In January 2009, two people died and nine were hospitalized in Xinjiang, China's far northwest province, after they took a counterfeit diabetes drug that contained six times the normal dose of the medicine's key ingredient, according to the state-run Xinhua news agency.

The news came as no surprise. In recent years, China has suffered a string of embarrassing scandals related to fake drugs that have taken the lives of hundreds of Chinese citizens and people overseas. Finally, however, after years of neglect, the government is showing new resolve to deal with the issue, with laws being tightened and government agencies stepping up their vigilance.

Last year, for example, the government launched a multiagency task force to crack down on illicit meds and those sold over the Internet. The group—composed of 13 ministries, including the State Food and Drug Administration (SFDA)—has carried out raids and made many arrests, according to two prominent American lawyers working in China. The task force has not officially made any reports.

“The government feels under more pressure because, at the end of the day, whether it's pharmaceuticals or food products or something a baby would use, [counterfeits] can have a direct consequence on public health,” says Nicholas Blank, associate managing director of the Hong Kong division of Kroll, the world's largest risk consultancy firm.

According to Tony Chen, a patent attorney with Jones Day who represents several foreign drug companies in China, counterfeit drugs are rarely found in urban centers such as Beijing, Shanghai and Guangzhou, because hospitals there actively monitor their own drug procurement chains to protect their bottom line. “They could get hurt badly business-wise if people think a hospital pharmacy is selling bad medicines,” he says.

Last year, the Supreme People's Court decided to classify drug counterfeiting as a criminal act if the fakes cause serious harm. As a result, many more of the small counterfeiting operations in the major cities have been shut down, according to a lawyer working with a drug company in Beijing. “The mom and pop [counterfeiters] are basically out of business,” says the lawyer, who requested anonymity because the topic is highly sensitive in China. “Right now, the government is fairly aggressive in tackling the problem.” Even so, some types of counterfeit drugs are still rife (see “In search of little blue pills”).

Problems still persist in smaller cities and rural areas, where corruption is often more prevalent and regulation is not as tight. “Manufacturing is largely overseen by the provinces, and there's not that much coordination going on, so that's where the problems lie,” says Roger Bate, an economist who studies counterfeit medicines at the American Enterprise Institute, a free-market think tank in Washington, DC.

Nevertheless, because of the country's growing prosperity—China's economy grew 8.7% in 2009 despite the global recession—local health agencies now have the funds to carry out limited investigations and conduct research into wrongdoing in the industry. For example, local governments dispatch mobile labs to test the authenticity of medicines in distant, hard-to-reach corners of the country (see page 361).