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Alice Li

From rare earth elements to commercial drones, Washington has become all too familiar with the strongest weapons in Beijing’s manufacturing arsenal – the materials and products where China holds a strategic advantage in production, extraction or any other link in the supply chain.
After those near-monopolies provided Chinese policymakers considerable leverage in last year’s trade dispute, US think tanks are asking whether pharmaceuticals represent the next critical dependency.
Their concern is not over the finished pills and capsules lining pharmacy shelves, but the upstream pharmaceutical ingredients, where petroleum-derived materials and biological feedstocks are transformed into the chemical building blocks of modern medicine. There, China has quietly built a strong foothold.
China now supplies 40 per cent of global active pharmaceutical ingredients (APIs) – the core chemicals that give medications their therapeutic effect, according to Chinese government data.
Further upstream, nearly 41 per cent of the key starting materials (KSMs) – basic chemical inputs for APIs – for drugs approved for use in the United States are sourced exclusively from China, according to the Washington-based Brookings Institution.
Those figures have unsettled policy circles in Washington. The Council on Foreign Relations, an American think tank, warned in a report last month that dependence on Chinese pharmaceutical ingredients could provide Beijing with leverage comparable to its dominance in rare earths.
In November, the Atlantic Council, another US think tank, urged the country and its partners, including the European Union, India and Mexico, to work together to strengthen medical trade and supply chain resilience and reduce reliance on China.
Despite these growing entreaties, overcoming China’s edge in pharmaceutical ingredients may prove difficult. Analysts said Beijing’s advantage was rooted not only in decades of industrial scaling and low costs, but also in a dense, deeply integrated manufacturing ecosystem and continuous policy guidance.
“Market forces alone are unlikely to rebuild these supply chains quickly, because China’s scale advantages are so entrenched,” said Lizzi Lee, a Chinese economy fellow at the Asia Society Policy Institute’s Centre for China Analysis.
“Rebuilding them requires a lot of deliberate policy support,” she said, pointing to procurement guarantees, regulatory coordination, subsidies, tax incentives and investment in chemical and advanced manufacturing capacity.
API manufacturing is fundamentally a chemical industry
Zhao Heng, Latitude Health
Building an edge
However, this level of structural capacity takes generations to build. China was a latecomer to the game, only manufacturing its first batch of domestic penicillin in the 1950s – a time when the US still held technological and manufacturing edges in APIs. But by the late 20th century, shrinking margins and rising regulatory costs in the West triggered successive waves of relocation, with production first shifting to Europe and eventually to the emerging pharmaceutical hubs of China and India.
In 1992, European manufacturers supplied 75 per cent of US antibiotic API imports, but by 2024, China was supplying 70 per cent and India 2 per cent, according to a study led by Mariana Socal at Johns Hopkins University published in October.
The manufacture of APIs for established drugs did not depend on scientific breakthroughs, said Zhao Heng, the founder of Shanghai-based healthcare consultancy Latitude Health, because there was limited room for innovation in the ingredients themselves.
“API manufacturing is fundamentally a chemical industry,” Zhao said, adding that competition centred instead on refining production processes to improve speed, capacity and cost efficiency – precisely where China’s advantage was most evident, even compared to India, which has been dubbed the “pharmacy of the world”.
Chinese API manufacturers enjoy an estimated 20 per cent cost advantage over their Indian counterparts, according to a China Securities report released two years ago, largely driven by cheaper upstream chemical and biological inputs. It said raw materials accounted for roughly two-thirds of total production costs, leaving Indian producers at a significant disadvantage.
Even though labour costs in India were roughly half those in China, higher productivity offset much of that advantage. The brokerage estimated that on a per-worker basis, output in China was about 1.5 times greater than in India, making overall labour cost differences relatively modest.
Consequently, India – which supplies 61 per cent of the generic drugs in the US by volume, based on Brookings data – has become a major buyer of Chinese pharmaceutical ingredients. It imports about 70 per cent of its ingredients from China “as it’s a cheaper option than manufacturing them domestically”, according to a report by India’s Ministry of Chemicals and Fertilisers released three years ago.
India bought US$6.26 billion worth of pharmaceutical ingredients from China last year, remaining the largest export destination, followed by the US, according to data from the China Chamber of Commerce for Import and Export of Medicines and Health Products.
China’s total exports of APIs and upper-stream intermediates last year were worth US$42.9 billion, almost double the amount in 2016.
It now has a tight grip on the ingredients for everyday bulk drugs in the US, controlling the KSMs for 94 per cent of amoxicillin, 74 per cent of heparin, and 70 per cent of acetaminophen, according to the Council on Foreign Relations.




