India may be our biggest supplier of prescription and over-the-counter generics, but more than half of the inputs needed to make those drugs come from China. To ward off this China incursion, India has used government subsidies and other policies to reduce import dependence.
New labs in Gujarat and Uttarakhand, supported by India’s four-year-old Production Linked Incentive policy, attracted around $51 million of investment as of March. These new investments now face an onslaught of Chinese competing goods priced below market value.
But China and India are intrinsically linked even if India wants to decouple. China’s pricing power might make that difficult.
About 70% of APIs attributed to India are actually API that India gets from China. Both the Indian pharmaceutical industry and the Indian government acknowledge that Indian pharmaceutical firms rely on China for about 65%-70% of their KSM, intermediate compounds (INT), and API sourcing.
“After adjusting for India’s secondary dependence on China for KSM, INT, and API sourcing, it is estimated that 46% of U.S. daily doses of generics have source materials from China,” said Stephen Schondelmeyer, director of Pharmaceutical Management & Economics at the PRIME Institute at the University of Minnesota’s College of Pharmacy. “The U.S. generic drug supply chain is heavily dependent upon China. This is a critical issue for health and national security reasons since it affects the production and availability of essential medicine,” Schondelmeyer told the U.S. China Economic and Security Review Commission on June 5 in a hearing. The 65% to 70% figures come from his testimony.
China and India are dominant players in the American pharmaceutical market. But China is the one that is really known as the “pharmaceutical ingredients factory to the world” because it supplies KSMs, intermediates, APIs to India, is the single biggest exporter of generic drugs, and does lab work for U.S. pharmaceuticals researching new compounds and drugs, plus performs clinical trials for U.S. drug makers. However, without Indian industrial policies designed to help exporters, India would not be the generics juggernaut it is today. For them, China’s incursion into their corner of the market might require more government spending to protect Indian labs.
While India copes with Chinese inroads and plans accordingly, the U.S. could stand to take notes on what New Delhi will do to protect this important market – a market that is aimed at the U.S. Worth noting, pharmaceuticals are one of the biggest contributors to the trade deficit. In July, the U.S. exported $10.8 billion worth of pharmaceuticals and imported $16 billion, based on Bureau of Economic Analysis data.
The U.S. pharmaceutical industry is one of the most global industries in the world, not much different than the automotive industry. But the U.S. reliance on foreign drugs puts the health system at risk of shortages and ineffective, and potentially dangerous medication because the FDA is more likely to scold foreign labs for not following best practices, rather than hit them with import bans in order to avoid supply constraints.
As an example, the FDA issued a warning letter on Aug. 27 to Indian pharmaceutical company Amneal for an antibiotic and a local anesthetic drug. In March 2024, Amneal issued a voluntary recall of four lots of the local anesthetic ropivacaine after it found two batches packaged in polypropylene bags were overfilled, which could lead to dosing that exceeds the recommended maximum daily allowance. In April of this year, the company recalled two lots of ropivacaine after inert “fibers” were found to have leaked into the IV bags. Then in June, Amneal issued a recall for three lots of the antibiotic sulfamethoxazole/trimethoprim tablets after a customer reported microbial contamination.
China Now Producing Dozens of Drugs Below Market Price – Dumping Them Globally is Next Move
As proof that no company can match China on price, Chinese producers of active pharmaceutical ingredients (APIs) and the key starting materials (KSMs) used to make them are slashing prices by up to 50%. Not even low-cost India – one of the largest importers of Chinese KSMs – can compete at those levels.
If the U.S. wants to preserve a pharmaceutical industry that isn’t almost entirely dependent on China, as it is today, then tariffs, quotas, and targeted industrial policies are essential. Without them, China’s grip on pharmaceuticals and the broader, more advanced, biotechnology market will surely tighten.
China has specifically targeted 41 APIs and KSMs by slashing their prices between 40% and 50%, based on a report published on Sept. 12 by Indian daily The Tribune. Chinese labs have slashed the rates of key raw materials (Clavulanate Potassium and Penicillin-G), bringing them below production costs in India, the lowest cost producer of generic drugs in the world, and the No. 1 supplier of generics to the U.S. If India can’t compete with those prices, imagine the U.S. or Europe. This is why around 80% of generic drugs sold in the U.S. are imported and why even India is increasingly reliant on China either for APIs or KSMs.
