In recent months China’s progress in artificial intelligence has stunned the world. A quieter yet equally significant shift is under way in biotech. China has long been known for churning out generic drugs, supplying raw ingredients and managing clinical trials for the pharmaceutical world. But its drugmakers are now also at the cutting edge, producing innovative medicines that are cheaper than the ones they compete with. China has become the second-largest developer of new drugs, behind only America (see chart 1).

As a consequence, Western drugmakers are increasingly looking east for ideas. Because of expiring drug patents, they stand to lose as much as $140bn a year in sales by 2030. Last year nearly a third of the large licensing deals they struck—those worth $50m or more—were with Chinese firms, triple the share of 2020. LEK, a consultancy, estimates that during that time, the total value of drugs licensed worldwide from China rose 15-fold, to $48bn (see chart 2). In November Merck paid $588m to LaNova Medicines, another Chinese biotech firm, to secure rights to a therapy similar to that produced by Akeso.

China’s government identified biotech as a strategic priority nearly two decades ago. But it was not until 2015 that things really took off, after the drug regulator launched ambitious reforms. It took on more staff and cleared a backlog of 20,000 drug applications in two years. Clinical trials were streamlined and brought into step with global standards. A study by Yimin Cui of Peking University and colleagues found that the time taken to approve the first round of human trials fell to 87 days, from 501 days before the reforms.

The changes coincided with a wave of returning “sea turtles”, the term for Chinese people who studied or worked abroad. China’s vast domestic market helped to attract big drugmakers to its shores, bringing know-how and talent. Easier listing rules gave biotech investors a clearer path to exit. Private funding for Chinese biotech firms rose from $1bn in 2016 to $13.4bn in 2021.

With more brains and money, Chinese firms moved beyond copying Western drugs. Instead of waiting for patents to expire and making generics, they adopted a “fast-follower” strategy—taking known drugs and modifying them to improve safety, efficacy or delivery. Drug development typically starts by identifying a target, usually a protein or gene linked to a disease. Scientists then search for molecules that can either block or boost the target’s function. Since fast-followers are not starting from scratch, they can run speedier, cheaper trials.

Between 2021 and 2024 the number of Chinese drugs in development doubled to 4,391. Fast-follower and completely original treatments made up nearly 42% of the pipeline. Helen Chen from LEK notes that China’s approach has been particularly effective in ADCs, a cancer medicine in which an antibody is attached to a payload of chemotherapy via a chemical linker. Since the treatment’s core components already exist, success depends on combining them in the most effective way. Ms Chen believes this is where Chinese firms thrive.

Speed is another advantage, says Michelle Xia, founder of Akeso. “We can do things twice or even three times faster than anywhere else in the world,” she claims. Clinical trials—the longest and most expensive stage of drug development—are faster than in the West. A large patient population makes recruitment easy, and hospitals and doctors are incentivised by the government to support research.

Faster trials have made Chinese drugs even more attractive to global drugmakers. Though the clinical information is from mostly Chinese patients, rather than a wider sample, it helps investors and pharma firms spot promising treatments. And as the quality of data from China has improved, regulators are paying attention. Results from Akeso’s Chinese trials were strong enough to convince America’s Food and Drug Administration to move the drug straight to late-stage trials.

Few Chinese firms sell drugs in America directly. Instead they tend to strike licensing deals: a company sells the rights to market its drug outside China for an upfront payment and other fees. Akeso’s Keytruda rival was licensed to Summit Therapeutics, an American biotech, for $500m upfront, with up to $5bn in additional payments and a share of royalties.

Another approach is the “NewCo” model. This involves a Chinese pharma company spinning off its clinical assets into an American entity run by an experienced local management team. The parent firm retains partial ownership, allowing it to benefit beyond royalties if the drug succeeds. Jefferies, an investment bank, says that about eight such companies have been formed since May.

China’s biotech boom is not without risks. The rise in licensing deals hides a funding crunch among young firms. Private investment in Chinese biotech fell to a seven-year low in 2024, mirroring a slowdown in global biotech markets. Investors are prioritising companies that generate cash or have strong international potential. Jimmy Zhang, an investor based in San Francisco, worries that many of today’s licensing deals are a product of the past funding boom. Without fresh investment, he warns, China’s drug pipeline could start to run dry.

A bigger concern is rising tensions with America. Because drug prices in the world’s largest economy are less tightly controlled than they are at home, American patients are a big source of revenue for Chinese biotech firms.

So far America has only applied trade restrictions to high-tech goods; Chinese biotech has escaped similar scrutiny. An attempt to block Chinese firms from supplying some biotech services and equipment has stalled in Congress. But, with Donald Trump threatening to impose tariffs on pharmaceutical imports, biotech may not be able to escape unscathed for much longer. The approach of selling to America via licensing deals may only offer limited protection; already Chinese biotech firms are getting lower licensing fees for their experimental drugs than American counterparts, because of geopolitical risks. Impressive as the pace of Chinese innovation is, it will have to contend with some mighty geopolitical forces.

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