Get your drugs in China

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Dear Access member,

It’s Friday, so I’m glad to present the latest installment of Jiayun Feng’s Chinese Corner: Fakes, gay fan fiction, and local beer. Click through to SupChina to read the whole thing, and do let us know what you think — we’d like to restrict this feature to members only once we are happy with its format and focus.

Access chat: Sam Crane, scholar of Chinese philosophy, religion, and politics, will join us next Wednesday, August 8, at 12 noon EST (midnight Beijing time). Sign on to the Slack channel then to learn: “Who is Shang Yang 商鞅 and why does he give us a better understanding of Chinese politics than Confucius?” You can log on to Slack anytime to chat with our editors, and there are links to more free stuff for Access members at the bottom of this email.

Have a great weekend: We’ll be back on Monday with the weekend’s essential China news.

—Jeremy Goldkorn, Editor-in-Chief

1. Get your drugs in China

For some time now, I’ve been haranguing you, dear reader, with my arguments that China will soon become a dominant player in healthcare and pharma. In January, I suggested 2018 might be the year Chinese pharma really goes big, and in June, I said the next Chinese business behemoths were going to be healthcare companies.

“Big” and “behemoth” are conveniently vague words — but however you define them, Chinese drug manufacturers and biotech healthcare companies are certainly set for enormous growth. There are a number of factors to consider:

  • Strong government support for research and development of new treatments and technologies.

  • Sheer numbers of patients with a range of diseases from developing country illnesses such as malaria to the noncommunicable lifestyle diseases of the 21st-century consumer: lung, breast, and prostate cancer, heart attacks, diabetes, etc.

  • Lack of religious or ethical objections to research in areas such as stem cell treatments, gene editing, cloning, etc.

  • Lots and lots of money from Chinese and foreign investors that is flooding into applied life sciences.

  • Lots and lots of scientists, technologists, and engineers churned out by a vast number of universities.

  • Acquisitions of foreign pharma and healthcare companies by Chinese firms.  

  • High rates of cancer caused by pollution and lifestyle factors that incentivize investment in new treatments.  

Another factor: In October last year, China’s State Council announced new rules for approvals for drugs and medical devices, intended to speed up the process by cutting red tape and allowing the use of data from clinical trials performed outside of China. In May this year, China cut all tariffs on imported cancer drugs.   

Despite the ongoing U.S.-China trade war, Beijing is actively encouraging the availability and affordability of foreign drugs. If they stick to this policy, Chinese pharma companies will be forced to catch up to their foreign peers in R&D. The government has an additional incentive to open the market for healthcare as widely as possible: There is probably no other way to end domestic manufacturer safety scandals such as the recent toxic rabies vaccine affair, which has once again shaken citizens’ faith in Made in China drugs.

“To get the latest drugs, head to China,” reports (porous paywall) Bloomberg: In the short time since Beijing cut back red tape on drug approvals, “already Chinese patients can expect to get some breakthrough medicines before Americans.”

  • An anemia medicine under development by AstraZeneca has “priority review” from China’s FDA, which is “evaluating it on a rolling basis.” It will only apply “to the U.S. FDA in the first half of 2019, when all trials are done.”

  • A treatment for colorectal cancer being developed by Eli Lilly and Hutchison China MediTech Ltd. of Hong Kong, will be introduced first in China after approval, probably later this year. European and U.S. launches will follow.

  • Takeda Pharmaceutical, “the Japanese drugmaker best known for its diabetes treatment Actos, plans seven roll-outs in China in the next five years, more than anywhere else.”

Bloomberg quotes a healthcare fund manager: “Twenty years from now, China’s going to have a market that’s comparable, or possibly bigger, than the U.S.” I believe that is a serious understatement.

*If this topic interests you, see also What ails China’s healthcare system? Roberta Lipson has a detailed diagnosis.

—Jeremy Goldkorn

2. Trade war, day 29: China fires back with $60 billion in tariffs

The U.S.-China trade war officially began on July 6, with the tit-for-tat imposition of tariffs on $34 billion in goods. An additional tax on $16 billion worth of goods is planned by both sides in the near future.

The Trump administration then drew up plans to tax an additional $200 billion in Chinese goods on day 5 of the trade war, and on day 26, said that it was considering upping the level of those tariffs from 10 percent to 25 percent.

China today announced its response to the 25 percent tax on $200 billion worth of its exports. A notice on the Ministry of Commerce’s website announces varying levels of tariffs on $60 billion in American goods, and states (in Chinese):

“The American side’s measures recklessly violate World Trade Organization rules as well as other international obligations…and gravely threaten the Chinese side’s economic interests and security.”

China’s stock market has fallen behind Japan’s in total equity value for the first time since 2014, the Financial Times reports (paywall). While the stock market drop is only one measure of the economic uncertainty that the trade war has precipitated, the FT says that it “underscores how the ongoing trade spat with the US, Beijing’s campaign to temper debt-fuelled growth and signs of slowing domestic demand have combined to dampen investor sentiment for Chinese assets.”

