Will China’s Anti-Capitalist Hardline Take on Biopharma? Not Likely, Experts Say

In the past few weeks, China reminded the world that it is, first and foremost, a Communist nation. The recent crackdowns on the high-tech and education industries make some wonder what other changes will be next.

In the past few weeks, China reminded the world that it is, first and foremost, a Communist nation. The recent crackdowns on the high-tech and education industries make some wonder what other changes will be next.

Jeremy Levin, former chair of the Biotechnology Innovation Organization (BIO), doesn’t see a threat. As he told BioSpace, contrasting biotech and big tech, “Biotech is a different kind of animal. It’s one of China’s seven pillars (identified as artificial intelligence; quantum informatics; integrated circuits; brain science; genetics & biotechnology; clinical medicine and health; and deep space, earth, sea, and polar exploration). Developing the biotech industry within China has been considered essential, consistently.

Therefore, the Chinese government is unlikely to do anything to deviate from its approach,” Levin said. If anything, he said, “China is more likely to facilitate the industry than restrict it.”

In contrast, he said, “Big tech represents social media elements that lets those companies affect public opinion and have day-to-day impacts on sentiments internally. Education is the same.”

More bluntly, Kunal Sawhney, CEO of the Australian equities research firm the Kalkine Group, told BioSpace, “The crackdown (on big tech and education) was a political move. The prospects are nothing but promising for biopharma, and the crackdown on tech and education is to be read cautiously to understand the real motive behind the move.”

That said, China thinks long-term while western nations focus on the next five years or less.

“China is investing in biotech so it won’t have to depend on the U.S. It has repeatedly slowed the approval of foreign products so it could study and replicate them,” Levin said.

At the same time, China has prohibited foreign access to clinical trial data generated in China except when access was allowed by the relevant Chinese regulatory bodies.

Such data “may end up being competitively beneficial, so China wants to control when and how that data is used, Levin said. “Personally, I think that’s a big error because it stifles growth.”

Similar constraints are key features of the Data Security Law that was passed in June and goes into effect September 1. The law applies to data processing, including collecting, storing, using, refining, transmitting and disclosing data from inside China.

Although many of the provisions are in line with European protections, the Chinese version includes a provision for what it calls “national core data.” This includes data that affects national security, “lifelines of the national economy,” and data that is “important to people’s livelihoods and to the public interest.”

The problem for biotech is that it is of strategic interest to China, and the meaning of “national core data” is not defined. Fluidity in definition could leave biotech companies without a clear path forward regarding their data processing and analyses, particularly for multinational teams and clinical trials.

The same law also forbids the international transfer of data to law enforcement or judicial bodies outside of China, without permission of Chinese authorities. Therefore, when the U.S. Securities and Exchange Commission (SEC) requires non-U.S. companies that are listed on a U.S. stock exchange to allow U.S. regulators to inspect their audits, Chinese law positions companies to refuse. Refusing, however, will cause companies to be delisted by U.S. stock exchanges. This is, essentially, tit-for-tat in the ongoing trade war and may cause Chinese biotech to retrench into China and international firms to think hard about how to handle data involving this communist nation.

China, for its part, says its goal is to enhance the common good by bolstering national security and by enhancing the prosperity of its citizens. In doing so, it started by forbidding the $100 billion private education sector from earning profits.

As Zhe Song, marketing director for Haimen Aibende Experimental Equipment Co., Ltd., (a manufacturer of plastic laboratory consumables in China), explained to BioSpace, “The objective is to press down monopoly and to reduce the burden of education.”

More specifically, he said, the tightening restrictions on big tech are meant to “avoid monopolies and give small and medium-sized businesses opportunities to grow,” and thus increase property throughout the population – not just at the top.

The restrictions on for-profit tutoring are remove what is becoming a crushing burden on working families and thus “to encourage childbirth so the population is sustainable to support the economy in the long term,” he said.

Those goals seem removed from biotech, but actually may have long-term consequences. The move to ban for-profit tutoring, the city of Shanghai’s decision not to test elementary students on English language proficiency and a decrease in Chinese students studying in the U.S., together seem to indicate an inward turn – particularly in the face of continued friction with the U.S. and Australia. Chinese officials, however, insist they are concerned about overly intense competition that is draining families’ livelihoods as they struggle to pay for extra cram schools for their children.

The motivation behind China’s new policies suggests that, as Zhe said, “The biopharma industry is not in the target.” In fact, Zhe said sentiment on the street continues to be bullish on biotech, long-term.

Ultimately, though, that may not matter. Actions have consequences and China is intent on one day dominating the biotech and other industries. As Zanny Minton Beddoes, editor-in-chief of The Economist, wrote in a recently editorial, “China is about to become a policy laboratory in which an unaccountable state wrestles with the world’s biggest firms for control of the 21st century’s essential infrastructure.”