“For China, like API production for pharmaceuticals, or any building block of an industry, they want to have a market position in the early phases of the product. This is key to China being a price setter everywhere,” said CPA economist Andrew Rechenberg. Unlike the U.S., which tends to focus on finished goods, innovation or intellectual property, China concentrates on “all of the above.” They have a true soup-to-nuts view of supply chains across many industries, and pharma is one of them. As a result of this, they can lower the market price to kick competitors out of the market. “When their competitors are out, they raise prices again,” said Rechenberg.
CPA’s economics team is working on a study about China biotech and its role in the U.S. pharmaceutical supply chain.
China’s biotech dominance didn’t appear overnight. It has been the product of a deliberate, step-by-step strategy – beginning with low-cost pharmaceutical manufacturing, then expanding into clinical trials, research, and talent development. Understanding this chronology is key to seeing how America’s current dependence took shape and why it now poses such a strategic risk. Beijing’s state-driven industrial policies, coupled with its willingness to cut corners on safety, labor, and environmental standards, manufactured an artificial cost advantage that multinationals eagerly exploited. About 70% of APIs attributed to India are actually API that India gets from China. After adjusting for India’s secondary dependence on China, it is estimated that 46% of U.S. generics rely on China.
India: Hard Lessons About to be Learned
India may be our biggest supplier of prescription and over-the-counter generics, but more than half of the inputs needed to make those drugs come from China. To ward off this China incursion, India has used government subsidies and other policies to reduce import dependence.
New labs in Gujarat and Uttarakhand, supported by India’s four-year-old Production Linked Incentive policy, attracted around $51 million of investment as of March. These new investments now face an onslaught of Chinese competing goods priced below market value.
But China and India are intrinsically linked even if India wants to decouple. China’s pricing power might make that difficult.
About 70% of APIs attributed to India are actually API that India gets from China. Both the Indian pharmaceutical industry and the Indian government acknowledge that Indian pharmaceutical firms rely on China for about 65%-70% of their KSM, intermediate compounds (INT), and API sourcing.
“After adjusting for India’s secondary dependence on China for KSM, INT, and API sourcing, it is estimated that 46% of U.S. daily doses of generics have source materials from China,” said Stephen Schondelmeyer, director of Pharmaceutical Management & Economics at the PRIME Institute at the University of Minnesota’s College of Pharmacy. “The U.S. generic drug supply chain is heavily dependent upon China. This is a critical issue for health and national security reasons since it affects the production and availability of essential medicine,” Schondelmeyer told the U.S. China Economic and Security Review Commission on June 5 in a hearing. The 65% to 70% figures come from his testimony.
China and India are dominant players in the American pharmaceutical market. But China is the one that is really known as the “pharmaceutical ingredients factory to the world” because it supplies KSMs, intermediates, APIs to India, is the single biggest exporter of generic drugs, and does lab work for U.S. pharmaceuticals researching new compounds and drugs, plus performs clinical trials for U.S. drug makers. However, without Indian industrial policies designed to help exporters, India would not be the generics juggernaut it is today. For them, China’s incursion into their corner of the market might require more government spending to protect Indian labs.
While India copes with Chinese inroads and plans accordingly, the U.S. could stand to take notes on what New Delhi will do to protect this important market – a market that is aimed at the U.S. Worth noting, pharmaceuticals are one of the biggest contributors to the trade deficit. In July, the U.S. exported $10.8 billion worth of pharmaceuticals and imported $16 billion, based on Bureau of Economic Analysis data.
The U.S. pharmaceutical industry is one of the most global industries in the world, not much different than the automotive industry. But the U.S. reliance on foreign drugs puts the health system at risk of shortages and ineffective, and potentially dangerous medication because the FDA is more likely to scold foreign labs for not following best practices, rather than hit them with import bans in order to avoid supply constraints.
As an example, the FDA issued a warning letter on Aug. 27 to Indian pharmaceutical company Amneal for an antibiotic and a local anesthetic drug. In March 2024, Amneal issued a voluntary recall of four lots of the local anesthetic ropivacaine after it found two batches packaged in polypropylene bags were overfilled, which could lead to dosing that exceeds the recommended maximum daily allowance. In April of this year, the company recalled two lots of ropivacaine after inert “fibers” were found to have leaked into the IV bags. Then in June, Amneal issued a recall for three lots of the antibiotic sulfamethoxazole/trimethoprim tablets after a customer reported microbial contamination.
