China, Drugs and Rock & Roll

China

The post-war era has witnessed the economic miracles of Japan and South Korea that managed to become substantial actors in the global high-technology market. However, both countries didn’t have the dynamism and size to transform the global economy and to control the rules of the game. Today, in the beginning of the 21st century, two new countries, China and India, both have the prospects or the potential to shift the balance of global economy.

Today China is the second biggest economy after USA, and is expected to become the largest economy by mid-century. In addition, China became the world’s largest trading nation in 2013, overtaking the US in what Beijing described as “a landmark milestone” for the country.

China’s annual trade in goods passed the $4tn mark for the first time last year according to official data, after exports from the world’s second largest economy rose 7.9% to $2.21tn and imports rose 7.3% to $1.95tn. 

GlobalEconomy

What is however more interesting, especially in China, is the an on-going structural change of the national economy, based on a shifting from low-labor manufacturing, to services, internal consumption and production of high tech products. This transformation of the Chinese economy is on-going and stills remain to be seen whether China will manage to become a global actor in added-value high tech products.

High tech exports from China rose rapidly after 2000, and by 2005 exceeded those from all countries, including USA, Germany and Japan. By 2008, China was way ahead of its rivals. The result of this was a sharp increase in China‘s share in the global market for high technology goods. The combined share of China and Hong Kong in exports of high technology goods to the rest of the world rose from rose from 6.2 per cent of the global total in 1995 to 16.6 per cent in 2005 and further to 19.8 per cent in 2008. The five manufacturing sectors identified as high technology are Communications and semiconductors, Pharmaceuticals, Scientific instruments, Aerospace industry, and Computers and office machinery

HighTech_exports

In the middle of the 1980s, the EU ranked third after the US and Japan in Communications and semiconductors; was almost on par with the US at the top in Pharmaceuticals; was second after the US in Scientific instruments; was substantially behind the US (even if in second place) in the Aerospace industry; and stood second after the US in Computers and office machinery. By the middle of the 1990s, the ranking was more or less the same in Communications and semiconductors; the EU had taken the lead in Pharmaceuticals and Scientific instruments; the EU had gained relative to the US though the ranking remained the same in the Aerospace industry; and Japan had taken a clear lead relative to the US and the EU in Computers and office machinery. During that decade, while China had recorded an increase in the value added in all these sectors, especially in Pharmaceuticals and Communications and semiconductors, it was by no means a major producer, of these high tech manufactures.2

The real transformation in global shares came in the period after 1995. Between 1995 and 2007, value added in Chinese production increased 6.5 times in Communications and semiconductors, 8.3 times in Pharmaceuticals, 8 times in the case of scientific instruments, 22 times in the case of Aerospace and 64 times in the case of Computers and office machinery. 2

As a result, in 2007 China was the third largest producer in Communications and semiconductors after the US and Japan (having gone ahead of the EU), the third largest producer after the US and EU in Pharmaceuticals, the third largest producer after EU and the US in Scientific instruments, the third largest producer after the US and EU in Aerospace, and the largest producer of Computer and office machinery followed by the US and the EU (Chandrasekhar et al, 2011). 

HighTech_China

The main questions here is whether China will be able to increase its market share of high tech exports, and especially whether will be able to brand its own technological products.

 Moreover, if we take a further look to the future, another important question is whether China will be able to maintain its growth rates in sensitive areas like pharmaceuticals, and aeronautics.

Drugs

Thanks to the advances in Science and Technology, the research based pharmaceutical industry is entering a new era with the development of personalized medicine, biologic medical products, and the utilization of Big Data 4,5,6.

In the case of Europe, the research-based pharmaceutical industry can play a critical role in restoring Europe to growth and ensuring future competitiveness in an advancing global economy. In 2012, it invested an estimated € 30,000 million in R&D in Europe, and directly employs 700,000 people4 .

