China Decode: What's at Stake Ahead of Trump and Xi's September Meeting, and China's Biotech Surge

24:50And though there might be a lot of waste along the way, there's a forward momentum driven and supported by top-down and bottom-up long-term vision and governance. So I think all of these factors, on top of that, I think in the healthcare sector and in life sciences, there have been various crises that have even further driven the pace, including SARS in 2003, including vaccine scandals where fake vaccines were found to have been sold, the melanin scandal where babies were given fake milk. So each of these crises also pushed for reform and iteration and a transitioning landscape, creating what we see today, which is a cost-effective, scaled, very, very fast biotech ecosystem where it has been sort of brewing, but only in the past couple of years we've seen sort of the tip of the iceberg break through the waves to Western narratives, Western media, Western investors.

25:54And now it's kind of no turning back. There's just too much good quality products and drugs in China that the rest of the world really has no choice but to work with, partner with, sign deals with, because these drugs are potentially beneficial to patients all around the world.

26:16Alice Han:Ribi, I very much enjoyed reading your book, The China Cure. It's beautifully written. There's a lot of personal detail, detail from your family there. But the one big thumping overarching theme that there's no turning back and that China's innovation in pharmaceuticals these days and in biotech is really startling. China's climbing the tech ladder so quickly. And I just read a recent report that says that by 2030, China could be responsible for creating 30 % of pharmaceutical innovation globally. So in other words, if I read that correctly, it could be creating 30 % of the world's newly innovated drugs.

27:05Alice Han:Do you agree with that? Do you see that future emerging? And perhaps you can give us a little bit of a flavor of what type of drugs or what specific drugs you think are really eye-catching that are coming out of China. Yeah, I think 30 % is a huge number. And it feels impossible to imagine today, even in 2026, not that many of the world's drugs for patients' populations around the world are from China. But it's definitely set to change. If we look at the percentage of out-licensing deals of Chinese drug assets and pipelines to global markets signed with global multinational companies, the numbers have just been exponentially accelerating.

27:51so the often quoted impressive figures are something like in 2021 or 2020 five six years ago it was a Chinese out licensing drug and biopharma deals were about five percent the ones above 50 million dollars and then last year so five years later it jumped from five percent to 30 percent which is huge and then now this year we're only about halfway through 2026 but also But already in the first half of the year, it's 42%. So another 12%, 13 % increase, which is more than 90 % of what was there the total last year. So the numbers of out-licensing deals are truly impressive. And you see these multinational companies, AstraZeneca, Pfizer, Merck, and so on, sign huge, huge deals.

28:40In March of this year, when ex-Prime Minister Keir Starmer of the UK visited China, AstraZeneca signed the biggest global deal to date with CSPC. That was at 18.5 billion. So, you know, huge numbers. But I would say whilst the numbers represent assets and potential drugs, in biopharma, it is well known that the chances of success are always low. There's no predictions. This is biology. This is nature and medicine. And so perhaps 90 % of those deals won't go anywhere. They will fail along the way, you know, some phase of the clinical trials, and they will never come to market. But because of the momentum and the scale and the number and frequency of these deals, it means that, of course, some of them will go through to the final stages and will reach patients around the world.

29:33So I would say 30 % sounds ambitious. I personally can't predict what a number might be, but, you know, it can be likely. And this is one of the reasons why I wrote my book. I just felt like there was not yet an accessible narrative focused on China and health, even though it's such an important and urgent sector. There's lots of books on China. There's books about global health and about pharma, maybe, but not one which looks at this intersection. And James, as you said, I try to make it more accessible because I do think in technical spaces like health and life sciences, sometimes the lingo, the terms, the technicality of it might put people off.

