As someone born and raised in China, I have often found it hard to explain to an American what exactly traditional Chinese medicine (TCM) is. So I turned to the World Health Organization (WHO) for help.

According to WHO, traditional medicine is “the sum total of knowledge, skills and practices based on the theories, beliefs and experiences indigenous to different cultures that are used to maintain health, as well as to prevent, diagnose, improve or treat physical and mental illnesses.” In the West, adaptations of traditional medicine are called “Complementary” or “Alternative” (CAM).

Traditional medicine has been used widely to maintain well-being and treat diseases in developing countries. According to WHO, traditional herbal preparations account for 30%-50% of the total medicinal consumption in China; In the US, 158 million of the adult population use complementary medicines.

TCM dates back to 3rd century B.C., when the first book on Chinese medicine entitled “the Yellow Emperor’s classic of internal medicine” became known. TCM depends largely on herbal medications to prevent illness and help the human body fight ailments, relieve pain and restore health. In addition to therapeutic benefits, it is also supposed to boost health and enhance longevity. China’s rising wealth and aging population would have important implications for health spend demand in general and demand for TCM in particular.
Despite China’s economic slowdown, we expect re-balancing of the economy to pay dividends down the road. According to IHS, China’s GDP is projected to overtake the US by 2024, reaching $28.25 trillion USD. According to China’s Labor Daily, China’s household disposable income per capita is projected to double during 2010-2020, with Shanghai expected to reach 63,000 yuan (10,000 USD) by 2020. Meanwhile, Chinese consumer spending is forecast to grow 7.7% per year in real terms over the next decade, according to IHS. That will translate into higher health spend and pharmaceutical sales.

In 2012, China’s total pharmaceutical sales gained 18.5% to 1,100 billion RMB (174 billion USD). It is expected that the share of China in the pharmaceutical market of the world will increase from 3% in 2012 to 7.5% in 2015, which makes it the second largest consuming country of pharmaceutical in the world, according to OECD. As for TCM, domestic demand is expected to grow from $2.8 billion in 2003 to an estimated $27.1 billion in 2014, according to IBISWorld.

Nonetheless, the acceptance of TCM by the West has a long way to go. For starters, its concept is little understood, hard to explain and difficult to prove scientifically. Perhaps because of that, alternative therapies are rarely covered by insurance in the US, which makes it expensive to purchase. However the rollout of Obamacare in the US has had a positive impact on demand for traditional remedies: insurers in states such as California are now required to include acupuncture as a benefit in new insurance plans. Still, the prospect of traditional medicines as a whole gaining insurance coverage remains as remote as ever in the US.

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On the bright side, things start to improve slowly but surely on the TCM research’s front. In June 2015, Kanglaite-an anticancer drug with active ingredients extracted from coix seed-entered Phase III trials for the treatment of pancreatic cancer. Once the phase III trial is passed, Kanglaite could become the third medicine derived from TCM to enter the Western pharmacopeia following ephedrine, a stimulant and decongestant derived from Mahuang, and artemisinin, a malarial drug, according to Xinhua News.

In addition, a Chinese scholar-Prof. Tu-won the 2015 Nobel Prize in Physiology or Medicine for the discoveries of new anti-malaria drug artemisinin. There is some controversy surrounding where the award should be attributed to. Some see it as a vindication of TCM: it is based on TCM theory–indeed Tu got her inspirations in finding a new way of extracting artemisinin from medical books of the Eastern Jin Dynasty (317-420 AD). Others disagreed, contending that the isolating a single compound out of a single plant is based on western medicine research methodology. Most, however, view Tu’s success as signaling that TCM, coupled with western research methodology, has a great potential in search for new drugs, even though isolating a single compound out of a single plant, like in the case of artemisinin, may be full of hardship.

According to, current TCM researches are generally conducted in three categories: a) TCM hospitals conduct clinical trials of traditional combinations of herbal mixtures; b) research by isolating individual compounds from TCM herbs, as in the case of artemisinin, which uses western methodology; and c) research involving only compounds that are metabolized by the body.

As early as 2009, Novartis has set up a six-year research partnership with the Shanghai Institute of Materia Medica to identify and test the pharmacological properties of TCM, with a focus on gastrointestinal health and future prospect of moving into metabolic diseases and brain health. In 2011, Hutchison MediPharma Ltd reached an agreement with AstraZeneca PLC for global licensing, co-development and commercialization of Volitinib, a TCM extract that halts the progress of breast and lung cancer. More recently in 2013, Nestle Health Science and Chi-Med agreed to jointly research, develop, manufacture and market innovative nutritional and medicinal products derived from botanical plants. Still others such as GSK and Sanofi-Aventis SA have set up partnerships with research institutions in China to develop modern versions of TCM ranging from treating chronic diseases (such as diabetes and cancer) to developing novel therapeutic TCM mixtures through innovative extraction methods and combinations.

To sum up, rising income and aging population should propel growth in health spend, pharmaceutical sales and, in turn, TCM sales. Despite the fact TCM remains little understood and difficult to prove scientifically, changes are taking place to move TCM research to the next level. However, one notable factor constraining TCM sales growth is the low health spend ratio of GDP. China spends only 5.4 percent of GDP in 2013, way below the OECD average of 8.9%. Another factor is the pharmaceutical market, which had been growing at double-digit pace, suddenly lost steam with just 5% growth by the middle of this year.

The sudden cool-off may reflect the economy’s cyclical downturn. An offsetting factor would be a shift in China’s consumer spending, which, driven by aging population, may raise the ratio of health spend over GDP from current 5 to 6% to 10% down the road, according to Dr. Lu, chief economist at Huatai Securities of China. However, the slowdown may also reveal a deep-rooted structural problem of healthcare system, which is hard to fix in the short run. On the other hand, the ongoing healthcare reforms are expected to generate new M&A opportunities for small biotech and pharmaceutical companies. In addition, while there is a lack of experienced professionals, a steady stream of Chinese-born, foreign-educated “overseas returnees” coming back to China may pick up the slack by setting up biotech startups in Shanghai, Beijing and other major cities. And the local knowledge of TCMs may provide the impetus for future drug discoveries originating in China.