In a deal expected to close in the second half of 2014, Bayer has said it will buy privately held Dihon Pharmaceutical Group, a maker of traditional herbal Chinese medicines (TCM).

With China's healthcare spending forecast to nearly triple to $1 trillion by 2020 from $357 billion in 2011, according to consulting firm McKinsey, the country is a magnet for makers of medicines and medical equipment.

Bayer declined to provide the financial terms of the deal but brokerage M.M. Warburg estimated it was worth about €500 million. Dihon has about 2,400 employees and generated sales of €123 million in 2013.

Even though TCM is winning a following in some urban communities in the West, Bayer said it was too early to say whether Dihon products would be exported to Germany or Europe.

The Chinese company's products include dandruff treatments, antifungal creams and medicine against gynaecological conditions such as endometriosis.

The deal, which could help Bayer challenge Johnson & Johnson to the No. 1 spot in the over-the-counter (OTC) market, underscores its push into herbal medicine after it bought smaller German supplier Steigerwald last year.