30:19I guess I'm always thinking, you know, having trained and still practiced as a doctor, I'm thinking about this at the end of the day will impact us as patients for us, for our families when we might or sick. So it's a really important topic to better understand what is going on and coming

30:37Alice Han:out of China. When you say out licensing, what are we talking about there? Are we talking about drugs that are developed or innovated in China and then are licensed to users outside China? Or is that right? Yes. So out licensing from China would be a drug asset. It might be at any stage from phase one to more mature phase two or three. And what's interesting is now even preclinical are being licensed or even the talent teams in Chinese biotech companies are, you know, signing collaborations with foreign companies. So they will sign a deal to bring that product to an ex-China market. It might be just the US or it might be ex-China global.

31:21And the idea is that the foreign company can then be the one to take that drug from whatever stage they signed at to maturity and then commercialize it.

31:34James Kynge:When they work with some of these clinical companies in China, what is it that they are attracted to? I think it's a spectrum, which is not really an answer. So they're looking at the quality of the drug asset. It could be that the drug is what we call a first in class. So a new product, a completely novel mechanism of action that hasn't existed before for a certain disease or many diseases, depending on the indication. Or it could be a best in class, which means that sort of drug, the way it works, already exists, maybe designed and already in the market by an American Western company, but that this drug will beat it in terms of how it works, whether that's efficacy or even safety or lack of side effects.

32:25And those markers will be defined and, you know, reviewed in scientific journals at scientific conferences. And then from the clinical angle, you can decide whether that's a best or a better in class and therefore be preferred than an existing older drug. So it's the quality and the novelty, perhaps, of the drug asset itself. So the promise of whether it works, maybe it helps a certain cancer, you know, 70 % chance of survival versus 30, or it could make sure the patient lives slightly longer or has less side effects. And each of those factors might be really important to patients or families.

33:12There's no right or wrong answer. But also the China way of doing things is increasingly attractive. So the fact that China innovates so quickly and so cheaply, those are hugely advantageous factors. And what we're seeing in terms of trends, it's really interesting. I mentioned before that the deals are being signed not only for maybe a portfolio of assets, but also to be able to work with those teams. So Chinese biotech talent is now increasingly sought after too. And I think that's potentially a good thing because wouldn't it be better if Western teams can be more efficient and work more cheaply to get drugs faster to patients that really need them?

34:00But then you can look at the flip side and think, you know, what about jobs? What about the older ways of doing things? So there's pros and cons either way.

34:09Alice Han:Ruby, can I ask you a little bit about the patent cliff that's coming up and the implications from that for China? As we understand it, the pharmaceutical industry is approaching the largest patent cliff in its history. This means effectively a lot of drugs that are currently under patent and therefore exclusively the property of the company that makes them are going off their patent. So they'll lose exclusivity. And we think, or according to estimates that I've read, up to about 400 billion US dollars in annual revenue is at risk by 2030. That's annual revenue for the big drug companies as this patent cliff transpires.

35:03Alice Han:So if so many drugs are losing their patent exclusivity, does this give up-and-coming Chinese pharmaceutical companies a chance to get into those areas? Is this another kind of revenue-generating opportunity for those Chinese companies? Yeah, that's a great question. The patent-close situation is really interesting. I guess it's always been a continuous process. When drugs are innovated and come to market, all of them, you know, throughout history have had a period of time where they're protected by patents, and then they will lose that exclusivity. It's sort of, you know, for moral good, so that those drugs can become cheaper and be more accessible and then, you know, be copied, be used as generics and so on.

35:55But it's interesting that in the next few years, there's kind of a huge pool of them that are going to lose patents at sort of the same time. So James, as you just said, there's a huge bucket of money there at risk. And this means that big pharma companies who are always continuously, their constant business model is to seek new drugs and bring them in and take them to maturity and commercialize them. They are pushing more urgently than ever to make sure they fill those gaps. And, you know, as I said earlier, when you make these bets on potential drug assets, you can't tell at this stage whether that's promising enough to take you to the end.

36:45You know, billions might be lost in the process. They always are. It's kind of just the way this sector works. but you know you want to look for the most promising science the best quality assets that you make the right bets and what we're seeing is that you know in terms of the global pharma innovation pool there are assets coming out from everywhere the UK the US Europe we're all producing drug assets and so is China but now we're seeing that China's producing so many that the global proportion, relatively speaking, there's more coming from China because China's becoming really good at it. And so that means, you know, multinational companies are buying up where the good stuff is.

