Guangzhou Baiyunshan Pharmaceutical Co Ltd and Hong Kong business giant Hutchison Whampoa (China) Ltd are going to form a 50-50 medical joint venture in Guangzhou, the capital of South China's Guangdong Province.

The two firms signed a preliminary letter of intent on Monday, Shenzhen-listed medicine maker Baiyunshan revealed Wednesday.

According to the announcement, the joint venture will mainly involve research and development and the production and marketing of traditional Chinese medicines (TCM).

The new firm is being temporarily named Baiyunshan Hutchison TCM Co Ltd, and the cooperation will last for 50 years, the announcement said.

The Guangzhou firm will put its subsidiary Guangzhou Baiyunshan TCM Plant into the new venture.

While Hucthison, owned by Hong Kong tycoon Li Ka-shing, will make a capital investment equivalent to the evaluated asset value of the plant (excluding the Baiyunshan trademark).

The two companies also agreed that the new joint venture could freely use the trademarks "Baiyunshan" and "Hutchison" in both the domestic and overseas markets.

The TCM plant's asset value is expected to be no less than 500 million yuan (US$60.4 million), though asset evaluation has not been carried out, company sources said.

The plant, the backbone business arm of the listed company, had a sale volume of about 500 million yuan (US$60.4 million) last year, with net profits of some 50 million yuan (US$6.04 million).

And it has invested a total of more than 100 million yuan (US$12 million) in the restructuring project.

It has also passed the Good Manufacturing Practice authentication, which is required by the State Food and Drug Administration.

Hou Dakun, president of Beijing KevinKing Management Consulting Co Ltd, a leading consultant in the drug making industry, said the deal shows overseas investors' growing interests in the commercial potential of the millennia-old TCMs.

"Eyeing the future growth of the TCM market, Hutchison Whampoa has adopted a strategy to cooperate with big domestic TCM makers to expand its business in this field," he said.

Hutchison Whampoa agreed with China's well-known TCM maker Tongrentang to form a US$239 million pharmaceutical investment venture last December.

(China Daily May 26, 2004)