SsHANGHAI (Reuters) - China has adjusted its policy on pricing cheaper drugs sold in the country, allowing drugmakers more leeway in deciding how much to charge for their treatments in the face of rising costs.

Under the new policy announced by the price regulator, over 500 drugs considered to be essential for public health will now be officially classified as "low-priced" drugs and sold for standard rates. Prices will be capped at 3 yuan (S$0.60) per daily dosage for Western drugs, and 5 yuan for traditional Chinese medicine.

Previously, China set individual price caps for over 2,000 drugs covered by national health insurance.

"Compared with high-priced drugs, the profitability of cheap medicine is low, which limits the (drugmakers') ability to absorb rising costs," the National Development and Reform Commission (NDRC) said in a statement posted on its website on Thursday.

As a result, there had been shortages of low-priced drugs after drugmakers had become less willing to produce them, it said.

Last year, the NDRC launched an investigation over costs and pricing at Chinese and foreign pharmaceuticals firms. Industry executives have said this was a part of Beijing's move to analyse the difference in prices of imported products sold by foreign firms in China compared with those in other markets.

The NDRC has yet to announce the result of this investigation.

The Shanghai stock exchange's sub-index of healthcare firms was down 0.2 per cent at midday on Friday. Broader indices were down around 0.3 per cent.