by Andrea Ferrario

In recent years, Beijing has moved from mass production of generic drugs to investing in advanced biomedical research. Thanks to a growth model very similar to that adopted for electric cars, it now controls 80% of global active ingredients. The Fentanyl case has shown the importance of this card, described as a “nuclear option” in trade wars. But China still needs the West to hold its own in this market.

Milan (AsiaNews) - About 700 drugs sold in the United States depend on at least one ingredient produced exclusively in China. A common antibiotic such as amoxicillin, for example, requires four starting materials, almost all of which are produced by Chinese industries.

These figures are little known to the general public, but they clearly indicate the distribution of productive power: China controls 80% of global active ingredients, 70% of world vitamin C production and 90% of penicillin.

In the American debate, this dependence has been described by some as a “nuclear option” in Beijing's hands, an image that indicates how much this concentration is perceived as a weakness in the US healthcare system.

In reality, precisely because of its potentially devastating effects, this weapon is practically unusable. Unlike rare earths, on whose exports China has already imposed controls, drugs directly affect people's lives.

A pharmaceutical embargo would trigger an unprecedented global reaction, isolating Beijing and depriving Chinese patients of access to advanced cancer treatments in which the United States maintains technological leadership. If China were to use life-saving medicines as a tool of political pressure, it would only irreparably damage its international credibility.

However, the case of fentanyl shows that China can exert less conspicuous but still effective pressure. Following the trade agreement between Xi Jinping and Donald Trump last November, Beijing introduced new licences restricting the export of thirteen chemical precursors of fentanyl to the United States, Mexico and Canada. In exchange for this commitment to limit the flow of ingredients for synthetic opioids, Washington reduced customs tariffs on China from 20% to 10%.

Formally a concession to the United States, the move nevertheless demonstrated how much Beijing controls critical chemicals and can use them as a bargaining chip. This was not an isolated incident, because already during the Covid-19 pandemic, in March 2020, the Xinhua agency had suggested that any Chinese restrictions on healthcare products would put the United States in serious difficulty.

The US's pharmaceutical dependence mainly concerns generic drugs, which account for 90% of prescriptions in the country and have such low margins that relocation is almost impossible.

The production of active ingredients is also highly polluting, making a large-scale return of their factories to Western countries even less realistic. India introduced incentives in 2020, but this has not prevented Chinese companies from remaining more competitive, while Japan and the European Union are trying to rebuild domestic capacity, without however managing to dent Beijing's dominance.

But how did China manage to achieve such a strong position in such a short time? The answer lies in a process of industrial transformation that closely resembles the rise of Chinese electric vehicles.

Engineering as a driver of innovation

In recent years, China has gone from being primarily a manufacturer of generic drugs to a leader in advanced biomedical research. Its companies now sign a significant proportion of international agreements with large multinational pharmaceutical companies, a sign of growing recognition of the quality of local research.

This evolution is confirmed by China's increased presence in global clinical trials and its now significant role in next-generation oncology technologies, designed to target diseased cells with much greater precision than traditional treatments.

The Chinese model of pharmaceutical innovation is based on engineering excellence rather than basic scientific research. The founder of a Shanghai-based biopharmaceutical company, interviewed by the Financial Times, explained that developing new drugs is more like solving a puzzle than making fundamental discoveries.

China has significant structural advantages in this field, enabling it to advance a new molecule from discovery to clinical trials much faster than the global average. Patient recruitment is also faster, aided by a large population with a strong need for treatment, while clinical research costs remain significantly lower than those of Western multinationals. This combination of speed and cost-effectiveness is made possible by a fully integrated pharmaceutical supply chain, which minimises waste along the development path.

In this context, it is not surprising that most of the new drugs developed in China still fall into categories that rework existing therapies, a choice that favours commercial solidity over riskier research activities. This approach is favoured by Beijing's policies, which since the last decade have included biotechnology among strategic sectors.

The reforms have attracted a wave of new investment and listings, consolidating the entire sector and pushing it towards more coordinated growth. As several industry executives point out, the model is reminiscent of that of electric vehicles, because once a solid production base is established, it becomes easier to compete even in the most advanced technologies.

Interdependence that limits the risks of conflict

However, Western dependence on pharmaceuticals is not one-sided. It is true that China dominates the production of ingredients, but the United States remains the world's largest market for innovative drugs, accounting for almost half of global demand.

The comparison between the two systems is telling, given that the Chinese market is only a fraction of the size of the American market and the country's rigid insurance system forces companies to make drastic price reductions in order to obtain reimbursement, fuelling increasingly aggressive internal competition.

In this context, an innovative drug that once could maintain a monopoly position for over a decade now struggles to maintain an advantage for even one or two years, a competitive spiral that in China is referred to as “involution”.

This pressure, initially limited to the domestic market, is now beginning to have an impact abroad, where the growing presence of Chinese companies in licensing deals could translate into lower prices and shorter profitability cycles even for large Western multinationals.

The latter are approaching one of the worst ‘patent cliffs’ in their history, with many drugs set to lose patent protection by 2030, leaving a revenue gap that is driving the search for new molecules everywhere, but increasingly in China, where biotech companies have much lower valuations and more favourable licensing conditions.

This interest, however, is coming up against increasingly obvious obstacles. The Food and Drug Administration is reluctant to approve drugs based on trials conducted solely in China, while political pressure is growing in Washington to control the transfer of sensitive data and limit collaboration with Chinese companies.

These are all signs of a tightening stance that could slow the entry of Chinese biotech companies into Western markets.

Experts believe that it will be a long time before Chinese companies can compete, in terms of scale and operational capacity, with groups such as Johnson & Johnson or AstraZeneca.

No Chinese company appears among the top twenty global giants, and many biotech companies, often still unprofitable, struggle to find the resources necessary to build sales networks abroad or to navigate more complex regulatory systems on their own.

This interdependence therefore remains, making drastic moves unlikely, especially as the United States finds itself having to reconcile contradictory objectives such as reducing exposure to China while keeping drug prices low, a balance that tariffs are unlikely to guarantee.

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