GT investigates: How US deploys acts to contain China’s biomedicine sector, and will it succeed?
Shortsighted move
Published: Jun 11, 2024 10:05 PM
Photo: VCG

Photo: VCG

"The company is not under the control of any government," New Jersey-based contract manufacturing and development service provider (CDMO) GenScript Biotechnology Co said in a notice on June 2 in response to some US lawmakers' request, along with the FBI, of a briefing on the company's connections to China.

The response came after the US House Committee on Oversight and Accountability voted overwhelmingly (40-1) to approve the Biosecure Act (H.R. 8333), on May 15, making GenScript Biotech the latest victim of the US' intensified measures to contain China's biomedicine industry. 

Following the same tactic that was used to target Chinese telecommunications companies in the late 2010s, the act would limit the ability of US life sciences companies to contract biotechnology companies that "have ties to the Chinese government or other designated foreign governments" on national security grounds once passed into law. 

Specifically, five Chinese companies are named in the approved version of the bill, naming China's contract research organization (CRO) giant WuXi AppTec, its sister company WuXi Biologics, BGI Group (BGI), BGI's affiliate MGI Tech (MGI), and MGI subsidiary Complete Genomics. 

In the next step, the bill must get through the full House and Senate for further debate. As an earlier version (S.3558) of the bill had been approved by the Senate in March, the Congress has to combine both versions into one before US President Joe Biden signs it into law. 

From the communication technology, chips, and artificial intelligence, to biomedicine, from Donald Trump to Joe Biden, the US is accelerating efforts to utilize national power to maintain technological hegemony, observers said. 

But the US would not succeed as it had dreamed, experts warned. The US is lifting the stone to drop it on its own feet as decoupling Chinese companies would first harm patients and companies in the US. And in a long run, the US' companies' enthusiasm for innovation and international cooperation would be largely discouraged, they noted. 

Fast track to 'de-Chinaization'

The ultra-low temperature automated biobank system and automated liquid nitrogen storage system produced by Chinese enterprises appear at an international medical equipment expo.Photo: VCG

The ultra-low temperature automated biobank system and automated liquid nitrogen storage system produced by Chinese enterprises appear at an international medical equipment expo.Photo: VCG

Although the legislative process has kicked off, some legal experts stressed the long and complex procedures before the bill can finally be part of a legal document. They noted that, usually, it would take years for an initiative to be passed into law in the US. Not to mention that there are still many details that need to be discussed. More revisions might also probably be made, some experts said, referring to the 8-year buffer period added in the latest version.   

However, Liu Lu, a senior consultant from Ernst & Young Advisory (China), pointed out that the process had already moved faster than observers expected. "And we deem that Biden might also approve it very quickly once the bill is put on his table," Liu told the Global Times.

"The deadline extension is a result of the consideration of the actual situation, but it does not indicate any change of the US' long-term aim, which is that, as they had realized their dependence on Chinese CXOs, they want to reduce such dependence and maintain its leading position in the biomedical area and safeguard their supply chain security," Liu said.  

CXO is a collective name for companies that provide medical contract outsourced services. 

Before the bill was amended, a survey carried out by the Biotechnology Innovation Organization (BIO), a Washington-based trade association representing biotechnology companies, revealed that 79 percent of 124 respondents have at least one contract or product agreement with a manufacturer based in China or owned by China, according to Reuters.

The trade group told Reuters that millions of US patients would be harmed unless there is "a comprehensive and thoughtful decoupling from China-based or China-owned biomanufacturing."

According to media reports, in 2023, WuXi AppTec's revenue from US clients was 26.13 billion yuan, accounting for 65 percent of the company's total revenue; meanwhile, revenue from North America for WuXi Biologics was 8.073 billion yuan, accounting for 47.40 percent of the total revenue. 

In addition, revenue from clients from the Americas for BGI and MGI accounted for 2.67 percent and 6.87 percent respectively, of the two companies' total revenue.

Data from both China and the US show that the cooperation of the two countries in the CXO domain has reached a level that has lefUS policymakers to view it as a form of dependence, according to Liu.

