Why Invest in the Chinese Bio-Industry

The Chinese Government is placing significant emphasis on developing and expanding China’s biotech and pharmaceutical sectors, using a variety of tax breaks, government inducements, and other incentives. The goal is to make China the leader in global life sciences industries. This priority effort poses significant opportunities for foreign investors.

The program states that the bio-industry, after the IT industry, is the second priority of high-tech industries for the next 15 years. At the same time, bio-technology is the top priority among all the key technologies, including:

  • Biotechnology
  • Information Technology
  • New Materials Technology
  • Modern Manufacturing Technology
  • New Energy Technology
  • Marine Technology
  • Advanced Agricultural Technology

The program also plays emphasis on breakthroughs in functional genomics, stem cells, proteome, tissue engineering, bio-catalytic, and bio-conversion.

As stated in some policies to implement the National Medium and Long term Program for Science and Technology Development, China emphasizes finance channels for bio-tech enterprises, protection of intellectual properties, incentive of taxation, and government investment in researches in order to guarantee the successful enforcement of the program.

The Eleventh Five-year Development Program to the bio-industry of China launched by the National Development and Reform Commission on April 8, 2007, promotes the bio-industry as the necessity for the public health and industrialization of China.

In the Catalogue of Industries for Guiding Foreign Investment (Revised 2007), which was approved by the State Council and came into force on December 1, 2007, medical and pharmaceutical product manufacturing is among the several industries encouraged for foreign investment.

Commercial Attractions of the Chinese bio-industry.  China presents the greatest opportunity due to the rapid and sustained growth of the Chinese economy and the large Chinese population. China is the top regional bio-industry importer. China’s foreign currency reserves over $800 billion making it the world’s second-largest in the bio-industry. Companies are looking abroad for investment opportunities. China’s large market, human and scientific resources, and lower costs are key positive factors when considering international partners. As a WTO member, China has strengthened IP protection making partnering opportunities more attractive.” [1]

Earning a GDP/Capita of $6,200 (2005) and medical expenditure/GDP of 5.8% (2002), China also has a population of 1.3 billion and 63,000 hospitals. Further, "China’s pharmaceuticals market is valued at over $8 billion and growing at 15% per year. Imports are nearly $2 billion per year. China is expected to develop into a leading pharmaceutical R&D center as multinational pharmaceutical companies take advantage of China’s less expensive medical and clinical trials, human resources, and scientific research capability.” [2]

“Labor cost in China is about 1/10 of that in America. Moreover, 4,000 Chinese pharmaceuticals are introducing $40 billion dollars in the technology improvement of the GMP certification, greatly enhancing the manufacturing capacity,” said Zhou Xaioming, Chairman of the China Chamber of Commerce for Import and Export of Medicines and Health Products.  He spoke in May 2006 on the Asian Boao Forum of International Medical and Pharmaceutical Industry. [3]

In the year 2005, added value of the Chinese bio-industry increased by $200 billion RMB. While in 2006, the total production value of the biological manufacturing sector was $41.8 billion RMB with an increase of 21.7%. [4]

How to Invest in the Chinese Bio-Industry

Knowing the Policy

As stated above, the Chinese Government made a program named Eleventh Five-Year Development Program to the bio-industry of China. It was launched by the National Development and Reform Commission and published on April 8, 2007. Made in accordance with the National Medium and Long-Term Program for Science and Technology Development (2006-2020), this program outlines the overall development of the bio-industry. Such a program directly reflects orientation of the central government to this sector, guiding all the activities thereto.

This program consists of four parts, namely, Opportunities and Challenges, Guidance and Objectives, Tasks and Focuses, and Supporting Measures.

1. Opportunities and Challenges. The Chinese Government considers the bio-industry as another pillar to the world economy, like the IT industry, and considers the bio-industry as a strategic sector to put great effort in.

2. Guidance and Objectives. China shows its idea to upgrade the industries. It wants to establish 10 large bio-enterprises with a sales income over $10 billion (RMB), and 8 industrial bases with a production value exceeding $50 billion (RMB). It also anticipates getting a $500-billion-yuan production value of the bio-industry in 2010, which would account for 2% of the GDP. In 2020, such numbers are hoped to be $2,000 billion (RMB), or over 4% of the expected GDP.

3. Tasks and Focuses. These are divided into seven sessions, consecutively being bio-pharmaceuticals, bio-agriculture, bio-energy, bio-manufacturing, bio-related environmental protection, bio-resource exploitation, and safety management system. Among these, vaccines and reagents are the hot-spot of bio-pharmaceuticals, which is of great attractiveness to both the general public and pharmaceuticals.

4. Supporting Measures. Two key supporting measures for the business operation of bio-technology firms and institutions are personnel matters and finance issues. In regards to personnel matters, China is going to enhance technology contribution to the bio-tech companies.  Finance issues, direct finance ways such as overseas listing and bond offerings, are highly welcomed.

Knowing the Regulation

Only following the overall policy is far from enough for your business. Regulations on the industry is of great significance for you.

Regulatory Authorities

  • The Ministry of Science and Technology;
  • The Chinese Academy of Sciences;
  • The Ministry of Agriculture;
  • The Ministry of Health;
  • The Natural Science Foundation of China;
  • State Food and Drug Administration;
  • State Intellectual Property Office;
  • State-Owned Assets Supervision and Administration Commission.

Overall Legislations

  • The highest legislation bodies in China are the National People’s Congress and its Standing Committee. They are empowered by the Constitution to promulgate laws with national binding effect.
  • The State Council, as the administrative body to the National People’s Congress and its Standing Committee, is empowered to promulgate administrative rules and regulations in order to implement the laws enacted by them.
  • Ministries and committees under the State Council are empowered to enact administrative regulations and/or circulars to administrate the sectors and industries where they have jurisdictions.
  • Should there be conflict in the same issue between legislations at different levels, those at the higher level shall prevail.

