China fines drug middlemen for cornering market

BEIJING Mon Nov 14, 2011 4:35am EST

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BEIJING Nov 14 (Reuters) - China's central planning agency has fined two middlemen for attempting to control the market for a drug compound, and thereby driving up the cost to make a blood pressure medicine provided by the government at low prices.

The case is one of very few applications of China's anti-monopoly law by the National Development and Reform Commission, which has a mandate to monitor prices.

It also points to a potential future emphasis in China's effort to provide low-cost medicine through its national health care reform.

The NDRC fined Weifang Shuntong Pharmaceuticals 6.87 million yuan ($1.08 million) for having signed a contract to buy promethazine hydrochloride from one of the two firms in Liaoning Province that are the primary producers in China, the Xinhua news agency said on Monday.

Weifang Xinhua Pharmaceutical Trading Co., also from Weifang in Shandong Province, was fined 152,600 yuan for cutting a similar deal with the other major producer, according to the report.

Having cornered supplies of the compound, the two firms then became sole suppliers to the four companies that produce 75 percent of a certain blood pressure medicine, forcing them to raise the price of the medicine from 1.3 yuan a bottle to between 5 and 6 yuan a bottle, Xinhua said.

The blood pressure medicine is included in China's national drug list, which rewards its suppliers with high volume in return for tendering to supply at low prices. The drug list is a central component of China's health care reform, and aims to provide drugs at an affordable and government-set price.

"This is pretty interesting because the product is sort of a commodity, but it's affecting prices," said Peter Wang, a lawyer at Jones Day in Shanghai specializing in anti-trust issues.

"The people hurt are the manufacturers that are being squeezed because the input price is rising but they can't sell for more."

The NDRC, which in an earlier stage had broad authority to set prices in China, has been active in attempting to prevent sticker shock from fueling discontent among Chinese. Even so, prices, especially for food, have risen steadily.

The NDRC is one of two agencies in charge of administering China's anti-monopoly law, with authority to intervene on price fixing. The Ministry of Commerce has broader authority to assess mergers on the basis of market dominance.

In 2010, during a time of rising inflation, the NDRC broke up what it called a cartel of rice noodle suppliers in the southern Guangxi region for increasing wholesale noodle prices. The same year, it cracked a cartel of mung bean suppliers in Jilin Province.

This month it targeted state-owned firms for the first time, in an investigation of two Chinese telecoms giants for possible violations involving broadband access. ($1 = 6.342 Chinese Yuan) (Editing by Ken Wills)

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