The pharmaceutical sector in China developed rapidly with the implementation of the market-oriented economic reforms, which began at the end of the 1970s. From 1980 to 1988 the production of drugs quadrupled, subsequently increasing at an annual rate of 20%, and consumption of drugs correspondingly increased. The increase in drug production was largely a result of the increase in the number of pharmaceutical companies, particularly the number of private joint ventures, of which there were none in 1980 and 1900 in 1994, accounting for 37% of the total number of pharmaceutical companies. With the transformation of the Chinese pharmaceutical market, some new problems have appeared. The low efficiency of pharmaceutical companies, poor-quality drugs, unfair competition and misuse of drugs have been of great concern to the Chinese government. Some countermeasures have been taken, but the problems remain. Increases in the age of the Chinese population, increases in income and changes in disease patterns, together with membership of the World Trade Organization will promote the development of the pharmaceutical market. However, health-insurance reform, an essential drug list, the separation of drugs from services, and controls on the increases in hospital revenue will reduce the demand for drugs. Pharmaceutical companies in China face both opportunities and challenges. The trend in development of the pharmaceutical market depends on the outcome of the interaction between the factors that increase, and those that decrease, the demand for drugs. While the general trend is towards an increase in the demand for drugs and the expansion of the pharmaceutical market, downward fluctuation is inevitable if effective health reforms of cost control are introduced nationwide.