Navigating new risks: How China’s Anti-Espionage Law could impact pharmaceutical supply chains

The pharmaceutical industry is facing another challenge as China seems to strengthen its Anti-Espionage Law, which introduces uncertainties that could disrupt the global supply of essential drug ingredients. With drug shortages already a significant concern, this development adds further pressure on the industry to navigate a rapidly changing landscape and secure its supply chains.

China plays a critical role in global healthcare, as it is one of the largest suppliers of active pharmaceutical ingredients (APIs) used in medicines around the world. Indeed, for many active ingredients and intermediates, China remains the world's leading manufacturer. In the case of amoxicillin, for example, the most commonly used antibiotic, China is home to five of the world's seven production sites for 6-APA, the essential intermediate in its synthesis, and eight of the 17 factories supplying this active ingredient.

Therefore, the country’s pharmaceutical sector is deeply integrated into the global supply chain, with companies in the UK, wider Europe, and the US, and other major markets, relying heavily on Chinese manufacturers to provide the raw materials needed for a wide range of drugs, from everyday medicines to life-saving treatments. Any disruption in the production or certification of these APIs can have immediate and far-reaching consequences, affecting the availability of essential medications in hospitals and pharmacies across the globe. As a result, the impact of China’s Anti-Espionage Law extends beyond Europe, posing a risk to global healthcare systems that depend on the timely and safe delivery of these critical components.

The last version of China’s Anti-Espionage Law, which came into force on 1st July 2023, significantly expands the definition of espionage to include the handling or sharing of information that could be seen as a threat to national security. This broad definition puts foreign life sciences companies operating in China at risk, as routine business activities could now be interpreted as a threat to national security. This law also grants extensive powers to the Chinese authorities to implement national security measures, including arrests.

One immediate consequence of this law is that three German states recently suspended the travel of their inspectors responsible for monitoring pharmaceutical facilities in China, due to the risk of the inspectors being arrested, prompting the Chinese Ministry of Foreign Affairs to respond on 19th August 2024 that “China is a country ruled by law. All Chinese law enforcement and judicial activities are carried out based on facts and the law. As long as one abides by Chinese laws and regulations, there is no need to worry.”

The pharmaceutical industry relies heavily on strict quality control procedures in China to ensure that products meet international standards, particularly those imposed by the EU, including the EU GMPs. These inspections are standard practice and crucial for national health authorities. In France, for example, the National Agency for the Safety of Medicines and Health Products ("ANSM") carried out 17 on-site inspections abroad in 2015.

Therefore, the suspension of these quality inspections in China poses a major risk to the pharmaceutical supply chain, as the compliance of Chinese active pharmaceutical ingredients may no longer be verified in the future. As a result, these active ingredients could no longer be imported in Europe, putting the pharmaceutical supply chain at risk.

Without the necessary GMP certifications, European companies could face delays in the delivery of essential medicines, which could lead to new shortages, despite all the measures they are taking to combat them. This link between China's anti-espionage law and the risk of drug shortages could now be another argument for the pharmaceutical sector to use against the health authorities, who are increasingly calling for greater security stockpiling.

Key takeaways for pharmaceutical leaders

For decision makers in the pharmaceutical industry, this law presents a serious challenge. The wider implications of China's Anti-Espionage Law for the pharmaceutical industry highlight the delicate balance between compliance with national security laws and international regulatory requirements.

As China is a leader in the pharmaceutical industry, any disruption in the flow of these materials can have far-reaching effects. Without proper EU certifications, there are still many risks; the import of APIs to Europe can be delayed or blocked, threatening the availability of key medicines. This risk of drug shortages could have a direct impact on pharmaceutical companies, since they could be subject to financial sanctions by national authorities.

To safeguard against these risks, companies should proactively assess their supply chains and explore alternatives, increase compliance efforts in line with the new law, and engage in conversations with regulatory authorities to address concerns about stockpiling and supply security. This is a pivotal moment to reassess strategies and ensure that the necessary safeguards are in place to prevent shortages.

Moving forward

As the global pharmaceutical industry grapples with the evolving regulatory environment in China, taking swift action is essential to avoid disruption. Companies must plan ahead, diversify their supply chains, and strengthen their legal and compliance frameworks to adapt to this new reality. By doing so, they can protect the continuous flow of critical medicines and minimise the impact of future shortages.

About the authors

Olivier Lantrès is partner and co-head of life sciences & healthcare at Fieldfisher, based in the firm's Paris office. He also coordinates the life sciences group at the EU level. Lantrès is a recognised expert on regulatory matters within the life sciences and healthcare sectors, with particular expertise in medical devices, pharmaceutical, and phytopharmaceutical products, and cosmetics. His practice focuses on a range of issues, including the advertising of pharmaceutical products, relationships with healthcare practitioners, clinical trials, and advising clients under the scrutiny of health authorities.

Myriam Danziger is a trainee in the competition, regulatory & trade group at Fieldfisher, focusing on life sciences regulatory matters. She supports the team on client matters relating to pharmaceutical, medical device, and healthcare product regulations.