested millions into the campaign but still failed to get rid of the fakes," said one manager from the legal action department of a pharmaceutical firm based in Guangzhou.

One official from the Taihe food and drug administration told the EO that enforcement against low-quality fakes churned out by backyard factories was relatively easier than against copycat (Shanzhai) products.

The reason being that the copycats were shielded in a legal grey area, with their labeling in fine print carefully crafted to present the products as a nutritional one to prevent ailment.

Strictly speaking, these copycats were not medicine, thus not truly under the jurisdiction of drugs regulators.

As a result, the most active enforcement came from agencies under the Industry and Commerce Ministry, as the counterfeit activities had "threatened market order". However, officers from the Ministry lacked the medical knowledge necessary to understand the severity of the problem, and the penalty handed down was usually not severe enough- usually a fine three times the value of the products seized.

To make things worse, since July 2005, the official body charged with registering health care and nutritional products, and the body entrusted with enforcement and supervision, both fell under two different government agencies, posing a barrier for timely and effective coordination.

Only in December last year did the SFDA issue a regulation to address the problem, basically banning pharmacies from selling nutritional products disguised as medicine.

“This is the first unequivocal order against the copycats. It is regarded as the show of will from the authority to combat the copycats,” said an expert from the state medical evaluation center. He added it also helped that the food and drug administration had now been merged into the Ministry of Health.