If the first dimension of China’s health strategy lies in repairing its institutional foundations, the second is unfolding in the realm of innovation. Beijing increasingly recognizes that health reform at home can be reinforced by progress at the frontier of science and technology. China’s ambitions in health now extend beyond strengthening public health systems and service delivery. Increasingly, they encompass the cutting edge of biotechnology, a sector that has become both a national strategic priority and a driver of international influence. Progress in this domain reinforces the promise of Healthy China 2030 domestically, while positioning it as a potential provider of advanced therapies and technologies that contribute to global public goods.
A recent milestone was the State Council’s Full-Chain Support for Biopharmaceutical Innovation policy, issued in July 2024. For the first time, it outlined a comprehensive national framework linking support across the entire innovation cycle, from basic research funding to clinical trials, regulatory approval, insurance coverage, and commercialization. This shift is industrial as well as institutional: it reflects Beijing’s belief that innovation capacity underpins governance legitimacy. Local governments swiftly followed with implementation measures ranging from direct subsidies and tax incentives to the expansion of biopharma parks and shortened approval timelines. Together, these efforts illustrate Beijing’s determination to anchor biotech as both a domestic growth engine and a platform for global influence.1
Over a little more than a decade, China has evolved from its traditional role as a producer of cost-efficient generics to an emerging force in global drug discovery and development. According to Morgan Stanley Research, annual revenue from drugs originating in China could rise to $34 billion by 2030 and to $220 billion by 2040. By then, China could account for as much as 35% of approvals by the U.S. Food and Drug Administration (FDA), compared with just 5% today. In high-value therapeutic areas such as oncology, immunology, and cardio-metabolic disease, Chinese firms are now producing drug candidates capable of competing credibly on the international stage. This transformation has not gone unnoticed abroad. Global pharmaceutical giants, facing a looming patent cliff that could erase more than $115 billion in revenues by 2035, increasingly view Chinese innovators as attractive partners. Out-licensing arrangements with Chinese firms have become particularly appealing, offering more favorable valuations than traditional acquisitions. With the top 18 U.S. and European pharmaceutical companies collectively possessing trillion-dollar-level firepower in mergers and acquisitions (M&A) and business development capacity, conditions are in place for a further intensification of cross-border dealmaking.
The roots of this momentum lie in a decade of institutional reform. Overhauls accelerated clinical trial approvals, aligned domestic practices with international standards, and created fast-track pathways for innovative therapies. China’s well-developed ecosystem of contract research organizations (CROs) and contract manufacturing organizations (CMOs) has reduced costs and compressed development timelines. A large pool of well-trained scientists, many returning from overseas, has provided the human capital to translate reforms into tangible progress. The rise of artificial intelligence in drug discovery, exemplified by local firms producing models at a fraction of global cost benchmarks, further underscores China’s capacity not only to scale innovation efficiently but also to redefine the economics of the sector.
The result has been a shift away from incremental “me-too” products toward first-in-class and best-in-class therapies. Chinese companies are now active in cutting-edge fields such as immuno-oncology, gene therapy, and cardio-metabolic disease, generating assets with genuine commercial viability in global pipelines. Moreover, China’s R&D and clinical research ecosystem, powered by world-class CROs and CXOs2, has become a critical part of global biotech infrastructure. For multinational corporations, access to this infrastructure now offers both cost efficiency and speed-to-market advantages, reinforcing China’s position as an indispensable player in the global life sciences value chain.
Yet, beneath this dynamism lie systemic constraints that threaten to erode momentum. Chief among these is a deteriorating financing environment. Although secondary markets have been buoyant, early-stage funding has contracted sharply. In the first half of 2025, capital raised by frontier Chinese biotech firms fell to $1.58 billion, barely a tenth of the 2021 peak. This widening gap between public-market exuberance and private-market scarcity has become one of the defining paradoxes of China’s innovation economy.
Institutional dynamics are central to this imbalance. Heightened scrutiny of IPOs, with long approval wait times in Hong Kong and on the Shanghai Science and Technology Innovation (STAR) Board, launched in 2019 as China’s answer to Nasdaq, has slowed exits. Thin M&A activity has further restricted capital recycling; a 2021 tax reform that classified venture distributions as personal income taxable at rates up to 35% drove many private investors from the market, leaving state capital to fill the gap. State-backed funds often come with rigid political or geographic mandates, including requirements to reinvest locally, expand physical infrastructure, or meet noncommercial industrial objectives. Audit practices that prioritize the avoidance of losses over the tolerance of risk have further entrenched a conservative investment culture structurally misaligned with the uncertainty inherent in early-stage innovation.
