The British drugmaker GlaxoSmithKline (GSK) is a step closer to acquiring Pfizer’s consumer health unit, a move that could further its expansion in China’s pharmaceutical industry after its government recently proposed to lower tariffs on medicine.

GSK’s position has strengthened in the bid for Pfizer’s over-the-counter (OTC) business after the British consumer goods company Reckitt Benckiser dropped out on Wednesday, says Reuters. One of the world’s largest pharmaceutical companies, GSK could buy the unit for 20 billion US dollars.

The US-based Pfizer already has a foothold in China’s consumer health industry, selling its well-known stateside brands such as Centrum multivitamins and Robitussin cough medicine through the Chinese e-commerce portals Tmall and JD.com. If GSK's bid is successful, it could enlarge its earnings through distribution of these and other Pfizer brands. 

Both drug companies could further benefit from import tax reductions, which were announced by Premier Li Keqiang at the close of the annual National People’s Congress. Li emphasized that the government will work to achieve low tariffs on popular consumer products and medicines, such as anti-cancer drugs. The effort comes after a similar announcement last November of tax reductions for a number of foreign goods in attempts to boost domestic consumption.

The Boston Consulting Group (BCG) projects that the country’s health and wellness market will reach 70 billion US dollars by 2020. Its overall healthcare sector is expected to grow to 1 trillion US dollars by then, according to McKinsey research. The current size of China’s pharmaceutical market is second only to that of the US.

In a 2014 survey of middle to high income urbanites in China, BCG documented a variety of factors that have led to the rising consumption of health products. Along with an aging population and rising incomes, stress-related ailments such as insomnia and fatigue are driving consumers to buy health supplements and OTC medication.

The rise of health supplements, however, has magnified the distrust some Chinese have of such products, as they believe that health foods should be fresh and organic. The concern stems in part from past food safety incidents such as the tainted milk powder scandal. The study also noted that a majority of respondents had difficulty separating product claims from its functional benefits.

In short, Chinese consumers – just like regulators and healthcare companies – are adapting to a lucrative industry in flux.