The powerful potential of China's drug industry

China is currently a bit player in pharmaceuticals, but its potential as a drug developer should not be underestimated.

"The capabilities of China are weak compared not only with the U.S., but also compared with India and Israel," an executive at the China-Singapore Industrial Park in Suzhou told Chemical & Engineering News. "But we're catching up fast."

It has a lot of catching up to do. Currently, there is no single organization in China that can perform all the steps involved in drug discovery. The country is known mainly for supplying mature, commodity-type pharmaceutical ingredients in large volumes.

Drug discovery does take place in China, but mostly at small start-up companies and government labs. Currently, about 100 genuinely innovative drugs are being tested in China, versus about 1000 in the United States.

What holds China's drug-development potential back is that few local drug companies have been inspected and certified by the U.S. Food & Drug Administration. Without such approval, Chinese drug makers can't export generic drugs to the United States, as Indian firms do, and therefore can't earn the large amounts of cash needed to expand internationally or invest in new drug discovery.

Things are changing, however. International drug conglomerates, eager to expand in the local market, are becoming increasingly interested in doing drug research in China.

- In 2002, Denmark's Novo Nordisk set up a 50-person drug-discovery lab in Beijing. It announced recently that it will contribute US$2 million to support diabetes research and discover biopharmaceuticals in partnership with the Chinese Academy of Sciences.

- The Swiss firm Roche set up a wholly owned R&D lab in China in 2004, the first multinational pharmaceutical company to do so.

- Novartis is constructing an R&D facility in Shanghai that it plans to staff with 100 to 150 scientists initially, to grow to 500 after five years.

- Britain's AstraZeneca announced last year that it was planning to spend US$100 million for R&D in China over a three-year period, most of which would go towards construction of a new lab.

There are many benefits to doing such work in China. Clinical trials are cheaper, drugs can be developed faster, and the local market is large and growing rapidly (projected to become the fifth largest for pharmaceuticals in three years' time).

Indeed, The Boston Consulting Group, in a report issued in 2002, stated that "the unmet need for sophisticated drugs is vast in China, and the potential payoff is significant."

It's a country where 100 to 150 million people carry the hepatitis-B virus, according to the report, and where neck and head cancers are more common than anywhere else in the world. Chinese also suffer from many of the same chronic conditions routinely treated in the West, including diabetes, high cholesterol, high blood pressure, arthritis, osteoporosis and depression. More and more, the central government is viewing AIDS as a serious problem as well.

It is also doing its share to spur drug discovery in China. Beijing is in the process of amending its new-drug review process to speed up approvals, and has invested heavily in university and research institute labs.

Facilities such as these, along with local start-ups and the multinationals' research centers are attracting large numbers of scientists from abroad. Most of these are Chinese citizens who have studied and worked overseas and have returned home. Shanghai alone is reported to have roughly 60,000 such scientists.

Sources: Chemical & Engineering News, March 12, 2007; BusinessWeek, August 7, 2006; Boston Consulting Group's 2002 report, "China's Growing Drug Market: Will You Be a Contender?"

(This article has also been posted on Helium.com.)

Globalization and human rights in China and Vietnam

(This is in response to an article posted on Helium.com claiming that globalization has led to the erosion of human rights in Vietnam.)

Don't blame trade for Vietnam's erosion of political rights. There was political suppression in Vietnam long before they opened up to the outside world.

The same is true for China.

Yes, advanced technology has made it easier for these governments to suppress their people and stifle freedom of expression, but stopping trade with them won't stop the repression.

If leaders want to keep tabs on their populace and spy on them, they'll do so whether we trade with the country or not.

Burma (Myanmar) is a case in point. So is North Korea. Both these countries are much more closed to outside trade than Vietnam or China, yet they suppress their people even more.

Remember that trade and investment have provided the average Vietnamese and Chinese with many benefits, even as they continue to lack a political voice.

There are more job opportunities in both countries, for example. Thousands of companies have sprung up, both state-owned and private, to satisfy export demand.

Foreign companies have set up many manufacturing plants in Vietnam and China as well, creating even more jobs.

This has led to a rapid increase in standards of living. Life has improved markedly for the average Vietnamese and Chinese.

Yes, Beijing and Hanoi restrict what their people can watch on TV or access on the Internet, but even so, the introduction of such technologies (brought in by foreign trade) has made life better. The average Vietnamese and Chinese have access to much more information and are more connected to the world than ever before.

And don't overlook all the medicines and medical technology that have poured into these countries from abroad. The average Chinese and Vietnamese have benefited from these as well.

This is not to minimize the human rights problems in both countries. Chinese and Vietnamese political dissidents face imprisonment, torture and even death.

This is an outrage.

Human Rights Watch, Amnesty International and other organizations should spotlight these human rights abuses and trading partners should pressure Vietnam and China to cease them.

But isn't this easier to do when you're already dealing with a country, as through trade, rather then completely from the outside?

(This article has also been posted on Helium.com.)

The truth about China's military

China announced on March 4 that it is going to increase military spending by nearly 18 percent in 2007, according the Xinhua, the nation’s official news agency. This marks the sharpest rise in such outlays in a decade.

China’s defense spending has become a cause for worry in the region in recent years, with officials in Taiwan, India and Japan especially concerned. The United States too has complained, asking Beijing to be more transparent about its military expenditures.

