Global Trade Analysis and Outlook of China's Pharmaceutical Industry in the First Half of 2023

In the first half of 2023, China's pharmaceutical industry entered a difficult stage. The overall performance of the pharmaceutical industry was poor and the export volume of pharmaceutical products fell overall. In the API market in the pharmaceutical product segment, China's API exports continue to be hindered, and at the same time it faces a strong competitor - India. From a long-term perspective, China faces both challenges and opportunities in the global pharmaceutical market. With the marginal improvement of the policy environment, the innovation, transformation and upgrading of Chinese pharmaceutical companies are rapidly advancing, and the value of innovation and policy advantages are expected to be gradually realized in the global market.

This article will focus on the four major sections of China's pharmaceutical industry development trend in the first half of 2023, pharmaceutical product import and export trade data, China-India API market dynamics, and China's pharmaceutical industry development challenges and opportunities.

1. Brief analysis of China's pharmaceutical industry in the first half of 2023

In the first half of 2023, China's pharmaceutical industry entered winter, and the overall performance was poor. From January to May 2023, the SW Pharmaceutical and Biological Industry Index (SW Medical Index is an index that reflects the overall performance of the medical industry) fell by 1.12% as a whole, ranking 17th among the first-level industries in Shenwan. Most segments of the industry recorded negative returns.

As of the end of May 2023, the overall PE of the SW pharmaceutical and biotechnology industry is approximately 27.6 times, which is lower than the industry’s valuation center since 2012 and located at the 76% percentile of the historical average.

Since the beginning of 2023, the Shenwan Pharmaceutical and Biological Sector Index has fallen by 9.75%, underperforming the CSI 300 Index by 5.54%, and ranking 23rd in the Shenwan Industry Classification.

2. Overview of China’s pharmaceutical product import and export trade in the first half of 2023

From the perspective of import and export trade volume, from January to June 2023, China's global pharmaceutical product import and export trade volume was US$99.97 billion, a year-on-year decrease of 13.84%; of which export volume was US$52.003 billion, a year-on-year decrease of 26.13%;

From the analysis of export trends, the first quarter dropped by 31.42%, the second quarter dropped by 19.81%, and the decline trend slowed down; the import volume was 47.966 billion US dollars, a year-on-year increase of 5.11%.

(China's import and export statistics of pharmaceutical products in the first half of 2023)

(China's import and export statistics of traditional Chinese medicine products in the first half of 2023)

In the pharmaceutical subcategory, the export value of traditional Chinese medicine products was US$2.915 billion, a year-on-year increase of 3.63%. Among them, the export value of traditional Chinese medicine extracts accounted for the largest share, reaching 1.799 billion US dollars, a year-on-year increase of 2.85%; the export value of Chinese patent medicines was 170 million US dollars, a year-on-year decrease of 17.95%; the export value of Chinese medicinal materials and pieces was 694 million US dollars, a year-on-year decrease of 0.12%; the export value of health care products was US$253 million, a year-on-year increase of 55.6%.

(China's import and export statistics of western medicine products in the first half of 2023)

The export volume of western medicine products was US$26.444 billion, a year-on-year decrease of 23.42%. Among them, the export value of western medicine raw materials was US$21.317 billion, a year-on-year decrease of 23.21%; the export value of western patent medicine was US$3.075 billion, a year-on-year decrease of 8.04%; the export value of biochemical drugs was US$2.052 billion, a year-on-year decrease of 40.14%.

From the perspective of the export market, in the first half of 2023, China's pharmaceutical product exports in the "Belt and Road", ASEAN, EU, Latin America, Africa, and the United States markets have declined to varying degrees. However, the total export volume of pharmaceutical products in the Russian market increased by 8.64% year-on-year. Below are China's top 10 pharmaceutical export markets globally.

3. Analysis of API Market in China and India

In 2022, the global API market size reached US$203.8 billion, and it is expected to reach US$355.9 billion in 2030. Currently, China accounts for 40% of the global API market and India accounts for 8%; the API market share of China and India is close to half of the global share.

India becomes a strong competitor to China

As the third largest API producer, India's API market size will reach US$12.95 billion in 2023, accounting for 8% of the global API market share. India can produce more than 500 APIs, including 57% of the APIs in the WHO prequalification list, and the product price is about 40% lower than that in the West. Geopolitical and other factors have prompted global pharmaceutical companies to purchase "non-Chinese" pharmaceutical products. India's strong domestic market, advanced chemical industry, skilled labor force, strict quality and manufacturing standards, and low cost of setting up and operating modern factories have brought additional advantages and gradually developed into China's main competitor.

