Known HIV cases number about 100,000. Hepatitis and tuberculosis are rampant in many rural areas of southern China and are re-emerging in the cities, brought by migrant labourers who often live in squalid conditions.

The World Health Organisation estimates nearly 60 per cent of China's population has had the hepatitis B infection and one expert estimates 6 per cent to 10 per cent of the population are hepatitis B carriers.

Not all sicknesses are physical; stress is an important factor. A survey in the early 1990s showed that 80 million people suffered from hypertension. The combination of rising living standards, especially in the cities, and new health problems is good news for the dozens of pharmaceutical companies which have set up in China in the past decade including Johnson & Johnson, Bristol Myers Squibb, Hoffmann La Roche and Hoechst Marion Roussel.

But the pharmaceutical business, though growing, is still small - China represents only 1.2 per cent of the world market and is worth about US$10 billion a year. However, sales of Western drugs in China amount to only US$3.7 billion.

Hoechst Marion Roussel handles the registration, clinical trial, launching and scientific marketing of Hoechst pharmaceutical products in China. In addition to the 10 products it imports into China, the company has two plants coming on stream.

Production of antibiotics begins in September at a US$27 million joint venture north of Beijing in Hebei province. The local partner, North China Pharmaceutical Group, is China's largest penicillin manufacturer.

The newest arrivals have been a number of medium Japanese and small American companies, some of which specialise in biotechnology.

Sinogen, a joint venture between Beijing University and foreign investors, aims to mass produce drugs to tackle hepatitis B and diabetes.

Fighting each other for a share in an underdeveloped market is only one of the problems facing pharmaceutical companies. Importation regulations are tight and permit only the importing of drugs which are not available in China.

'If sufficient supplies of a drug exists in China then it is difficult to get an import licence,' says Dr Hubert Dressler, managing director greater China of Hoechst Marion Roussel.

The market inside China is heavily weighted because the bulk of medicine sales stem from having a place on China's extensive drug reimbursement scheme which covers millions of state employees.

The national drug list - on which the scheme is based - contains 470 Western medicines. The cost of drugs on the list is reimbursed to patients by their work units. Provinces and cities draw from this national list to make their own.

Some lists are considerably more influential than others and a place on the right one can guarantee huge sales.

Getting products on the national list is a money-spinner because the cost of over-the-counter and prescription drugs can be reimbursed. But some foreign drug companies complain that the selection process for the list - made by a secret medical commission - favours local firms. The Chinese say they cannot afford expensive foreign preparations and must favour China made drugs.

'There is an approval process,' says Dr Dressler. 'Registration may take up to two years which is similar to Europe and if the drug is already approved elsewhere, for example by the US Food and Drugs Administration, it is much easier.' The structure of payments in Chinese hospitals encourages high drug sales. 'Sixty to 80 per cent of a hospital's income comes from sales of pharmaceuticals rather than consulting or patient care,' says Dr Dressler.

'If the hospital depends on sales then the doctors become part of the sales system.' The key to changing the system is the rise of independent pharmacies in southern China, something that could be spurred by an imminent Ministry of Health decision to remove over-the-counter drugs from the reimbursement list.

Then the convenience of buying from a chain pharmacy would replace the attraction of free medicine from state-run outlets.

According to an Economist Intelligence Unit report there are 38,000 retail pharmacies in China, but many are state-owned or linked to hospitals. Independent chains already exist in Guangdong and are quickly moving north.

China has a positive balance of trade in pharmaceuticals with the rest of the world. It exports huge amounts of pharmaceutical raw materials, including antibiotics and vitamin C.

But foreign companies cannot import drugs directly and must sell to importers who in turn sell to regional wholesalers.

Hundreds of trained Chinese doctors are employed by multinational pharmaceutical companies to work as medical representatives persuading Chinese hospitals to buy their medicines. However as employees of foreign pharmaceutical firms they are not allowed to sell medicines.

Ironically, a rise in living standards in China is changing the profile of the nation's health problems. Better immunisation programmes sponsored by international health organisations are reducing the incidence of diseases such as polio and diphtheria.

But heart disease and tobacco-related illnesses are increasing, particularly in urban areas.