China’s biotech industry, historically recognized for producing cost-efficient generics, is about to become one of the global leaders in drug discovery and development. This evolution—from a manufacturing base to an innovation engine—is set to reshape the global pharmaceutical landscape, influencing everything from the therapeutic agenda to dealmaking.
Annual revenue from drugs originating in China could rise to an estimated $34 billion by 2030 and $220 billion by 2040, according to Morgan Stanley Research. Drugs originated from China are projected to account for 35% of approvals by the U.S. Food and Drug Administration by 2040, up from only 5% now.
“China's biotech ascent has been rapid, propelled by its talent, patient access and a cost-efficient infrastructure. These elements have allowed domestic innovators to do more with less,” says Jack Lin, who covers China biotech for Morgan Stanley Research. “China biotech is no longer merely a regional story.”
Riding the Wave of Innovation
The industry’s progress stems from a decade of regulatory reform in China, cost optimization and increased financing. But it comes at a moment when global pharma interest in innovation in China is on an upswing overall. This boost in investor sentiment also got a jumpstart earlier this year when DeepSeek, a small local startup, developed an AI model at a fraction of the cost projected by global tech leaders—demonstrating the country’s ability to disrupt markets with efficient solutions.
Against this backdrop, Chinese biotech firms are now developing treatments in high-value areas, such as oncology, immunology and cardiometabolic diseases, including diabetes and obesity. Drug innovators from China are now capable of producing commercially viable drugs for the global market while continuing to discover and develop new products – an activity that was traditionally limited to companies from more matured markets.
Rising Global Interest
China’s advances in biotech coincide with rising challenges for the global pharmaceutical industry. Upcoming patent expirations and declining returns from R&D are forcing companies to rethink their growth strategies.
Morgan Stanley estimates that $115 billion in revenue of key U.S. and European pharmaceutical companies are accounted for by drugs whose patents could expire by 2035, prompting them to pursue new assets outside mature markets.
“China biotechs’ ability to develop new drug candidates and advanced modalities, such as cancer treatments, is attracting attention from global pharmaceutical majors seeking to diversify and future-proof their portfolios,” says Sean Lamaan, Head of U.S. SMID Cap Biotech Equity Research at Morgan Stanley. “China is starting to become a critical partner and competitor in the race for next-generation therapies.”
Chinese biotech partnerships are also proving attractive from a financial standpoint, with the prevalent out-licensing model offering a 76% discount in net value when compared to traditional M&A deals.
“With U.S. and European pharmaceutical companies sitting on $480 billion in M&A and business development capacity, the stage is set for a wave of cross-border deal-making,” Lamaan says.
Navigating Geopolitical Risks
Despite the momentum, the high volatility of U.S.-China geopolitical relations in recent years poses a potential risk to the progress of China’s biotech industry and its global integration. Tariffs, export controls, capital market restrictions and visa policies could hinder partnerships and limit funding for Chinese innovators.
“Although we anticipate a certain level of U.S. restrictions, which should be largely manageable, policy escalation could translate into more uncertainties for China biotech’s long-term penetration into the global market,” Lin says.
According to a recent media report, the Trump administration may be discussing potential restrictions on China-originated drugs, including more rigorous reviews by the FDA and heavier scrutiny on licensing deals with Chinese biopharma companies.
“For now, it’s just a media report without much clarity,” Lin says. “Although the reportedly proposed measures could potentially pose impediments, they should not meaningfully impede the dynamics propelling the flow of innovation, not to mention the anticipated pushbacks given the large number of stakeholders involved.”
