Zhao Yaocai Network Files IPO Prospectus: Building a Traceable and Standardized Chinese Herbal Medicine Platform

Prior to this latest venture, Niu Zhengzhao had just stepped down from his position as CEO of Jinxiang Wang. In fact, since entering the internet pharmaceutical industry in 2006 and becoming one of the first batch of B2C e-commerce entrepreneurs in the pharmaceutical sector, he has been deeply immersed in this industry for a full decade. This time, his goal is to pivot to the “Internet + Traditional Chinese Medicine (TCM)” sector, shifting his focus to the upstream segment of the pharmaceutical industry. He established Zhao Yaocai Technology (Tianjin) Co., Ltd., aiming to digitalize transactions in the Chinese herbal medicine industry by building the “Zhao Yaocai Wang” platform.

As its straightforward name suggests, one of the core businesses of Zhaoyaocai.com is to help traditional Chinese medicine (TCM) processing plants source raw herbal materials, thereby addressing information asymmetry in TCM trading, shortening the transaction chain, and directly connecting buyers and sellers through its platform, while also shifting profits from intermediaries to both ends of the supply chain. Niu Zhengzhao told VCBeat, “In the future, the company will focus on integrating internet thinking with traditional distribution models, leveraging the advantages of mobile internet to disrupt the reliance on extensive manual labor, lengthy supply chains, and complex management inherent in the traditional TCM supply chain. We are committed to building a free, traceable, convenient, and efficient educational service platform for TCM.”

The difficulty in tracing the origin of Chinese herbal medicines and the widespread non-compliance of many herbs with established standards have long been major challenges plaguing China’s traditional Chinese medicine (TCM) market, prompting industry stakeholders to continuously seek solutions. However, a batch of herbal materials typically changes hands among approximately five different suppliers between the place of origin and the processing facility, making it exceedingly difficult for processors to trace the herbs back to their source.

“Opacity in planting information, low product standardization, and multiple intermediary links in the transaction chain of the Chinese herbal medicine industry lead to significant price fluctuations, market-making for profit by middlemen, farmers’ reliance on weather conditions, and passive market-following by industrial enterprises.” In Niu Zhengzhao’s view, the core issue in the traditional Chinese medicine (TCM) industry lies in the lack of trust between upstream and downstream sectors, which is precisely due to the numerous intermediary links and the severe prevalence of adulteration and counterfeit sales.

In addition, in recent years, the market prices of Chinese herbal medicinal materials in China have continued to fluctuate. Due to speculative activities by hot money, some varieties have experienced severe abnormal price volatility, far exceeding market expectations. This has significantly impacted traditional Chinese medicine (TCM) manufacturers and caused substantial financial losses for a large number of herbal material growers.

In this context, Zhaoyaocai.com emerged. It is a platform that sells Chinese herbal medicines directly from planting bases to factories.

It is understood that Zhaoyaocai.com has currently partnered with more than 50 rural cooperatives specializing in authentic Chinese medicinal herbs, each possessing its own cultivation bases. “Zhaoyaocai.com has signed agreements with several herbal testing institutions. Experts in Chinese medicinal herb cultivation and identification from these institutions will personally visit the cooperatives to conduct sampling tests on the soil and products at the cultivation bases, thereby establishing data archives for both the bases and their products,” introduced Niu Zhengzhao. He explained that this measure aims to ensure that the medicinal herbs meet national standards, while also sparing herbal processing plants from the cumbersome task of conducting their own inspections.

Furthermore, for cooperatives of authentic medicinal herbs that have been certified as qualified, Zhaoyaocai.com will promote them through its platform and ultimately connect them with industrial enterprises seeking similar products.

Currently, the “manual procurement agency” service offered by Zhao Yaocai will also serve as an extension of corporate procurement departments, helping them fulfill end-to-end procurement for “short-cycle, high-frequency, and rapid-response” needs, covering the entire process from product inspection and quality verification to shipment. All these services are currently provided free of charge.

Currently, the products of Zhaoyaocai.com are primarily available as WeChat H5 versions. This is mainly due to four reasons. First, with the widespread adoption of mobile internet, people are spending increasing amounts of time closely tied to their mobile phones. Second, one segment of Zhaoyaocai.com’s user base consists not of white-collar workers who sit at computers year-round, but rather individuals working in fields and rural areas, making mobile-based products more suitable for them. Furthermore, the current network infrastructure in rural areas is sufficiently robust to support mobile internet usage. Finally, for growers, using mobile phones makes it more convenient to take and upload photos of their products and production bases.

Regarding the issue of profitability models, Niu Zhengzhao stated, “We will not charge platform transaction fees, nor will we participate in the trading of medicinal herbs. ‘Zhongyaocai’ (Find Herbs) will focus on strengthening its core competencies to build a reliable platform for transactions between supply and demand parties, while accumulating data to contribute to the industry. Our value will be reflected in the services we provide throughout this transaction process.”

In the future, Zhaoyaocai.com will also seek collaborations with traditional Chinese medicine (TCM) clinics to present patients with the clearest and most comprehensive information on medicinal materials. “For example, when a specific herb is included in your prescription, you can directly see that it was processed by a particular manufacturer and that its raw materials were sourced from a specific region. This enhances user confidence, ensures product traceability, and guarantees greater compliance with pharmaceutical standards.”

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