37:30And it just happens to be China, regardless of politics or anything else.

37:36James Kynge:Well, on this topic of politics, it's the numbers of US dependence on China are startling. You know, China has 50 % of the world's API, advanced pharmaceutical inputs capacity globally, but around about half of the US's APIs imported come from China. WSJ ran a piece, I think, a couple months ago, citing certain antibiotics and their compounds that are no longer produced in America and largely sourced from China. I know this is an unfair question to ask a doctor, but do you get a sense that your field is getting more politicized, that we are moving in the direction of more domestic procurement or supply chain resilience, fighting alternative supply chains outside of China within the biotech space?

38:19James Kynge:Or do you think that it's actually really hard to do within the field, even though some legislators on the Hill, for instance, will try to move the discussion in that direction? I guess in terms of biopharma and China, from a geopolitical security point of view, We have this China as a biotech, emerging, rising biotech superpower, which is now becoming undeniable. But we also have this longer standing recognition that China is a manufacturer, a cheap goods, scaled, fast manufacturer. And that's been going on, you know, pre this biotech wave, generics, APIs, as you said, and that's continuing. I think there is competition from India and from other countries too.

39:09But China remains a core global, you know, source of basic drug building blocks. It's hard to say what will happen, but I think from a health point of view, it's important to make sure that vulnerable populations that need health products, which are not dangerous risks, they're not semiconductors, they're not even EVs, they're separate from AI. why health remains health and biotech might be a power and a risk but it's still at the end of the day meant to become medicine and meant to be for good so I think that piece is really important to keep in mind and and definitely you know having worked in government now you know working with health policy and and and global health sometimes the politics oftentimes the politics gets in the way because the idea of power and competition, it's often actually the angle in which biotech is being discussed.

40:19This is the angle I'm asked most about the economics piece and the security piece rather than the health piece or the global good piece. And I understand why that is, but it's important to keep in mind both sides of the dichotomy to make sure we remember what medicines are for.

40:37Alice Han:Could you give us a sense of the cost advantage that China has in developing drugs? I mean, is it possible to put a number on it like it's 30 % cheaper or 40 % cheaper to develop a typical drug in China? Or maybe that's too simplistic. And then the second question I have is that everybody these days is transfixed by AI. Are we seeing the deployment of AI to actually develop drugs or, you know, biotech molecules in China already? I feel like I'm not answering any of your questions today, but the numbers, I would say, vary. So 30%, 50%, it depends on the company. And also, it's hard to say right now because, you know, they might not share exactly what they are, you know, using.

41:27And also, if we're looking at different drugs, different disease indications, those cost differently. if we're looking at a cancer drug versus an obesity drug, you know, the way they're made, the way patients access them, whether it's a daily tablet or a weekly injection, all of that changes. And then the way those pieces are manufactured, the vials they come in, the equipment, the robots, the machines, all of that will differ. So the cost benefits will vary, but I would, you know, agree with you. It would, you know, likely be a third, if not more. And And alongside cost, direct cost efficiencies, also the time efficiency will link to the cost overall.

42:08So we've seen that timelines for drug development can be 30 to 60 percent faster. We've seen that. And as you said exactly, James, the role of AI is increasingly important. So Chinese biotech companies, some of them use AI native drug discovery. like in silico medicine or XLP. Some of them might use AI integrated pathways, for example, in optimizing efficiency or manufacturing. And then some of them, it's more AI might be present somewhere, but we're not really sure. And depending on where they are on the AI spectrum, they will have more or less efficiencies. So for example, in my book, I wrote about in silico medicine, where they have this drug for lung fibrosis.

