"With projects soon coming into operation added together, China's production capacity of penicillin industrial salt totaled over 70,000 tons in 2007, far exceeding the annual demand of the world, which stands at around 50,000 tons," said Liu Congde, Chairman of the Board of Shandong Lukang Pharmaceutical Group Co. Ltd.

As the world's largest active pharmaceutical ingredient (API) manufacturer and exporter, China currently exports 90 percent of the penicillin industrial salt it produces every year. However, amid expansion fears of the highly polluting and energy-exhausting API, experts have proposed to step up a tight handle on its manufacturing and export.

API plant of the world

In 2005, the National Development and Reform Commission (NDRC) promulgated the Guiding Catalogue for the Adjustment of Industrial Structure, with a view to optimizing and upgrading industrial structure and preventing irrational investment and low-level expansion. Accordingly, all industries of the country fall into the encouraged, restricted or the to-be-eliminated categories. As a result, the API industry of penicillin was explicitly subjected to restrictions. However, the fact is production is still escalating, defiantly.

Since the second half of 2007, the price of penicillin industrial salt has been on a roller coaster. It soared to nearly $19 per billion unit from $7, but has now tumbled back to around $8. Liu pointed to investment fever over penicillin industrial salt as the culprit.

Meanwhile, the production of other API products, featuring "energy-consuming and resource-guzzling, severe polluting and low value-added" is also swelling. According to Zhang Jianhui, Vice Director with the China Pharmaceutical Industry Association, the production of a handful of primary products produced through antibiotic fermentation, such as penicillin industrial salt, vitamin c, tylosin, erythromycin and tetracycline, have all topped the world. Besides, China also eclipses all other countries in the production of many chemical products made out of injurious ingredients, such as caffeine, aspirin, ofloxacin and ciprofloxacin. Worse still, production of these products is riding a trend of further expansion. For example, Hong Kong-based United Laboratories International Holdings Ltd. has lined up in Bayenur, Inner Mongolia for a plant capable of producing 10,000 tons of penicillin industrial salt and 5,000 tons of 6-aminopenicillanic acid (6APA). In another move, Joincare Pharmaceutical Group Industry Co. Ltd. has also recently strengthened its production by building a plant with production capacity of 1,000 tons of 7-aminocephalosporanic acid (7ACA) in Jiaozuo, Henan Province. "All these plants are aligned along the Yellow River, adding to its pollution sources," said the worried Zhang.

According to statistics from the China Chamber of Import and Export of Medicines and Health Products, as the largest API manufacturer and exporter of the world, China boasts the ability to produce over 1,500 API products. In 2005, China reported an annual API production of 1.23 million tons (excluding chemical intermediates and pro-drugs). Some of its products have even gained dominant positions in the global market, such as vitamin c, paracetamol, penicillin industrial salt and saccharin sodium. Chinese exports of the four products have contributed 65 percent, 40 percent, 60 percent and 90 percent to the volume of world trade, respectively. "Since 2001, China has logged an amazing annual growth rate of 20 percent in the export of API products," said Yu Guanwen, Vice Director of the Committee of Experts with China Pharmaceutical Industry Association.

Severe pollution

Zhang explained that severe pollution has forced developed countries to transfer their highly polluting pharmaceutical industries with low value-added to third world countries. "At present, China is not suffering from a shortage of API, but a large number of enterprises are relentlessly and blindly upgrading their production capacity in a single-minded chase of exports," said Zhang. "Some places in China are even proud of becoming the world's plant, regardless of the grave erosion to the natural environment and health of the people."

According to insiders, the production of pharmaceuticals, especially API made through antibiotic fermentation, is a recognized "high-polluting and energy-guzzling" industry, which devours a large amount of resources including chemical components and grain. As introduced by Yu, only a small amount of the grain, water and electricity used for API production will become constituents of API structures or non-hazardous materials like water through chemical reaction. They largely become waste. "Most of our API products are exported around the world leaving the country to bear the heavy pollution," Yu noted.

Zhang took an Austrian plant, the largest 7ACA manufacturer of the world he inspected in 2001 as an example. Half the area of the plant was saved for the disposal of the polluted water, waste residue and gas, which cost even more than pharmaceutical production. As a matter of fact, all 7ACA manufacturers in the world would be mired in painful losses if its price fell short of $110 per kg. However, the price in China has headed to as low as $70 per kg. "The huge price disparity derives from the absence of Chinese enterprises in pollution treatment," said Zhang. "Some domestic enterprises view expansion as the only weapon to sharpen their competitive edge and are hardly concerned about the disaster arising from environmental degradation."

An added danger is that the API industry of China is shifting to sprawling inland areas such as Shaanxi Province, Gansu Province, Shanxi Province and Inner Mongolia Autonomous Region, while the API industry of the world is fleeing to China and India. "In recent years the industry has begin to move to central and west China as well as the fountainheads of the Yellow River and Yangtze River. These areas are pampered with abundant water resources, low human resource costs and low waste discharge standards. Some grassroots governments even give the nod to polluting projects in their endeavors to attract investment."

Tight control

"The Guiding Catalogue for the Adjustment of Industrial Structure is hard to implement due to lack of concrete measures and detailed regulations," said Yu. "Concrete programs for future industry development should be outlined to optimize the industrial structure."

Highly polluting and energy-consuming products have realized a certain proportion in the export structure of China. The export tax rebate, low price of energy, low cost of labor and pollution treatment contribute to the low cost of exported products, endowing Chinese enterprises with an unrivalled advantage in competition. China has lowered the export tax rebate of some polluting and energy-consuming products, but this is still far from powerful enough to curb the expansion of these industries. Resource fees should be raised to put a dampener on the large-scale production and export of polluting products.

In Yu's opinion, API production can also be tackled by using environmental protection standards. The National Standard for Water Use, enacted in 2006, stipulates that water use for production per ton of penicillin industrial salt is capped at less than 48 tons and that for vitamin c at less than 235 tons. This could depress the production and export of many domestic enterprises if it was an unmovable standard, but it is just encouraged rather than compulsory.

Liu also advises bringing these projects under tight control. "Low-level duplicate construction should be strictly restricted, except for projects with pivotal breakthroughs. Land use approval systems and stricter environment protection standards should be adopted to rein in the development of API products like penicillin," he said.