The consequences are visible across the sector. Investors struggle to exit legacy projects, while new ventures face acute funding shortfalls. Clinical trials are being postponed, and frontier domains such as gene therapy and nucleic acid drugs remain chronically undercapitalized. Out-licensing persists, but it is largely concentrated in projects launched during earlier investment cycles and is limited to a narrow subset of pharmaceutical firms. For the broader cohort of companies with expansive pipelines, supportive financing mechanisms remain scarce, leaving their funding channels severely constrained.
A parallel challenge lies in human capital. Many of the scientists who helped propel the sector’s early growth were trained abroad before returning, drawn by professional opportunities, government incentives, and access to China’s vast patient pools. Yet, retention has proven far more difficult than recruitment. Institutional rigidity, administrative burdens, and performance metrics intolerant of failure have produced an environment poorly suited to sustaining creativity. In a field where failure is intrinsic to discovery, such constraints risk dampening the very dynamism China seeks to cultivate.
Overlaying these domestic challenges are the broader uncertainties of U.S.-China relations. China’s biopharma model remains heavily reliant on access to international markets, as entry into the NRDL often requires steep price concessions, leaving many firms dependent on the higher margins of foreign revenues. Should the FDA tighten review standards for Chinese clinical trial data or should new tariffs or biosecurity restrictions emerge, the sector’s economic foundations could erode rapidly. Recent reports of potential U.S. curbs on licensing arrangements have already intensified investor caution. This fragility underscores the paradox of interdependence. The United States is confronting a patent cliff, and China is seeking global markets to sustain its industry. This mutual dependence is now shadowed by strategic mistrust. The risk is that geopolitical decoupling could sever a relationship that has become essential to global biomedical progress.
China’s biotech sector thus embodies both the promise and the constraints of its development model. It is increasingly capable of producing globally competitive therapies, yet financing bottlenecks, institutional rigidities, and geopolitical volatility threaten to slow its progress. The paradox is that a sector declared strategically vital is constrained less by external barriers than by Beijing’s own policy choices, which continue to suppress the risk tolerance on which frontier science depends.
Still, there are limited but important signs of adjustment emerging. China’s local governments are experimenting with targeted subsidies in areas such as rare-disease therapies, while firms are exploring licensing and co-development partnerships with multinational companies. These efforts remain uneven, but they suggest pathways through which China may sustain innovation momentum. If achieved, they could generate significant mutual benefits for domestic and international markets, industry players, and ultimately patients and the general public. However, these pathways would only work through effective international collaboration.
The questions, then, are how China’s innovation trajectory will intersect with broader regional efforts and whether APEC can provide the cooperative framework to turn fragmented progress into shared regional resilience.
Here are three ways through which China might harness its domestic reform imperatives and advances in biotechnology to contribute more substantively to the APEC agenda.
First, China’s long and complex experience in healthcare reform offers a reservoir of lessons for other APEC economies grappling with the challenge of broadening access to care. The steady expansion of the BMI system, now covering more than 95% of China’s population, represents both an administrative feat of scale and a sustained policy experiment in reconciling inclusiveness with fiscal sustainability. For a region as heterogeneous as APEC, China’s effort to balance universality with efficiency provides a valuable, if imperfect, reference point for economies seeking to advance universal health coverage across widely divergent institutional settings. Second, in pharmaceutical innovation, China is undergoing a profound transition from its historical role as a manufacturer of generics to an emerging generator of novel therapies. This shift is increasingly underpinned by artificial intelligence, with Chinese firms filing a rapidly growing body of AI-driven drug discovery patents to license proprietary platforms abroad. Such developments mark not only a technological leap but also an incipient reorientation toward global knowledge sharing. If channeled through regional vehicles such as the APEC Regulatory Harmonization Steering Committee (RHSC), which seeks to promote regulatory convergence and public-private collaboration, China’s expertise in AI-powered drug discovery could become a regional public good rather than a narrowly national asset.
Third, the COVID-19 pandemic laid bare both the vulnerabilities and the interdependence of health systems across the Asia Pacific. China’s accelerated development of diagnostics, vaccines, and treatment protocols during the crisis, however contested in execution, underscored the strategic value of rapid mobilization and scale. Translated into a regional context, these capacities could meaningfully enhance APEC’s evolving health security architecture, particularly under the HWG’s mandate to build resilience against future public health emergencies. In this sense, China’s domestic imperative for preparedness and resilience aligns naturally with APEC’s collective objective of health security.
Taken together, these pathways suggest how China’s domestic reform priorities, if channeled through regional cooperation, could converge with APEC’s agenda to advance not only its national reform but also the collective resilience of the wider Asia Pacific community.
link