In this issue of the MERICS China Industries we cover the following topics:
- Five-year plan pushes for higher value-added production in pharma
- China accelerates commercial applications of its homegrown satellite system
- What tech crackdown? Ministries launch data center hubs
- Reap what you sow: Mechanization and seed research to boost crop yields
- CAC issues draft regulations for machine-generated content
You can read a free excerpt of our latest MERICS China Industries below.
At a glance: Nine ministries and agencies released their 14th Five-Year Plan (FYP) for the pharmaceutical industry. The plan aims to make China’s pharma industry more innovation-driven and resilient. Key targets for 2025 listed in the policy include:
- Increase value-added production by five percent annually and become internationally competitive in advanced pharmaceuticals (including medicinal chemistry and biomedicine)
- Encourage innovative drugs to be registered in China first
- Make supply chains more stable and controllable by strengthening access to drugs prone to shortages
- Boost R&D spending and integrate digital technologies like AI and big data into all parts of the pharmaceutical value chain
MERICS comment: The pharmaceutical industry aligns with almost all of Beijing’s key strategic goals, including self-reliance, boosting local innovation, developing emerging industries and moving up the value chain. Yet these priorities are bad news for Chinese consumers in the short-term. For instance, even though Biontech has formed a strategic alliance with Fosun to produce Covid-vaccines in China, Chinese authorities have so far refused to approve the vaccine and only greenlighted less effective, domestically produced vaccines. Equally, this signals bad news for foreign firms in the long run. They will likely lose out on business opportunities as soon as a Chinese rival can offer an adequate alternative.
To achieve the FYP’s targets Beijing needs to strike a balance between conflicting goals. Aside from promoting innovation, Beijing is also pursuing a cost-cutting policy to keep the healthcare budget affordable, primarily through volume-based procurement and the National Reimbursement Drug List. They give the government, the sole buyer, substantial bargaining power and enable it to demand price cuts of up to 90 percent in exchange for market access. Foreign pharmaceutical companies have two strategies: lower prices and focus on volume or enter low-volume, high-profit niche markets. The latter is increasingly pursued by these companies as they are unable or unwilling to lower prices further. Overall, cost-cutting might increase the proportion of drugs made by Chinese firms — primarily generics — but it also lowers their profits, which could run counter to the government’s goal of promoting the development of innovative drugs which require heavy R&D investment.
Article: 14th Five-Year Plan for the Pharmaceutical Industry (关于印发“十四五”医药工业发展规划的通知) (Link)
Issuing bodies: MIIT; NDRC; MOST; MOFCOM;NHC; MEM; NHSA; NMPA; SATCM
Date: January 31, 2022