Until a few years ago, foreign trade regulation in China made it nearly impossible for foreign companies to participate in domestic trading operations. Foreign companies were, and to a large degree still are, prohibited from importing goods themselves and selling them directly to the Chinese market, and have, by and large, been unable to invest in foreign trade enterprises. When the regulations began to ease slightly in the mid-1990s, Chindex seized the opportunity to establish Chindex Holdings International Trade (Tianjin) Ltd. (Chindex Tianjin), a wholly foreign-owned enterprise (WFOE) chartered in the Tianjin Free Trade Zone with dedicated bonded and Customs-cleared warehouses.

Chindex Tianjin enabled Chindex to import certain types of foreign products denominated in U.S. dollars or other foreign currencies and to sell these products for RMB to domestic Chinese customers, giving Chindex complete logistical control over the distribution process, including importation, Customs clearance, warehousing, marketing and sales, and physical distribution. Moreover, Chindex Tianjin also provided the capability to establish facilities for co-packaging, light processing, and other value-added services.

In order to increase the efficiency and effectiveness of the nationwide system, in mid-1998, Chindex opened a second WFOE distribution center in Shanghai, Chindex Shanghai International Trading Co., Ltd. (Chindex Shanghai), which now serves as the main distribution facility for the Products Distribution network. Additional local storage facilities were opened in Beijing and Guangzhou in 1999. The Chindex Products Distribution Department is focused on supply chain management and sales to dealers and retail organizations, rather than directly to end users. The products sold through the Products Distribution Department are low-value, off-the-shelf healthcare instrumentation and consumable healthcare products, as well as personal care and home healthcare products sold through retail pharmacies.

Marketing and sales of the products sold through the Chindex Products Distribution Department are managed by dedicated product managers for each main product line coupled with regional sales teams and a route sales force. The regional sales teams manage a network of over 600 value-added dealers which carry local stocks and target the 500-or-more-bed hospitals in the country. Chindex also employs a route sales force to supply the emerging retail pharmacy market through the Chindex-managed direct supply pipeline.

The Chindex Products Distribution Department was developed on the basis of a core group of experienced managers, with years of success in the areas of logistics and local area dealer network management, and hospital and retail sales and marketing. The Department is in turn supported by the Company’s extraordinary wealth of on-the-ground management expertise. The Products Distribution Department is comprised of three primary areas of focus: Hospital Dealer Sales, Retail Sales, and Logistics Services.

Hospital Dealer Sales

Through its Hospital Dealer Sales division, the Chindex Products Distribution Department taps the substantial and growing market for high quality imported medical consumables and low-priced instrumentation via a value-added network of sub-distributors located throughout China. The network was started in 1995 and has grown to encompass over 600 dealer partners who cover all of China’s 350 hospitals with more than 500 beds. These hospitals account for approximately 80% of the demand for imports in China.

Chindex is pleased to provide marketing, logistical, and distribution services to the following manufacturers of medical instrumentation and consumables through its Products Distribution Hospital Dealer Sales division:

Tyco/Kendall Healthcare Products Company, is the second largest healthcare company in the world. and a leading U.S. manufacturer of healthcare consumable products. Tyco selected Chindex as its exclusive distributor throughout China and Hong Kong for its Urology product lines. The Chindex/Tyco partnership began in 1997.

Guidant Corporation is a world leader in the design and development of cardiovascular products. In 1999, Chindex assumed the exclusive distributorship for Guidant’s line of vascular intervention products, including the family of Coronary Stent Systems.

Hudson RCI is a world leader in the development of disposable products for the respiratory care and anesthesia markets. Since 2000, Chindex has distributed an increasingly wide range of Hudson RCI products, including Sheridan catheters, previously manufactured by Tyco/Kendall.

