In response to the increasing environmental regulations imposed by local governments, raw material drug companies have been forced to significantly increase their investments in pollution control. This has led to a surge in operational costs, creating substantial financial pressure on many firms. As a result, smaller companies that lack the resources or technological capabilities to meet these new standards are struggling to survive. The industry is witnessing a natural selection process, where only the most resilient and well-equipped enterprises can endure.
According to Yu Guanwen, a senior consultant at the Pharmaceutical Industry Association, the cost impact varies among companies. For those with advanced environmental protection measures, the increase is relatively manageable. For example, Zhejiang Hisun Pharmaceutical reported a 5% rise in total costs due to compliance with the new wastewater discharge regulations. Other large bulk drug manufacturers experienced a cost increase of around 10%. Industry experts believe that for companies that previously neglected environmental issues, even a 10% increase could be catastrophic.
Northeast Pharmaceutical Factory’s environmental officer shared how the company invested 100 million yuan in building a sewage treatment plant back in 2002. The facility became operational in 2004, processing 30,000 tons of wastewater daily and costing over 30 million yuan annually in operations. This year, they plan to invest an additional 10 million yuan in equipment upgrades and pipeline renovations.
Several companies have made significant environmental investments. Shijiazhuang Group spent 350 million yuan on environmental protection, while North China Pharmaceutical and Hisun Pharmaceutical each invested 200 million yuan. Meanwhile, Northeast Pharmaceutical, Lukang Pharmaceutical, and Xinhua Pharmaceutical spend over 30 million yuan annually on environmental operations. In contrast, numerous companies have faced shutdowns due to non-compliance with environmental rules.
Citic Securities analyst Luo Chunlei noted that many small businesses cannot meet the upcoming “Pollutant Industry Water Pollutant Emission Standards,†and even some large firms are finding it challenging. The new regulations set standards that exceed those of Western countries and the World Bank, requiring massive capital investment—up to 230 billion yuan across the industry, with 100 million yuan allocated specifically for environmental protection. High fixed asset investment is a major challenge.
Yu Guanwen pointed out that raw material drug companies face two main challenges: rising operating costs and technical difficulties in pollution control. Small, poorly equipped companies will likely be forced to shut down. He emphasized that while technology is not the biggest obstacle, the key lies in companies’ willingness to invest and adapt.
Yu Mingde, vice president of the China Pharmaceutical Enterprise Management Association, stressed that setting high environmental standards is inevitable. Companies that act early will have a better chance of surviving. He said that while the cost of compliance will increase, it's crucial for companies to improve efficiency, strengthen management, and reduce costs. Failing to address environmental issues now could lead to severe consequences, such as shutdowns or relocations.
However, the new regulations also come with challenges. Some industry experts point out that the standards cover too few chemical varieties, data collection is insufficient, and certain environmental solutions are still unclear. Additionally, higher environmental indicators mean more complex production processes and significantly increased post-treatment costs—up to 3 to 5 times higher than before.
To address these issues, Yu Mingde suggested establishing large-scale facilities in concentrated production areas, allowing multiple companies to jointly invest and share resources. He also recommended setting up environmental funds, offering subsidies to environmentally responsible companies, and imposing stricter penalties on those failing to meet standards. The goal is to create a sustainable pollution control mechanism between enterprises and the government.
While the current situation is tough, especially for companies with poor environmental records, the long-term outlook may be positive. After the initial adjustment period, high-quality companies that adapt well will benefit from improved market conditions. According to industry predictions, the API sector could generate over 200 billion yuan in sales revenue and 12 billion yuan in profits. With roughly 1,500 API companies in the country, only a few will survive after strict enforcement of the new regulations.
An industry expert noted that the elimination of backward companies will create opportunities for the remaining ones. Those that focus on technology upgrades, increased investment, and efficient cost control will be able to weather the storm. Eventually, these companies may capture a larger share of the market, which is currently divided among thousands of players.
Currently, the effects are already visible. Due to pollution restrictions, many small companies have reduced production, leading to supply shortages and price increases for some raw materials. Analyst Luo Chunlei believes this trend will continue, driving industrial concentration and raising entry barriers.
Moreover, the new regulations may help domestic API companies reduce price competition with foreign firms by eliminating those with low environmental standards. This could improve overall profitability and enhance the competitiveness of the industry in the global market.
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