China's API exports were hindered in the first half of the year, and the future development trend is expected to change

From January to June 2023, China's API export market showed weakness such as lower prices, declining export volume, and insufficient overseas demand. Currently, API prices in China are in the stage of gradually falling from the historical highs during the epidemic period, and are close to the bottom in the past three years. The average API price in the second quarter of 2023 dropped by 25.4% year-on-year; this further led to a sharp decline in China's API export volume, with the decline expanding from 15.18% in the first quarter to 30.59% in the second quarter, and the half-year decline was as high as 23.21%. At the same time, overseas API demand is still facing pressure to release inventory, and China's API exports are hindered.

As relevant departments are promoting the construction of a modern pharmaceutical industry system, accelerating product research and development and industrialization, and developing more innovative products, China's API manufacturing advantages will be improved to a certain extent, and the overall situation will gradually improve. According to data from the Indian market research company "Mordor Intelligence", from 2023 to 2028, the compound annual growth rate of the Indian API market will be 8.31%. The compound annual growth rate of China's API market will be higher than that of India, reaching 9.1%.

4. Challenges and opportunities for the development of China's pharmaceutical industry

Currently, internal production trends in countries around the world have triggered a reshuffle of the global pharmaceutical industry. Low-income countries such as Latin America and the Asia-Pacific region have launched technical assistance plans, and the trend of "self-sufficient" production is obvious. With the help of the political environment, they have formed a large-scale pharmaceutical supply and demand group with neighboring countries, triggering the transformation of supply chains and manufacturing paths.

In addition, India, the United States and the European Union are intensifying the production of pharmaceutical industries to reduce their dependence on China's drug imports. The Indian government has proposed the "PLI Plan" and is committed to diversifying high-value pharmaceutical products. Governments such as the European Union and the United States have launched plans and incentives related to reforming pharmaceutical industry regulations to promote the production of API and other related drugs in their countries, reduce supply chain risks, or seek to establish cooperation with suppliers from Japan, South Korea and other countries.

Although China's pharmaceutical industry faces many challenges, its future development trend is still optimistic. The following are several key factors: First, China's innovative drug market is growing rapidly and accounts for an increasing share of the global market. China's innovative drug market has grown from US$106.5 billion in 2014 to US$128.6 billion in 2018, with an average annual compound growth rate of approximately 4.8%; it is expected to reach US$184.4 billion in 2023, and the average annual compound growth rate from 2018 to 2023 is expected to reach 7.5% . China's innovative drug market accounted for 15.2% in 2018 of the global innovative drug market from 14.4% in 2014, and is expected to increase to 17.8% in 2023.

Secondly, China's pharmaceutical industry has key resources, costs, policies and quality advantages:

1) Key resource advantages: The key resources held by China's pharmaceutical industry make countries such as India continue to rely on China. Even if drug production such as APIs is localized, certain key raw materials still need to be imported from China.

2) Cost advantage: China has strong pharmaceutical supply capacity, diverse types of drugs and large scale. Benefiting from economies of scale, production costs have been significantly reduced and the lowest-priced products can be supplied, which is helpful against competitors such as India, Europe and the United States.

3) Policy support: Support from advantages such as large-scale production areas, regional subsidies, financial incentives, and lower electricity, fuel, and borrowing costs.

4) Quality improvement: The government reforms the regulatory framework of the pharmaceutical market, formulates the highest quality standards, implements a strict drug supervision system, responds to quality inspections by other countries' food and drug administrations, and helps pharmaceutical companies export more smoothly.

At present, China's pharmaceutical industry is accelerating innovation and development, and its overall level has jumped to a new level. A new round of scientific and technological revolution and industrial transformation are developing in depth, and the global pharmaceutical industry chain and supply chain are accelerating the reshaping. China's pharmaceutical industry is facing new development opportunities and challenges.

China is accelerating the construction of a modern pharmaceutical industry system and comprehensively improving its supply capacity and level. Consolidate and improve API manufacturing advantages, develop and expand pharmaceutical industries such as antibody drugs and new vaccines, promote the industry to accelerate its extension to the high end of the value chain, and improve the competitiveness of China's pharmaceutical industry in global trade.