The case has resulted in more than 38 million yuan ($5.3 million) in total penalties.
The case has resulted in more than 38 million yuan ($5.3 million) in total penalties and has exposed not only Zhongyuan’s abuse of market dominance, but also the role of four pharmaceutical companies that helped obscure the financial trail behind the monopoly, according to penalty decisions released last Friday by China’s top antitrust regulator.
From 2014 to 2019, Zhongyuan signed an exclusive distribution agreement with Shanghai Qingping Pharma, the active pharmaceutical ingredient, or API, manufacturer. The contract granted Zhongyuan sole rights to sell Qingping’s pharmaceutical-grade magnesium trisilicate, laying the groundwork for a pricing structure that allowed Zhongyuan to centralize profits while staying off the official transaction records.
The distribution scheme operated through two main sales channels. In one, downstream drug manufacturers paid Qingping directly, but at prices set by Zhongyuan. Qingping issued invoices and delivered the API according to Zhongyuan’s instructions. The price difference — between the elevated resale price and the lower distribution agreement price — was then remitted back to Zhongyuan, after deducting taxes.
In the second channel, Zhongyuan worked through third-party distributors. These firms were instructed to purchase the API from Qingping at prices and volumes set by Zhongyuan, then resell it in line with Zhongyuan’s guidance. The distributors retained a small handling fee and returned most of the sales proceeds to Zhongyuan.
This arrangement allowed Zhongyuan to capture profits while remaining behind the scenes.
In the early stages of the investigation, Shanghai Qingping and the three distributors, namely Weifang Jinkaisheng Pharma, Weifang Longhaicheng Pharma, and Chongqing Mingbo Pharma, denied any profit transfers or financial coordination with Zhongyuan.
They described their relationships as standard buyer-seller arrangements, claiming there were no rebates, no profit allocation and no procurement funding provided by Zhongyuan.
But that account didn’t hold. Under mounting regulatory scrutiny, all four companies eventually reversed their statements during or after formal pre-penalty hearings in March 2021.
They admitted to facilitating Zhongyuan’s sales and returning most of the revenue or profit to it. As a result, each was fined 200,000 yuan for obstructing an antitrust investigation under China’s 2008 Antimonopoly Law.
Meanwhile, the case against Zhongyuan revealed a range of anticompetitive practices, including charging unfairly high prices, refusing to deal and imposing unreasonable trading conditions, such as requiring customers to hand over finished drug products for resale.
According to the penalty decision, Zhongyuan’s market share climbed from 74 percent in 2014 to 99 percent by 2019 after signing the exclusive-distribution agreement.
That dominance was accompanied by sharp price hikes: between 2011 and 2013 — before the exclusive agreement took effect — the market price of the API ranged from 17 to 22 yuan per kilogram. Under Zhongyuan’s control, prices soared to as high as 600 yuan per kilogram, a jump of more than 27 times in some cases.
As a result, the Shandong market regulator fined the company 21.8 million yuan, equivalent to 7 percent of its 2018 revenues, and confiscated illegal gains of 15.9 million yuan.
The API investigation was launched on Oct. 17, 2019, and the penalty decision against Zhongyuan was issued on March 24, 2025.
Source: MLex
