Setting up a drug enterprise in China

To set up a Sino-foreign joint venture or a wholly foreign owned enterprise (the "Enterprise") in China, investors of an Enterprise (the "Applicants") have to go through the following procedures:

1 Preliminary approval to the project proposal and the feasibility report for the Enterprise.

2 Approval to the joint venture agreement and the joint venture articles of association (in the case of a Sino-foreign joint venture) or the enterprise's articles of association (in the case of a wholly foreign owned enterprise) (the "Constitutional Documents") and the issuance of approval certificates.

3 Register the enterprise with the administration of industry and commerce.

4 Register the enterprise with the relevant authorities to ensure the smooth operation of the enterprise.

If engaging in a specific industry needs approval from an industry authority, the Applicant should also seek consent from such authority before it can apply for approval of its Constitutional Documents.

Carrying on pharmaceutical activities needs the consent of the state drug administration ("SDA"). When the Applicant should seek such consent from the SDA depends on what drug the Enterprise is to manufacture. If it falls under a restricted category, the Applicant should seek consent from the SDA immediately after obtaining approval for the project proposal. If it falls under a permitted category, the Applicant should seek consent from the SDA immediately after obtaining approval for the feasibility report. If it falls under an encouraged category, the Applicant should seek consent from the SDA before seeking approval from the foreign investment administration authority "COFTEC") for the Constitutional Documents.

The consent from the SDA includes two things. One is called "Qualification to Set Up A Drug Manufacturing Enterprise"("Setting-up Permit"). The other is called "Drug Manufacturing Enterprise Permit Manufacturing Permit". While the ("Setting-up Permit") should be obtained before the Applicant can proceed with the setting up procedures, the ("Manufacturing Permit") should be obtained after setting up the Enterprise but before starting to manufacture the drugs.

To apply for the Qualification Permit, the Applicant should go to the provincial drug administration with the following documents:

1 An application that includes the following information:

1) Basic information about the Applicant;

2) The name and address of the enterprise to be set up;

3) The legal representative of the enterprise and his resume;

4) The resume of the main technicians and other information about them;

5) A brief introduction to the proposed investment in the Enterprise, the proposed products of the Enterprise, the techniques of the Enterprise, its advantages and its resources, the availability of fuel, energy and transportation of the Enterprise, the impact of the manufacturing activity of the Enterprise on the environment and solutions to such impact, the number of the employees to be hired by the Enterprise and details of their required education and technology background,

6) A comparison between the proposed products of the Enterprise and the current products that are on sale and an analysis of the domestic and international market of the products to be manufactured by the Enterprise;

7) A catalogue of the main manufacturing equipment and of the main quality inspection equipment of the Enterprise;

8) A brief introduction to the size of the land, the layouts, the flowcharts, etc; and

9) The plan to carry out the project.

2 The Notice of the Approval in Advance to the Name of the Enterprise issued by the administration of the enterprise;

3 Bank reference letter;

4 The lease agreement on the land necessary for the Enterprise;

5 The New Drug Certificate, Technology Transfer Agreement or Technology License Agreement;

6 Certificates or other testifying documents related with water supply, water quality, power supply capacity and steam availability;

7 Raw materials, and the resource of the technology and relevant testifying documents; and

8 Other documents deemed necessary by the SDA.

Most importantly, the SDA, when it decides either to grant the Applicant the Setting-up Permit or not, will see whether the proposed products by the Enterprise meet statutory requirements. If the Enterprise is to manufacture Chinese medicine, it should manufacture not less than two Chinese medicines and the Chinese medicines to be manufactured should fall under categories 2, 3, 4, and 5 provided for Chinese medicines in The Measures on the Approval to New Drugs (the "Measures"). If the Enterprise is to manufacture Western medicines, the Western medicines to be manufactured by the enterprise should fall under categories 2, 3, 4, and 5 provided for western medicines in the Measures.

There are other requirements of course. The Enterprise should make available water, power, transportation, equipment, technology, fuel and other resources that are necessary for the manufacture of drugs. Although there is no minimum requirement for the registered capital, the SDA will see if the proposed registered capital and total investment can match well with the production scale of the Enterprise.

The Setting-up Permit only allows the Applicant to continue with its application procedures for the approvals to the feasibility report or the Constitutional documents. The procedures to obtain consent from the SDA do not end here.

The second part of the consent from the SDA is the Manufacturing Permit. The SDA requires the construction of the physical part of the Enterprise to be completed within 2 years from the issuance of the Setting-up Permit, which implies that the Enterprise must complete its incorporation work long before the expiry of this 2 year period as well. When the construction of the Enterprise is completed and equipment installed and technicians equipped, the Enterprise should apply for GMP.

When the enterprise obtains the GMP certificate, it can apply to the SDA for the Production Permit. Only at this stage can the Enterprise start production of the proposed drugs.

To learn more about this, please contact Luke Filei on +86 10 6590 0389 or email address [email protected] or Richard Cao on +86 21 6289 6363 or [email protected]

© CMS Cameron McKenna, 2002