With an economy developing at break-neck speed and a populace becoming wealthier and increasingly assertive, it’s easy to view China’s rise with alarm and even dread.

There is increasing talk of China “eclipsing” the United States. Some even warn that the People’s Liberation Army (PLA) will soon be a serious threat to the world.

To get a clearer picture of the true state of affairs, let’s take a closer look at China’s military.

Defense Spending

No one outside the Chinese government knows for sure how much is actually spent on the nation’s military. This is because Beijing purposely hides much of its defense outlays in other parts of the budget.

Military analysts can make an educated guess, however, and most say that China’s real defense spending is two to four times what is officially stated. Beijing has announced an outlay of 351 billion yuan, or about US$45 billion for 2007, which means the real defense budget could be as high as US$180 billion.

This is no small amount, and certainly shouldn’t be ignored. It’s more than four times Japan’s defense budget, almost nine times India’s and multiples of what Taiwan is spending. (Hence their concern.)

In fact, even if you use Beijing’s official figures, China has the second largest military budget in the world. (Russia is in third place.)

As alarming as this may seen, bear in mind that the United States plans to spend US$532.8 billion on its military this year, almost three times that of China, assuming the highest estimates of the Chinese defense budget are true.

How are Americans able to spend so much? Because the United States is a US$13 trillion economy, while China’s is closer to US$2.5 trillion in size. (2006 figures, per the official exchange rate, according the CIA’s World Factbook).

Remember that the next time someone tells you that China will soon displace the United States.

Weapons Systems

With more money to spend, China’s armed forces have been working hard to upgrade their weapons systems, and for good reason: many of their planes, tanks and ships are obsolete.

According to the Rand Corporation, over the past ten years Beijing has purchased a significant amount of military equipment from foreign suppliers, especially Russia.

This includes Su-27 Flanker and Su-30MKK fighter aircraft, Sovremenny-class destroyers, Kilo-class diesel submarines, and SA-10/15/20 surface-to-air missiles. As late as 2002 they were spending US$2.5 billion a year on such purchases. (Rand Corporation’s “Modernizing China’s Military,” published in 2005.)

China has also upgraded its own indigenous manufacturing capability to produce sophisticated main battle tanks, destroyers, diesel-electric submarines (with a nuclear model in development as well), anti-ship missiles and the J-10 fighter aircraft that experts say is equivalent in performance to the F-16.

Alarmists – usually those who see no difference between the PRC of today and “Red China” of the past – raise a hue and cry whenever one of these weapons systems are purchased or China makes a breakthrough in defense technology. They’re certain the end is near and that the PLA will soon be marching on Washington.

The truth is, however, that despite China’s weapons upgrades, its military is still far from a world-class fighting force. Roger Cliff, from the Rand Corporation, testifying before the U.S.-China Economic and Security Review Commission on March 16, 2006, put it best:

“China has yet to develop a dedicated attack helicopter; its anti-submarine warfare technology is weak; it appears to be nowhere close to fielding any kind of stealth aircraft; it does not have a super-agile infra red-guided air-to-air missile like those produced by the U.S., Russia and Israel; and it has nothing like the range of precision air-to-ground munitions employed by U.S. air forces.

“For China to be able to challenge the United States for military dominance in East Asia it will need to solve these and other shortcomings.” (Rand Corporation’s “Advances Underway in China’s Defense Industries,” published March, 2006.)

One glaring shortcoming is that China does not possess even a single aircraft carrier, which means it has a limited ability to project its power beyond its shores.

A Regional Threat

Cliff’s last point is key because he specifies East Asia. What’s important to bear in mind is that although China’s military is not a world-class fighting force, it is a regional juggernaut.

And, according to Chinese officials, that’s primarily what the PRC is concerned about nowadays: it’s immediate neighbors, specifically Taiwan. This island economy used to be governed from Beijing like any other Chinese province until civil war broke out and the Nationalist KMT government fled across the Taiwan Strait in 1949 and set up a rival capital.

China is so bent on preventing Taiwan from breaking away from the mainland that it has hundreds of missiles pointed at it, and has threatened to attack if the island declares independence.

This is the potential flashpoint that could cause a military clash between the United States and China, as Washington counts Taiwan as one of its close allies and President George W. Bush once said he will “do whatever it takes” to defend the island from attack.

Unlikely to Happen

Such a scenario is unlikely to occur, however, because it is in none of the economies’ interest to start such a conflict.

The United States and China did more than US$342 billion worth of trade last year, (according to the U.S. Census Bureau, Foreign Trade Division), and hundreds of U.S. companies have offices and manufacturing plants in China.

Likewise, thousands of Chinese companies rely on exports to the United States for their livelihood, and some have succeeded in setting up branches in North America. A select few have even gotten permission (from Beijing) to list on U.S. stock exchanges, and many more wish to follow in their footsteps.

A military clash would wreak havoc with this lucrative trade, and no one wants that.

Taiwan and China’s economic ties are even stronger, and they’re bolstered by family ties that go back generations and are being forged anew as more intermarriage takes place across the Taiwan Strait.

So don’t panic when you hear that China is on the rise and its military is improving. The PRC is an important country and the Chinese are an amazing people, but the nation is not about to supplant the U.S., and the PLA isn’t poised on dominating the world.

(This article has also been posted on Helium.com.)