Terason division of Teratech Corporation manufactures an ultra-portable, microminiaturized PC based ultrasound system. Terason's ultrasound product was designed to cater to the increasing need for cost containment in the healthcare industry, by bringing the immediacy of ultrasonic diagnosis to the patient at first examination without compromising the diagnostic power of the imaging tool. The partnership between Chindex and Terason began in 2001.

Truphatek is an Israeli manufacturer of laryngoscopes. Chindex has been the exclusive distributor for Truphatek in China since 1993. Since 1997, Chindex’s Products Distribution Department has assumed responsibility for stocking, marketing, and distributing these instruments throughout China.

Tuttnauer is the world leader in tabletop autoclave sterilization systems, which are used in many medical applications including opthamology, dentistry, and operating rooms. Chindex and Tuttnauer began their partnership in the China marketplace in 1993 and have attained overwhelming market share in China for imported autoclaves. In addition, Chindex and Tuttnauer have won Ministry of Public Health tenders for the last three years in a row to supply autoclaves to nearly 50 teaching hospitals throughout China.

Retail Sales

Chindex is rapidly establishing a distribution network for branded healthcare and health-related consumer products to China’s burgeoning retail pharmacy sector. Sales began in mid-1998 in Shanghai and plans call for coverage of all of the major pharmacies in the top 30 urban markets (accounting for about 80% of demand and purchasing power for imported consumer goods). Chindex’s personalized, high service approach calls for intensive coverage of all partner outlets by a field force of customer service representatives. Several new product areas are under development in parallel with the rapidly growing distribution capabilities.

Chindex is paving the way into retail pharmacy distribution through a partnership with the world’s largest producer of cosmetic products. Under the partnership agreement, in 1998, Chindex became the exclusive distributor of a prominent brand of health-oriented cosmetics and skin care products. Chindex’s unique ability to closely control both the inventory and the distribution channels in China have proven successful in both the test market and expansion phases of distribution for this product line. Chindex currently has exclusive distribution rights to the following premier brands, which reach the market through its Retail Sales pipeline:

· Summer’s Eve brand of feminine hygiene products, manufactured by C.B. Fleet Company, Inc.

· Vichy Laboratoires brand of skin care products, manufactured by the Cosmetique Active International division of L’Oreal

Logistics Services

In order to assure effective and efficient product and financial flows management in the China marketplace, Chindex established its own logistics capabilities to support hospital and retail products distribution, as well as other internal customers. Through its two established distribution centers in Tianjin and Shanghai, in late 1998, Chindex began offering custom logistics services on a third party basis to principals who wish to manage their own sales and marketing channels but need assistance with physical distribution and financial management of their businesses in China. Chindex offers these services only to providers of products related to our core healthcare and health-related markets, including:

BD (Becton Dickinson) is a leader in the design and worldwide delivery of indispensible healthcare devices, systems and services. In mid-2000, BD made the strategic decision to outsource their logistics function to Chindex, due to Chindex’s wealth of expertise in this area, allowing BD to focus on manufacturing, marketing, clinical education, and sales management.

Pari GmbH is an independent German company with almost 100 years of history as a nebulizer manufacturer. Pari manufactures these devices, used for aerosol delivery of drugs, in facilities in Germany as well as the United States. Chindex is serving as logistics partner to import both hospital and consumer-oriented base units, accessories, and spare parts to support Pari’s network of regional dealers in China.

Whitney International, Inc. markets and sells Codonics medical printers and paper in China. Codonics, Inc. is the market leader in color imagers and color media with the largest installed base of color imagers in the world. In early 2000, Chindex assumed the role of logistics provider for Whitney’s Codonics business throughout China.

In conjunction with the growth and expansion of the Products Distribution Department infrastructure, Chindex is investigating new potential product areas in the healthcare sector, as well as new product lines that complement the products which are currently imported and distributed by the Products Distribution Department. Chindex has invested heavily in its Products Distribution capabilities and, as an integral part of the Company’s growth plan, Chindex plans to continue to capitalize on that investment.

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