Can the U.S. Rebuild its Pharmaceutical Stack?
The U.S. needs to rebuild its pharmaceutical ecosystem if it wants to compete with India, have access to locally made essential medications, and not lose out to China in the advanced biotech space.
Like that old saying: The best time to plant a tree was 20 years ago. The second-best time is now. For U.S. pharmaceutical innovators and labs, now is the time.
China’s stack advantage: China’s edge is most pronounced upstream and mid-stream – KSMs → APIs → contract manufacturing lab capacity (companies like Wuxi AppTec and Pharmaron are massive players). This ecosystem includes dense industrial parks, utilities, waste-handling, and logistics. That stack lets them do “soup-to-nuts” at scale.
U.S. advantage: The U.S. still dominates discovery science, capital markets, including venture capital, and global name brand recognition (like Pfizer or Amgen, for instance). However, big pharma has started the process of outsourcing key upstream links and cost-sensitive manufacturing, hurting local contract manufacturers who conduct a lot of R&D for these companies.
Price vs. ecosystem: It’s not just the unbeatable “China price” that Big Pharma likes; it’s infrastructure, permitting speed, supplier density, and trained technicians – the ecosystem that lowers costs and speeds up production time.
R&D shift: China is not only a low-cost shop and generic drugs player. Their biotech R&D labs and clinical operations are world class. They are innovating new drugs sold today under American brands. Partnering dynamics often mean Western IP coupled with Chinese development and manpower.
Schondelmeyer gave the Commission a run-down of how the U.S. pharmaceutical ecosystem began to shrink. Prior to the 1970s, most pharmaceutical products in the United States were made domestically. Beginning in the 1970s, a substantial part of the U.S. pharmaceutical manufacturing industry moved from the mainland to Puerto Rico in response to tax incentives and research credits, something the U.S. should do today for domestic labs.
In the 1980s, pharmaceutical manufacturing moved to Western Europe and Eastern Europe. But by the late 1980s, drug production was growing in developing countries, led by India and later China.
“The journey of China toward dominance in production of pharmaceutical materials emerged in response to China’s industrial development strategy which initially focused on basic chemical production,” Schondelmeyer said. “Gradually China built expertise in producing pharmaceutical intermediates and then full-scale API manufacturing. The government’s five-year plans consistently prioritized pharmaceutical manufacturing as a strategic industry by providing favorable policies, infrastructure development, and financial incentives.”
When China joined the World Trade Organization in 2001, it accelerated the growth of its API manufacturing industry. By producing high-volume, low-margin APIs for widely-used medications, the Chinese firms were able to capture domestic market share as well as a growing share of the market in the U.S. China gradually captured significant market share in the West and eventually came to have a dominant position in API production. China was able to scale up from that revenue, had developed its own technical expertise, and later pivoted to more complex biological production. China’s role as a dominant force in the pharmaceutical market took several decades to build.
China has long been the engine of biotech investment in Asia-Pacific, accounting for over 75% of regional venture capital and private equity funding since 2019. If adequately funded, Chinese firms have the potential to challenge and potentially surpass Western players in first-in-class assets over the next five years, according to Bain & Company.
A 2020 CPA study found that reshoring domestic pharmaceutical production lost to imports since 2010 could create 804,000 U.S. jobs. That means the benefits of new, domestic drug manufacturing would extend to patient safety and economic growth.
“Americans want their medicines to be safe and their tax dollars spent on reliable, quality medications,” CPA President Jon Toomey wrote in The Washington Times on July 29.
“Washington is in the midst of a bipartisan reckoning on the need to rebuild U.S. industry,” Toomey wrote. “President Trump’s tariffs and the Biden administration’s Inflation Reduction Act focused on reshoring critical U.S. industries. Now, it’s time to use federal procurement in the same manner to stimulate new U.S. pharmaceutical production.”
An old Chinese proverb says: those before us plant the trees so the later generations can enjoy the shade. The best time to plant those trees was 20 years ago, but the next best time is now. If the U.S. government wants to make pharma’s ongoing Asia-pivot less attractive, they will have to come up with policies to protect local industry and investment in building similar competencies. If not, China will not only overtake India as a generics source for the U.S., but will be the indispensable nation for advanced biotechnologies, as well.
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