The industry originally began in the US in the 1970's. It has been developing in China for about 20 years and has gone through a rapid expansion period in recent years due to its cost, system, and policy advantages, triggering concerns from the US government about the security of the industrial chain, according to observers.

So far, Liu still deemed that the bill, in essence, is a move out of commercial consideration as the US policymakers intend to protect its companies and industry.

But it is also undeniable that the issue makes companies on both sides realize that politics are exerting growing influence on commercial activities, she stressed.  

Some industry observers also warned that more actions by the US would follow, considering the US' moves against China in other technological industries in recent years. They pointed out that the US often adopts a continuous, rapid introduction of multiple measures, constantly escalating, or repeatedly imposing comprehensive restrictions on a leading enterprise in the industry in a short period of time, ultimately achieving their intention of "de-Chinaization" of the global industrial chain.

In the future, companies need to consider more systemic impacts when considering international cooperation as international relations may exert a greater influence on businesses. And such an impact is apparently disruptive, and destructive, Liu noted. 

National power behind

Behind commercial consideration lies the US' continuous efforts to utilize national power to "correct" market logic in order to maintain its technological dominance, setting a grand and rich agenda for technological innovation to make itself run faster while slowing down the technological progress of its competitors, according to Zhao Jianwei, a research associate with the Institute of International and Strategic Studies at Peking University. 

From the end of the Cold War to the 2008 financial crisis, the global investment and procurement strategies of most US companies were mainly driven by economic logic, focusing on cost-effectiveness, thereby promoting cheaper and more efficient globalization production. However, due to the intensification of geopolitical competition and the impact of the COVID-19 pandemic, security considerations are becoming increasingly prominent in the US' overall strategy, Zhao told the Global Times. 

The Biden administration has continued the approach of the former Trump administration, using national power to "correct" market logic, proposing a shift from efficient supply chains to more resilient supply chains, indicating a trend of prioritizing national security over market efficiency, he said, noting that this strategic shift significantly increases economic costs for US companies. 

Taking the field of biomedicine as the latest example, Trump began to place more biotechnology under export restrictions and supervision, highlighting strategic considerations for the field. While his successor Biden has focused more on the adjustment of relevant policies on Chinese biotechnology. By fiscal appropriation and introducing bills, the Biden administration's series of adjustments have led to a new stage in the competition between China and the US in biotechnology, observers pointed out.

As early as the beginning of his campaign, amid heated criticism over the dysfunctional federal response to the COVID-19 pandemic of the Trump administration, Biden has promised to invest $1.9 trillion after taking office to solve the pandemic. The package was signed into law in March 2021, including billions of dollars for the development of COVID-19 vaccines, as well as future research in biotechnology to enhance the US' innovative advantage in key technological fields such as biotechnology.

On June 8, 2021, the US Senate passed the "2021 United States Innovation and Competition Act." In it, "biotechnology, medical technology, genomics, and synthetic biology" are listed as some of the top 10 key technological focus areas. The move, according to observers, signals the US' desire to continue to maintain a leading position in the field of biomedicine and compete with China, further obstructing China's access to advanced technology, emerging technology, and important foundational technology.

On September 12, 2022, Biden signed an executive order on Advancing Biotechnology and Biomanufacturing Innovation for a Sustainable, Safe, and Secure American Bioeconomy. "We must safeguard the United States bioeconomy, as foreign adversaries and strategic competitors alike use legal and illegal means to acquire United States technologies and data, including biological data, and proprietary or precompetitive information, which threatens United States economic competitiveness and national security," read the order. 

By issuing this order, the US, on one hand, elevated bioeconomy and biological data to the level of national security in the executive order, requiring protection for the two aspects; on the other hand, it seeks to strengthen its domestic biological infrastructure and the development of bio-manufacturing, in order to replace fragile foreign supply chains with a strong domestic supply chain, and reduce dependence on China, according to Liu. 

Later in 2022, the US Congress established the National Security Commission on Emerging Biotechnology and charged it with the responsibility of "examining the critical intersection of emerging biotechnology and national security," according to the commission's website. 

