SOE Reform To Boost Sinopharm's Long-term Outlook

BMI View: The 'mixed ownership' reform in Sinopharm will offer private investors more opportunities to capitalise on China's robust pharmaceutical market growth. Sinopharm's more modern, market-orientated ownership structure will attract more foreign investment and enhance its collaborations with multinationals. However, central government control and corruption associated with state-owned enterprises will hinder these entities to maximise their full commercial potential.

Sinopharm has been chosen by the ruling Communist Party of China to restructure its ownership to include more participation from private investors. This promotion of the 'mixed ownership' reform is part of the government's pilot economic reform plans to privatise at least six state-owned enterprises (SOEs) to attract capital and improve corporate governance. However, the precise nature of the reorganisation model has not been disclosed yet. Sinopharm is the only life science company out of the six SOEs.

We note that Sinopharm is ahead of many SOEs with regards to integrating the 'private element' into its strategic development, such as decision-making mechanisms, market awareness and management incentive mechanisms. In January 2003, Sinopharm and Shanghai Fosun Pharmaceutical Group jointly established Sinopharm Holdings, which is now listed on the Hong Kong market. Between 2012 and 2013, Sinopharm also acquired private Chinese drugmakers Winteam Pharmaceutical and Guizhou Tongjitang Pharmaceutical.

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The Pharmaceutical Market Outlook In China

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Related sectors of this article: Pharmaceuticals & Healthcare
Geography: China