The gang was caught producing 67 types of fake drugs, packing some of them with starch, and then selling them to medical institutions, the official Xinhua news agency reported.
Among the drugs seized during the raids on the gang were 10,000 doses of fake rabies vaccines, 20,250 bottles of an injection used to treat cardiovascular disease and 211 bottles of blood protein, Xinhua said.
Fifteen gang members, based in China's northeast Heilongjiang province, were arrested in the raids, according to Xinhua, which cited local police.
The announcement of the arrests come as China struggles to restore confidence in its corruption-wracked health system.
The former head of the State Food and Drug Administration, Zheng Xiaoyu, was executed this month following his conviction for taking bribes to approve hundreds of medicines, some of which proved dangerous.
China then announced fresh measures in an effort to ensure substandard drugs did not reach patients, bringing in extra layers of approval processes.
"In a renewed effort to ensure drug safety and salvage its credibility, China's drug watchdog announced revised methods... as part of the national crusade on restoring public confidence in the entire sector," the China Daily newspaper said in an editorial on July 12 after the regulations were announced.
In one of the most grisly examples of the devastating impacts of corruption and low standards on China's health system, thousands of people in central Henan province contracted AIDS through tainted blood transfusions in the 1990s.