Currently, the drugs market is dominated by western companies (see the following table), but the vast amount of the active ingredients used by these companies are imported from China and India. The Synthetic Organic Chemical Manufacturers Association’s Bulk Pharmaceutical Task Force (BPTF) estimates that more than 80% of the Active Pharmaceutical Ingredients (APIs) used by U.S. companies to manufacture end product drug dosages are imported (half of those imports, originate from India and China). Similar is the picture in the European Union, where 80% of the APIs are also imported, mainly from China and India.

 Pharmaceutical_industry

 Rock & Roll

In 2008, a series of serious allergic reactions occurred in USA, Canada, Japan, Italy, France, Denmark and Germany in relation with heparin, that was used in the dialysis process as a blood thinner. The drug, produced by the US based Baxter International, finally caused the death of at least 81 patients, alarming the relevant authorities. An extensive FDA  investigation, has finally revealed a chemical contamination that was made intentionally by the Chinese heparin supplier for increasing profits. Similar incidents, occurred in Haiti, Panama 1,9 and South Asia, revealing a great handicap of the regulatory framework in China, and the control capacity of the authorities in the US and EU.

To support, this fact, another study performed in China among Chinese based pharmaceutical manufacturers, have revealed a serious concern about the bioequivalence of generic drugs.

Despite the importance of those incidents, the two main regulatory and control authorities, the FDA in USA and EMEA in the EU, have been proved slow and incapable to adapt in this globalized drug production process. Despite the fact that the great majority of APIs are produced outside the USA, FDA inspects, at some extent, less than 10% of the pharmaceutical plants in China. In the case of the EU (that imports 80% of the active ingredients), EMEA has performed only 40 plants in China and India1.

Of course the problem is not situated in Europe or in the US, but it is located in the hard core of the Chinese regulatory framework and complicated control system that allow several companies to operate and export APIs without any or will insufficient control.

Now and the Future

China has initiated since the last decade, and more actively the last years, a strategic process to move its economy away from low-wage manufacturing to high-added value production. In this process, Pharmaceuticals has to play a key role, however due to the current practice, active pharmaceutical ingredients are the most dangerous, high profile, Chinese exports.

Indeed many, industry observers insist that safety issues, and the weak dollar, may invert the manufacturing back to the US and EU. Other observers insist that cost saving are too attractive to be ignored, and foresee a further increase in Chinese production.

It should be however underlined that the increasing production of “large-molecule” biologic drugs in the future, that require a more precise production process, might further intensify the safety issues and pose significant risks to the Chinese manufacturers.

Looking further in the next decade, it remains to be seen whether China will manage to put greater emphasis on safety and quality and improve its role in the global pharmaceutical industry, even with the first 100% Chinese drugs.

In this direction, we have also to see whether Traditional Chinese Medicine, that is receiving substantial investment from the Chinese government, will manage to acquire an important share in the global market.

 

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Sources

  1. Michael A. Santoro, China 2020, 2009, Cornell University Press
  2. C.P. Chandrasekhar & Jayati Ghosh, Upheaval in the World Economy: China and India as a Challenge to Europe, Augur Working Paper,  2011
  3. The Guardian, http://www.theguardian.com/business/2014/jan/10/china-surpasses-us-world-largest-trading-nation
  4. EFPIA, The Pharmaceutical Industry in Figures, http://www.efpia.eu/uploads/Figures_Key_Data_2013.pdf
  5. Biologic Medical Products http://en.wikipedia.org/wiki/Biologic_medical_produc
  6. Peter Schwartz, Learnings from the Long View, 2013
  7. The Association of the British Pharmaceutical Industry (ABPI) , Top world pharmaceutical corporations, http://www.abpi.org.uk/industry-info/knowledge-hub/global-industry/Pages/pharmaceutical-companies.aspx
  8. IMS, The changing face of the top 10 pharmaceutical companies The beginning of the end for innovative dominance, white paper, 2013, http://www.imshealth.com/deployedfiles/ims/Global/Asia%20Pacific/Content/Insights/Top10%20Pharma%20Companies%20WP%20final_for%20clients.pdf
  9. The New York Times, From China to Panama, a Trail of Poisoned Medicine, http://www.nytimes.com/2007/05/06/world/americas/06poison.html?pagewanted=all&_r=0