"Biotechnology is rapidly developing and evolving. Just last year (2023), we saw the Taliban seize US military biometrics devices that could aid in the identification of Afghans who assisted coalition forces. We must maintain our preparedness, especially as countries like China, continue to integrate biotech into their strategic development," Representative Stephanie Bice from the House said in a statement after she was appointed.

In February 2023, the US Department of Justice and the Commerce Department announced the creation of the Disruptive Technology Strike Force with a mission to prevent nation-state "adversaries" from acquiring "disruptive" technologies.

Biosecurity has emerged as a top priority for governments worldwide, particularly in the wake of the COVID-19 pandemic that has affected the globe in recent years. It is no surprise that the US has ramped up its biosecurity measures in response. However, it is disheartening to see the US using this a pretext to undermine and restrict China's progress, experts noted.

A notable difference between China and the US in addressing escalating biosecurity concerns is that China focuses on strengthening its domestic policies and advocating for global cooperation to mitigate risks and safeguard its population. By contrast, the US tends to view other countries as the primary sources of threats and adopts a defensive stance against perceived external risks, they pointed out. 

Dirty trick doomed to fail 

People converse at the World Health Expo in Wuhan, Central China's Hubei province, on April 7, 2023.Photo:VCG

People converse at the World Health Expo in Wuhan, Central China's Hubei province, on April 7, 2023. Photo:VCG

The US will not easily give up the practice of integrating security policy into its technology innovation strategy in the foreseeable future, regardless of changes in political parties, Zhao noted. 

The shift in the US technology innovation strategy poses complex and severe challenges to China's development of cutting-edge technology and maintenance of technological security. As China continues to climb up the global value chain, the US may continue to weaponize its technological advantage using asymmetric network structures to engage in long-term competition with China. 

Therefore, China should combine the power of the government, the private sector, and global partnerships to enhance the overall efficiency of innovation and build a more open and efficient national innovation system, he suggested.

As to the impact of the latest Biosecure Act, the urgent work for Chinese CXOs,  especially those named in the Act, is to estimate how many customers they will lose once the Act is implemented and quickly take action to cultivate new markets, Liu said.

In the long run, these companies have to build their own irreplaceable core competitiveness - no matter whether it is low cost, high efficiency, some core independent research and development capabilities, or ownership of some intellectual property rights. Only by these core competitiveness measures, can the companies protect themselves from the impact of the Act or any other influence of politics in the future, according to Liu. 

Chinese CXOs have been moving. 

On May 21, Chinese CDMO Asymchem Laboratories (Tianjin) Co Ltd acquired the small-molecule active pharmaceutical ingredient (API) pilot plant and part of its development laboratories, marking the CDMO's first foray into Europe. 

On May 22, Jiuzhou Pharmaceutical announced that the company plans to establish a wholly-owned subsidiary in Germany, building a CRO service platform. The total investment of the project is estimated to be around $9.5 million. 

This is the second overseas investment by Jiuzhou Pharmaceutical in 2024 since its announcement of the establishment of a wholly-owned subsidiary in Japan with a total estimated investment of about $42 million US in January.  

On May 23, WuXi AppTec announced the groundbreaking at its new research and manufacturing site in Singapore. The site is projected to start operation in 2027 and "will integrate closely with WuXi AppTec's existing sites across Asia, Europe, and North America, offering effective CRDMO solutions for new drug research and development from discovery to commercialization with expanded flexibility and scalability," read the company's announcement. 

At the national level, China's top economic regulator, on May 10, 2022, unveiled a new plan to spur bioeconomy during the 14th Five-Year Plan period (2021-25), which pledged to promote the integration and innovation of biotechnology and information technology, as well as accelerate the development of biomedicine, biological breeding, biomaterials, bioenergy, and other industries to enhance the bioeconomy in scope and strength.

Using national power to "correct" market logic may not necessarily achieve what the US government desired. Excessive focus on security factors may inadvertently stifle the positive forces in the US innovation system, Zhao warned.

In the short term, some mature high-tech companies will inevitably suffer direct economic losses; in the long term, these US companies may permanently lose the vast Chinese high-tech product sales market, leading to cuts in research and development investment and other expenses in the US, ultimately resulting in the decline of US technological innovation, he noted.