China Removes Price Ceilings from Most Drugs

Since the year 2000, the Chinese government has implemented a price ceiling on most drugs after many complaints from Chinese consumers about prices being too high. Recently, however, the government has decided to eliminate the price ceiling to allow the price to be set by a market-driven pricing system. This is done to encourage more competition and better medicine as a whole for the pharmaceutical industry. The government will instead conduct drug inspections, focusing on where competition is lacking to regulate prices. They do not expect there to be any significant changes in drug prices, because most of the medicine impacted is sold through hospitals regulated by more local government.

Because the market is still being regulated so heavily, it is unlikely that removing the price ceiling on most medicine will impact the economy in any serious way. The point of the price ceiling is to keep the medicine costs from becoming too high, but since it has been in check for a decade and a half, there is some room to let the market fluctuate and create competition. The Chinese government is loosening its grip on different sectors of its market in a safe way. By having local government and continued lax regulation on medicine, the market price should even out to increase competition without becoming so expensive that the demand shoots down.

Source: http://www.natlawreview.com/article/china-removes-price-ceilings-most-drugs

1 Comment »

  1. morrimad Said,

    October 15, 2016 @ 3:34 am

    I like your application of the price ceiling in a foreign market, it adds insight into the international economy. However, it may be helpful to define the term price ceiling so it can be clearly related to the pharmaceutical industry. How is the market being regulated heavily? Why?

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