China advancing in drug discovery but needs foreign firms to get drugs to market

China‘s government wants to push innovation in pharma, but without a domestic market that can pay for expensive innovative drugs, China will remain stuck in early-stage drug discovery. In 2024, investment declined 10 percent y-o-y by value, and only four biotech firms launched on Chinese exchanges, the lowest since 2008. In response, Beijing issued plans in 2025 to streamline regulations, mobilize state-owned capital and attract foreign direct investment. Developers of innovative or urgently needed drugs are now eligible for faster drug approval, longer market exclusivity, more flexibility in production across locations, and inclusion in public healthcare insurance. 

But Beijing will struggle to raise commercial interest in pharma innovation without increasing domestic demand. With its insistence on keeping the national healthcare budget steady, promises that innovative drugs will be covered by public insurance ring hollow. Instead, Chinese experts call for liberalizing the pharmaceuticals market and promoting commercial healthcare insurance. 

To begin with, public hospitals should be allowed to sell treatments that are not on the National Reimbursable Drugs List, which is linked to public healthcare insurance coverage, argues Song Ruilin, Executive President of the China Pharmaceutical Innovation and Research Development Association (PhIRDA).  

Without the prospect of a large domestic market, Chinese companies can only fund the final stages of drug discovery through international partnerships. At the same time, China’s lavish support for research and innovation makes its biotechnology firms attractive for multinationals that seek to replenish their expiring portfolios. 

In the last six months, American and European firms have signed numerous licensing deals with Chinese firms. For instance, Swiss firm Roche licensed a lung cancer drug from China’s Innovent for up to USD 1 billion in January. To fully capitalize on these opportunities, China needs an internationally recognized regulatory system, argues Song.  

Jeroen Groenewegen-Lau, Head of Program of Science, Technology and Innovation at MERICS: “The current global division of labor will intensify. China will gain ground in early-stage drug discovery, while pharma multinationals will buy the ex-China licenses of the most promising treatments. Although this arrangement benefits multinationals and may lead to better outcomes for patients, it also gradually erodes pharma innovation in Europe.”