The pharmaceutical industry in China has undergone dramatic development over the past two decades. From a poor agricultural country, China has now become a country with an increasingly strong economy and, more significantly, the eighth largest pharmaceutical market in the world with more than US$8bn total sales in 2004. This paper describes the distribution pattern of the pharmaceutical industry in China, explores the reasons of the emergence of this pattern, and provides investment suggestions to foreign investors who are considering moving into the pharmaceutical market in China. Analysis of the Chinese pharmaceutical industry reveals: (1) most pharmaceutical firms are located in the southeastern zone, which includes two well-developed areas and three sub-developed areas; (2) the development of the pharmaceutical industry in China is predominantly driven by economy factors; (3) there is a slightly changing market distribution pattern from the micro angle, while the general pattern remains steady from the macro angle and (4) the pharmaceutical industry in China is extensively fragmented. The major constituent factors of these features are: (1) misconceptions of the profitability and growth of the pharmaceutical industry, (2) unnecessary political competition between regions and (3) excessive exploitation of regional administrative power. Finally, it is suggested that the foreign investors should concentrate on the southeastern zone that includes two well-developed areas and three sub-developed areas.