Objectives: The purpose of this study was to use system dynamics to probe into the industrial development structure of Chinese herbal medicine in order to explain its systematic behavior and estimate future production value. Methods: We used interviews with experts and a review of the literature about System Dynamics methodology to understand the reciprocity among all the elements in the industrial development of Chinese herbal medicine. We then built a model using Vensim computer software to show an environment characterized by multiple feedback processes, side effects, and time delays. Results: The interaction of five key elements, the size and scale of manufacturer's assets, the number of new persons involved in research and development of products, the investment in clinical research equipment, the manpower for clinical experimentation, and the ability to obtain patent numbers for Chinese herbal medicine, form a complicated and dynamic systematic model. Conclusions: This paper explores the Chinese herbal medicine industry's developmental structure and explains the mechanisms behind its systematic behavior. Computer simulation shows that an increase from 2.5% to 10% in a manufacturer's research and development fund would result in a 14.57% increase in products sales for Chinese herbal medicine by 2015.