China's Chokehold In Pharma

China's pharmaceutical industry has a dominant position in generics, but also in clinical trials and precursor chemicals.  Is this acceptable?

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China’s Chokehold in Pharma: A ‘Nuclear’ Option in the Trade War?
In addition to rare-earth elements, China may use its near monopoly in some pharmaceuticals as artillery in its trade war with the West.

Commentary

China’s near monopoly on rare-earth elements has served Beijing well in its trade negotiations with Washington. That leverage has forced the Trump administration to make concessions on tariffs and, because it is effective, has elicited efforts from both the United States and the rest of the developed world to neutralize China’s dominance in the area.

What has attracted less media attention is China’s perhaps even more significant chokehold on global pharmaceutical supplies. So far, Beijing has kept quiet about this significant leverage, though the West got a taste when China cut off exports briefly during the COVID-19 pandemic. A still more significant cutoff could occur should push come to shove in the trade war.
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China holds a commanding position in several areas of the world’s pharmaceutical supply chains, and generic drugs are part of it. At a recent Politico Europe Health Care Summit, Simon Goeller, chief transformation and growth officer at Sandoz, noted that nearly half of Europe’s generic medicines come from China and that his company’s plant in Kundl, Austria, is the last remaining fully integrated penicillin site in the Western world.

American specifics point up other vulnerabilities. According to a recent report from the Atlantic Council, 27 percent of the Pentagon’s drug procurement comes from China. The Council further notes that 92 percent of imported antibiotics—penicillin and streptomycin—come from China, as do 94 percent of imported first-aid kits.

Generics and first aid kits are only part of the story. China supplies fully one-third of the essential ingredients to all medicines produced anywhere in the world. It accounts for fully 40 percent of all American imports of these so-called active pharmaceutical ingredients (APIs).

Of the 10 most critical U.S. imports, fully 99 percent come from China. Chinese production also accounts for 41 percent of the world’s supply of key strategic materials (KSMs) that are needed to produce active ingredients.

China has a still more complete monopoly on the so-called auxiliary chemicals and solvents needed to combine active ingredients into medicines. Indeed, China is the exclusive supplier of at least one key chemical used in nearly 700 crucial medicines. If anything, these impressive figures understate China’s role in this supply chain. Most generics and APIs purchased from Indian sources originate entirely or in part in China.

And this is not all. China also plays a dominant role in medicine licensing and clinical trials. In 2024, fully one-third of the world’s clinical trials were sourced in China. Some 45 percent of all new drug filings globally came out of China. In 2024, China-to-the-West licensing totaled $40 billion, up 66 percent from 2023. No data is yet available for 2025, but growth seems likely if not quite at the stupendous pace of 2024.

China has no special advantage that has allowed it to amass this dominant position. Back in the 1980s, China had none of this influence. Even as recently as 2000, it submitted barely 5 percent of the world’s filings. At that time, India outpaced it, submitting fully 19 percent of the world’s filings. China’s showing for 2024 (quoted in the above paragraph) far outpaced India’s.

Beijing built this pharmaceutical dominance deliberately. It offered Western producers a less expensive environment and one with fewer bureaucratic impediments than existed in the United States or in Europe. Production costs are estimated at 25 percent less than in the United States. Testing occurs at a faster pace than in the West and with fewer interruptions. Beijing has designated pharmaceuticals as “strategic” and has accordingly poured investment funds into the sector to lure Western producers by accommodating volume.

So far, Beijing has not even hinted at using this dominant pharmaceutical position as a bargaining tool in its trade negotiations with Washington or others. But its 2021 Biosecurity Law grants it all the authority needed to control pharmaceutical exports. Doubtless, Beijing has hesitated because humanitarian concerns would create a tremendous global pushback to the ensuing shortages that would occur. For the same reasons, no doubt, Beijing, when imposing rare-earth restrictions earlier this year, made exceptions for medical uses.
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But as the United States and the rest of the world found out during the pandemic, if pressed enough, Beijing can halt exports, and to a powerful effect. Back in 2020, for instance, export controls stopped 80 percent of the world’s production of iodinated contrast media, forcing hospitals worldwide to ration diagnostic imaging for 10 months. Beijing may reserve such export controls as something akin to a “nuclear option” in war should matters turn heavily against it. Whatever the hesitations, Beijing clearly has the option at its disposal.

As with China’s rare-earth monopoly, Western powers are awakening to their vulnerabilities in the pharmaceutical sector. In a recent report to Congress, the U.S.–China Economic and Security Review Commission pointed out these points of weakness, including how American companies have no obligation to report on the origin of their imports. The Commission pressed Congress to make such reporting mandatory.

The Commission also suggested that Washington put a floor under prices to prevent China from monopolizing and discouraging competition by flooding markets with products to drive down prices and destroy the profitability of any non-Chinese startup. This and other actions—similar to those the West is taking with rare-earth elements—are expensive and politically difficult in an era when affordability is such a sensitive matter, but they seem an unavoidable step in response to continued Chinese dominance in the global pharmaceutical industry.