Eight Government Bodies Issue Plan to Boost Traditional Chinese Medicine Industry Development

A new implementation plan for the high-quality development of the traditional Chinese medicine (TCM) industry from 2026 to 2030 has been jointly released by eight departments, including the Ministry of Industry and Information Technology, on February 5. The plan outlines a roadmap for the sector's growth over the next five years from a full industry chain perspective. It sets quantitative targets across multiple dimensions, including raw material supply, innovation capacity, and manufacturing standards. By 2030, the initiative aims to cultivate 60 high-standard TCM raw material production bases, establish 5 TCM industry innovation centers, and foster 10 new major proprietary Chinese medicine products. Additionally, it will promote the conversion of hospital-prepared TCM formulations into innovative TCM drugs, formulate or revise 10 industry standards related to digital and intelligent technologies in TCM production, publish 20典型案例 of digital transformation, and build 20 smart factories alongside 10 green factories.

The plan emphasizes enhancing raw material quality and supply stability through initiatives such as promoting fresh-cutting processing techniques for herbal medicines to address fragmented and disorganized initial processing at production sites. On the innovation front, it proposes creating a knowledge graph for classical TCM formulas and accelerating the transformation of hospital preparations to tackle challenges like lengthy development cycles and high costs in new TCM drug research. To upgrade manufacturing capabilities, the plan calls for accelerating the establishment of national standards for TCM decoction pieces and formula granules, while promoting the construction of smart factories to enable full-process data monitoring from raw material tracing to finished product release.

From a performance perspective, listed companies in the proprietary Chinese medicine sector are experiencing a notable earnings recovery. TRAD CHI MED reported unaudited net profit attributable to shareholders of 906 million yuan for 2025, a 14.96% year-on-year increase, exceeding market expectations. TONGRENTANGCM achieved a significant turnaround, with estimated full-year net profit ranging from 1.2 billion to 1.3 billion yuan, compared to a loss of 725 million yuan in 2024, representing a maximum profit increase of 279.43%. Another firm projected its 2025 net profit to be between 70 million and 90 million yuan, surging 241.55% to 339.13% year-on-year, with core product sales recovery serving as the primary growth driver.

Analysts indicate that favorable conditions on cost, policy, and demand fronts since 2025 have underpinned the profit recovery across the TCM industry. On the cost side, the composite price index for Chinese medicinal materials has retreated from a peak of nearly 3600 points in July 2024 to 2556 points by January 2026, with over 75% of herbal varieties experiencing price declines. This has led raw material costs, which constitute 60%-70% of proprietary medicine production expenses, to enter a downward trend, significantly improving gross margins for leading companies.

Looking ahead to 2026, the domestic TCM market is expected to improve driven by policy guidance, upgraded demand, and industrial transformation. New regulatory provisions for TCM production supervision will take effect on March 1, 2026, forming a comprehensive regulatory framework alongside existing rules for TCM registration and standards, further promoting industry standardization and high-quality development.

Structural differentiation is anticipated to be a key feature of the 2026 herbal medicine market. On one hand, dwindling wild TCM resources are pushing up the value of cultivated varieties, with supply-demand gaps for certain species continuing to widen. On the other hand, rising health-conscious consumption is driving steady demand growth for dual-use food and medicine varieties, expanding application scenarios and boosting raw material needs.

Securities analysts suggest that after inventory reduction and base effect digestion during 2024-2025, coupled with increased flu incidence in late 2025, channel inventory digestion is expected to accelerate. Companies with lighter inventory pressure may resume normal shipping rhythms, leading to earlier earnings recovery. The potential update to the National Essential Drugs List could benefit firms with products likely to be included, mirroring the volume expansion seen after the 2018 update.

Investment logic in the TCM sector is shifting from cost-driven recovery to value growth in 2026, supported by ongoing policy benefits and improved operational efficiency. As TCM globalization accelerates, companies with strong product portfolios and international capabilities are poised to capture new growth opportunities in global markets.

Relevant concept stocks include: TRAD CHI MED (00570): Integrates traditional TCM expertise and owns several time-honored brands. TONGRENTANGCM (03613): Its parent group is set to gain an additional A-share listed entity through a recent acquisition. GUSHENGTANG (02273): Launched a TCM education and research program with Nanyang Technological University in Singapore, marking progress in its global expansion strategy. BAIYUNSHAN PH (00874): Increased R&D investment in 2025, with pipeline progress in innovative TCM drugs and a successful bid in the national centralized procurement program.