Chinese laws on biological technologies can be classified into five categories. They respectively govern:

1. General issues like patent affairs and basic management – this area is mainly subject to the National People’s Congress and its Standing Committee

2. Scientific researches and transfer of results into products – this area is mainly governed by Ministry of Ministry of Science and Technology

3. Safety management of genetically modified organisms – this area is mostly governed by Ministry of Agriculture, and some specific issues are under the administration of Ministry of Health

4. Research, registration and other matters concerning pharmaceuticals – this area is mainly governed by Ministry of health, as well as the State Food and Drug Administration

5. Assisted Reproductive Technologies (like sperm-bank administration) – this area is under the administration of Ministry of health

*Among the above, categories 1, 3 and 4 are mostly commerce-related.

Places and Procedures to Launch Your Business

The following cities have National Biomedical Industrial Bases that have been approved by the State Development and Reform Commission: Beijing, Shanghai, Guangzhou, Changsha, Chongqing, Qingdao, Chengdu, Kunming, Wuhan, Shijiazhuang, Shenzhen, Changchun, Nanning.

There may be some special management measures or incentives for investors to come into these bases. For example, the Changsha Base has made an International Medical OEM Producing Center Project [5], and Wellcom, a Fortune 500 enterprise started its business there on January 18, 2006. [6]

When a foreign investor wants to do business in China, he can choose to establish a wholly foreign-owned enterprise, an equity joint venture, or a contractual joint venture. Corresponding procedures for the applications and registrations are mostly the same with the establishment of companies in other sectors.  Consultation with a law firm for specific legal service in foreign direct investment will be both helpful and efficient.

Patents and R&D

National Programs Conducted by MOST

The general mission of MOST (Ministry of Science and Technology) is to research and set out the overall strategies for science and technology development, guidelines, policies, and regulations in order to promote economic and social development.

MOST has conducted several National Science & Technology Programs:

  • National High-tech R&D Program (863 Program)[1][7]
  • National Basic Research Program of China (973 Program)[1][8]
  • National Key Technologies R&D Program
  • R&D Infrastructure and Facility Development
  • Environment Building for S&T Industries
  • Mega-projects of Science Research for the 10th Five-year Plan

In the 863 Program, six research priorities are indentified as follows:[1][9]

  • Bioengineering technology
  • Gene operation technology
  • Bio-information technology
  • Functional genome and biologic chip
  • Tissue engineering
  • Bio-reactor

Also, there is one interoperation project called Human Liver proteome project (HLPP).

In the 973 Program, the establishment of the theoretical and technological system on the disease genome is among the important programs.

Utilization of Patents

The PRC Patent Law was enacted by the Standing Committee of the National People’s Congress, and mainly prescribes what can be granted a patent and the related application, as well as the protection period. This law is applicable to biological organisms. The Implementation Rules to PRC Patent Law was enacted by State Council, and outlines the application procedures in detail, especially those for the micro-organisms.

On April 14, 2008, the Ministry of Finance, Ministry of Science and Technology, and the State Administration of Taxation jointly enacted the Administrative Regulation on Identification of High-tech Enterprises [10], linking self-owned patents and the high-tech enterprise identity together in its Article 10. Pursuant to Article 4 of this regulation, a high-tech enterprise shall enjoy preferential taxation treatment. Whether a high-tech enterprise qualifies is dependent upon the amount of patents of that company.

Beside the foregoing advantage, patents can also be pledged under Chinese law to get loans. Pursuant to Article 75 of the PRC Security Law, the property right among patent rights which are transferable according to law can be pledged. However, according to the statistics of State intellectual Property Office (SIPO),  patents with pledge registration in SIPO numbered only 682 in 2007. [11]

Within the successful cases, the guarantors often obtain a loan accounting for a small proportion of the assessed value of the patent. For example, Beijing Kery Bio-medical Technology Company received $1,500,000 from the bank after its patent was evaluated at $6,000,000. [12]

[1] Source: Asia Pacific Bio Industry Market Survey by Arizona Department of Commerce in 2006.3

[2] Source: Asia Pacific Bio Industry Market Survey by Arizona Department of Commerce in 2006.3

[3] Source: http://news.xinhuanet.com/fortune/2006-05/04/content_4507938.htm

[4] Source: http://www.gspc.gov.cn/zhcwj/ShowArticle.asp?ArticleID=2200 (Development and Reform Commission of the Gansu Province)

[5] http://www.lipip.com/art_xmjj_show.asp?id=575

[6] http://www.lipip.com/art_hot_show.asp?id=145

[7] In March, 1986, four Chinese scientists promoted to Deng Xiaoping that scientific development in many sectors shall follow up with the international level. As a result, the central government chose 7 industries including bio-tech, IT, Aero-tech as the keystone of the nationwide R&D and made a program to carry on such a blueprint. Since the program was launched in June, 1986, it is called  863 Program.

[8] In March 1997, Ministry of Science and Technology launched a program to further strengthen self-innovation capability so that China could better solve the problems in the social development and enhance the scientific progress. It is called  973 Program due to its launching time.

[9] http://www.863.org.cn/863_105/863brief/field/200405080277.html

[10] http://law.esnai.com/law_show.asp?LawID=45738

[11] http://www.lcaacn.com/newoperation/new6.html

[12] http://www.most.cn/tjcw/tckjjr/200708/t20070813_52370.htm