Monthly data tracker: May 2016.

　　Recent data suggest that 1) drug consumption growth decelerated in April to9.9% YoY vs. 15.1% in 1Q16; 2) government spending on health care in Aprilincreased 6% YoY; 3) the prices of 6-APA and 7-ACA both declined by 3% thismonth; 4) TCM raw material prices were mixed in May; and 5) commercialinsurance inflow and outflow in April increased 136% and 21% YoY,respectively.

　　Macro data: government spending, drug consumption, commercial insurance.

　　Government spending on health care registered 6% YoY growth in April 2016to RMB107bn, vs. 30% YoY growth in April 2015 and 8% YoY growth in April2014. Meanwhile, drug consumption growth decelerated to 9.9% YoY in April,vs. 15.1% in 1Q16 and 14.2% in 2015. Notably, commercial healthcareinsurance inflow continued to outpace outflow, with the former growing 136%and the latter growing 21% YoY in April. For YTD2016, commercial healthcareinflow and outflow recorded growth of 90% and 31%, respectively.

　　Prices of 6-APA and 7-ACA both fell 3% in May.

　　The price of 6-APA as of May 2016 dropped 3% to RMB148/kg; the price of 7-ACA also lost 3%, reaching a new low of RMB370/kg. We remind investorsthat 7-ACA production resumed in September 2015 at a 16% price cut fromRMB630/kg in June 2015.

　　TCM raw material prices have stabilized.

　　The TCM raw material price index climbed 0.38% MoM to 1011, picking upslowly after an eight-month downward trend. The price of honeysuckle in Maylost 17% MoM while the price of indigowoad root climbed 3% MoM.

　　Honeysuckle and indigowoad are the main ingredients used in Shineway’sflagship product, Qing Kai Ling. The prices of ophiopogon root and radixginseng were unchanged in May; they are the main ingredients in Shen Mai.