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The drug market in China is largely hospital based with over 80% of all drug sales reaching consumers through government run hospitals. The 20% balance of the market was then split between drugstores, small collective or work unit clinics and a small but growing number of private hospitals.

The Chinese pharmaceutical market had averaged 12.5% annual growth for the past decade and was expected to continue at close to that growth rate in the near future. Increases in income and purchasing power by large segments of the urban population, combined with a multitude of medical insurance and healthcare reforms, had opened the door to Western drugs.

The problem was that these same reforms were now channeling insurance reimbursements towards generic drugs, putting more and more pressure on prices. The hospitals themselves were now regularly purchasing through the tender market, in which XJP often found itself making smaller and smaller margins.

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