42:59And they reported 70 % reduction in discovery time from initial hypothesis to finding a preclinical candidate. And not only that, they reported that they only had to look at 78 candidates, which is a tiny number. Normally, you look at hundreds, thousands, if not more. So the role of AI is very exciting. But I'm sure that, you know, as in any sector, for a company to be effectively using AI and not just labeling it as hype or feeling like they need to, you know, jump on the train of AI, so to speak, they need to have that capacity and that talent and to convert what they have existing into a more tech savvy ecosystem.

43:44And that can be really, really difficult to do. And I wouldn't say necessarily that China is better at AI-driven drug development than other countries. I haven't seen that in action. I've just seen examples of good usage of this. But in this field, I wouldn't say China is winning yet.

44:06Alice Han:What were they using the AI for in the example that you gave, the lung example? So it would be anything from precision medicine, using AI to think about what molecules are worthwhile creating in the lab to then test. It could be efficiency standards. It could be any number of things. But certain companies are standing up and saying AI is at the core of our methodology from start to finish, and some are less so. But I think with this example, this is a defined AI-enabled drug discovery company. And, you know, with this example, with other assets they're delivering, they're doing very well. They've signed with many multinationals in recent months.

44:56James Kynge:We've learned so much, Ruby. I think this has probably been the most nuanced and complete conversation I've had on biotech in China. And it's really thanks to you, a real expert across the field. So thank you so much for your time, Ruby. Okay, we'll be back with more after a quick break and stay with us.

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48:43James Kynge:Welcome back. All right, James, you know what time it is. It is prediction time. As you peer into the future this week, what do you see?

48:49Alice Han:I'm going to expand on something that Ruby was talking about, and that is China's ability to conduct clinical trials. This is a crucial aspect of the pharmaceutical industry all over the world. In 2024, China conducted 15 % of the world's clinical trials for new drugs. That was up 67 % from 2019, and it was by far the biggest increase of any geography in the world. But it meant that China was conducting fewer clinical trials than either North America or Western Europe. And what I'd like to predict is that by 2030, China will be conducting more clinical trials for new drugs than North America. In other words, it will then be the second largest destination for new clinical trials for drugs in 2030.

49:55James Kynge:Really interesting. So my prediction is in the financial market. So as you recall, James, back in 2019, the Chinese government started Star Market, which is the Shanghai Stock Exchange Science and Technology Innovation Board. And it's kind of the Chinese equivalent to the Americans' NASDAQ. And now it's currently the combined market cap of about 600 listed companies is about$2.3 trillion. It is generally skewed towards high tech and advanced manufacturing, including semiconductors, AI companies, robotics. We had some mega IPOs this year from Unitary, the leading humanoid robotics company out of China, and CXMT, China's leading memory player.

50:38James Kynge:I predict that within the next decade, maybe even within five years, the star market's combined market cap, which is again$2.3 trillion, will exceed the Hong Kong Stock Exchange's total market cap, which is around$6.25 trillion today. I think that that's very likely given the skew towards the high-tech manufacturing AI players that are really going to be at the frontier of Chinese innovation and exports by volume and value. Whereas Hong Kong remains, you know, industrials, banks, you know, sort of what I see as the legacy companies, the SOEs, but also the large cap Chinese tech platforms like Baba and Tencent.

51:24So I think the new Chinese innovation will largely be in the star market and that will drive the market cap to north of the Hong Kong Stock Exchange within the next decade.

51:37Alice Han:Wow, that's a big call, Alice. I'm looking forward to watching that one.

51:43James Kynge:It's a big call, but I'm feeling optimistic because, you know, the future of Chinese tech is really being listed in the mainland. And it's an interesting topic for another discussion because whereas in the past few decades, you know, companies wanted to go and list abroad in New York, in Hong Kong, there is a real incentive now to list in Shanghai. You know, and I think that that's going to be a trend moving forward for Chinese high tech manufacturers. That's all for this episode. Thank you for listening to China Decode. This is a production of Prof G Media. Make sure to follow us wherever you get your podcasts so you don't miss an episode.

52:22James Kynge:We'll talk to you again next week.

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