Climbing the ladder
However, China’s rapid rise to dominance in pharmaceutical ingredients has been accompanied by significant environmental costs.
In 2013, China Youth Daily reported that two major pharmaceutical ingredient manufacturers in northwestern China’s Ningxia Hui autonomous region – both significant contributors to the local tax base – had caused severe air pollution, forcing some residents to wear masks at home due to strong odours, and had contaminated waterways linked to the Yellow River.
Public concerns following such reports prompted tighter environmental regulations. In 2015, Beijing introduced a strict new environmental protection law, with fines for illegal discharges of chemical waste that accumulated by the day – with no upper limit. It also mandated that environmental violations be recorded in corporate credit files, affecting access to financing.
In 2021, Beijing issued guidelines to encourage the sustainable development of the pharmaceutical ingredients industry, calling for upgrades in green production technologies and faster development of specialty and high-end customised pharmaceutical ingredients.
The regulatory push accelerated a broader shift in the industry, prompting many pharmaceutical ingredient producers to move up the value chain towards higher-margin segments, coinciding with the rise of China’s biotech sector and increasingly limited growth potential for bulk drug ingredients.
“China has repositioned itself upstream as a source of innovation, and that is what is pulling the entire API value chain into higher-value territory,” said Diederik Stadig, healthcare and technology economist at ING Research.
He said that beyond their long-standing strength in APIs for oncology drugs, Chinese companies were increasingly producing ingredients for next-generation therapies, including antibody-drug conjugates (ADCs), bispecific antibodies, GLP-1-based obesity drugs, and cell and gene therapies.
Pharmaceutical data provider PharmCube said Chinese API suppliers for GLP-1 drugs had expanded rapidly since 2022, shifting the balance in what had been a Europe-centred production network.


In 2022, there were only four Chinese suppliers for the API of semaglutide. Two years later, that number had surged to 33, accounting for roughly 80 per cent of global production.
That structural change is also evident at the company level. In its 2025 annual report, Zhejiang-based Huahai Pharmaceutical said intense competition and price wars among traditional pharmaceutical ingredient producers – driven by industry-wide homogenisation – had slowed growth momentum and continued to put downward pressure on prices.
The company, a leading Chinese supplier of ingredients for commodity drugs and a growing player in high-end generic and innovative medicines, said market demand was “rapidly shifting from traditional bulk APIs towards higher-value specialty APIs”.
Stadig said the key drivers behind China’s movement up the API value chain were heavy investment in research, a deepening scientific talent pool and a rapid increase in out-licensing to Western pharmaceutical firms, which had further integrated Chinese companies into global pharmaceutical innovation and manufacturing value chains.
He said that according to ING estimates, around 33 per cent of new pharmaceutical molecules now originated in China, compared with roughly 4 per cent in 2014. He added that the value of cross-border licensing deals involving Chinese companies was expected to reach US$250 billion this year, up from US$3 billion a decade ago.
A report by Guosen Securities in May said the average research and development investment of China’s A-share-listed API manufacturers last year was 5.86 billion yuan (US$863.3 million), up 21 per cent from 4.84 billion yuan in 2023.
Lee, from the Centre for China Analysis, said the country’s dense pharmaceutical ecosystem had provided a strong foundation for its move up the API value chain.
“API producers are not operating in isolation,” she said. “They sit inside clusters that connect research institutions, hospitals, clinical trial networks, companies that provide contract development and manufacturing services, regulators and so on.”
Such proximity mattered a lot, Lee said, because higher-value APIs required fast iteration, strong process know-how, and close coordination with drug developers.
China is the fastest place to scale up complex drug production
Tom Hancock, Gavekal Technologies
Transpacific entanglement
The speed of execution that such an ecosystem enables was evident during the global shortage of weight-loss drugs in 2024. WuXi AppTec, China’s leading provider of contract pharmaceutical research, built and staffed a new API production facility for US drug giant Eli Lilly within a year – far faster than would typically be possible in the US, according to a note by Gavekal Technologies’ analyst Tom Hancock that was issued in April.
“China is the fastest place to scale up complex drug production,” Hancock said, adding that capability was what “Chinese peptide manufacturers offer that cannot be beaten elsewhere”.
Despite the concerns in the West, he said the interdependence between China and the US meant that China’s significant position in the global pharmaceutical supply chain did not necessarily equate to the potential for weaponisation.
“As Chinese contract manufacturers’ ability to produce complex molecules grew, so did their reliance on imported equipment and inputs,” Hancock said.
He added that China also had a significant reliance on imported patented drugs. The value of China’s biomedicine imports hit US$16 billion last year, up 33 per cent from 2019, driven by cancer immunotherapies – the main US pharmaceutical export to China.
“In the short run, US-China pharma trade faces headwinds,” he said, pointing to policies such as America’s 100 per cent tariffs on patented pharmaceuticals and associated pharmaceutical ingredients.
“But such moves will not eliminate bilateral trade or mutual dependency: they will simply prompt pushback and workarounds,” Hancock said. “The complementarity of the US and Chinese pharmaceutical industries is growing, and neither side can live without the other.”


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China’s production of drug inputs has boomed in recent years, increasing market share and prompting fears of weaponisation in Washington


China’s production of drug inputs has boomed in recent years, increasing market share and prompting fears of weaponisation in Washington.


Why the West has an uphill task challenging China in pharmaceutical ingredients

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}China’s production of drug inputs has boomed in recent years, increasing market share and prompting fears of weaponisation in Washington

China’s production of drug inputs has boomed in recent years, increasing market share and prompting fears of weaponisation in Washington