The Wall Street Journal breaks down (paywall) the types of American products that China plans to hit with different levels of tariffs:

“Some 662 kinds of products including small and medium-size airplanes and computers that could be hit with a 5% duty; nearly 1,000 products including coffee beans and textiles that could be slapped with a 10% duty; another more than 1,000 products such as chemicals and deodorant that could be levied at 20%; some 2,493 products such as meat, wine and liquefied natural gas that could be levied at 25%.”

The Journal points out that China only imports about $153.9 billion in American goods, so if American tariffs go beyond that level, China has to get creative with proportional countermeasures. Already, the Journal notes China has been “increasing checks of American products at borders, delaying licenses for U.S. businesses and essentially blocking Qualcomm Inc.’s $44 billion planned acquisition of NXP Semiconductors.”

Other recent moves by China include:

  • Securing a verbal agreement with the EU that it “would not adopt any policy against Beijing,” the South China Morning Post reports, actively countering an apparent push by the Trump administration to mend ties with North American and European trading partners ahead of a more prolonged trade battle with China.

  • Suspending U.S. oil imports, as “China’s Unipec, the trading arm of state oil major Sinopec…has no new bookings of U.S. crude until at least October,” Reuters reports.

  • Preserving a credit card monopoly for Union Pay, despite American card companies like Visa, Mastercard, and American Express applying for licenses over a year ago.

  • Ordering “banks to lend more to small business,” to try “to head off growing risks to jobs and growth from a trade war with Washington.” SCMP reports that the Financial Stability and Development Committee, headed by vice-premier and point person on trade, Liu He, made this directive.

  • Stepping in to support Chinese currency, as “a record string of weekly losses saw the currency closing in on the key milestone of 7 per dollar,” Bloomberg reports (paywall). Economists like Leland Miller, the international CEO of China Beige Book, believe that passing that milestone would be effectively a “declaration of currency war.”

Meanwhile, signals from Washington continue to be extremely negative:

  • There is “zero” engagement between the two sides as trade tensions continue to escalate, a senior Trump administration official told CNBC.

  • The official said there had been “one call in the past few days” — apparently referring to what the South China Morning Post reports was an unsuccessful attempt by Treasury Secretary Mnuchin to persuade vice-premier Liu He to approve the Qualcomm-NXP deal — but it had resolved nothing.

  • Hikvision, a Chinese surveillance equipment maker, is the latest Chinese company to be targeted with a ban on sales to the American government. “On August 1st, the US Senate passed the conference report for the 2019 National Defense Authorization Act, which includes new provisions on Hikvision, ZTE, and Huawei,” but “the bill is yet to be confirmed by US President Donald Trump,” according to the SCMP.

—Lucas Niewenhuis

3. Is the Party at the beach?

Beidaihe is a resort town on the Bohai Sea about 170 miles east of Beijing. It’s not exactly the Bahamas, but it is a moderately pleasant place to escape the heat of the capital in the summer. Which is what China’s Communist Party leaders have done nearly every summer since 1953, taking a few days or weeks to plan future strategies and plot the course of the nation.

Only Party insiders get to attend or even know about the closed-door meetings. One American diplomat called Beidaihe “China’s smoke-filled room” — the source of that quote is an anecdote by Adi Ignatius about running into senior leaders at Beidaihe in 1987.

Today, the excellent Trivium newsletter on Chinese politics and economics says this year’s meetings have probably begun:

Top leaders are probably at the beach. It’s been 72 hours since any Politburo Standing Committee member has made a public appearance. That leads us to believe that top leaders have begun their annual summer holidays. And that means that the political news out of China is likely to be pretty thin over the next two weeks.

—Jeremy Goldkorn

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4. China and the fall of Angola’s Isabel dos Santos  

In 2013, Forbes magazine reported that Isabel dos Santos had become Africa’s first female billionaire. Her father, José Eduardo dos Santos, was the president of Angola from 1979 to 2017. In a profile of Isabel (porous paywall), the Financial Times says his government became “synonymous with the diversion of public funds into private pockets.” Many of those pockets belonged to Isabel.

But with Daddy out of office, the wolves are at the door. Chinese state broadcaster CGTN reports that Isabel “failed to respond to her first summons from state prosecutors over graft allegations during her time at the helm of Sonangol, the state oil company.” The investigation relates to allegations of “suspicious transactions overseen by dos Santos, including a payment of $38 million made to a Dubai-based company she approved after she was dismissed from the oil company.” But there were many other deals, too, and many of them involve Chinese entities. Maka Angola reports on the cancellation of the following:

  • President Dos Santos awarded “the construction of the Caculo-Cabaça dam and hydropower station for US $4.5 billion” to a 50/50 consortium with a shell company controlled by his daughter and China Gezhouba Group Corporation. The Industrial Commercial Bank of China (ICBC) secured the financing in return for Angolan oil.

  • Isabel was awarded a planned coastal road from Luanda’s city center to a nearby neighborhood, including a project to reclaim 400 hectares from the sea. The contract was worth over US$700 million, and was to be financed by the ICBC and the Chinese Eximbank.

  • A final act of corruption took place in August last year during the Angolan elections that drove President Dos Santos from office: “He signed the Presidential Decree 207/17 that granted Isabel dos Santos’ Atlantic Ventures S.A the contract to build and have the exclusive management rights to the [Luanda] port for 30 years (plus 15).” It seems Isabel did not have the time to secure financing from ICBC for this one.

—Jeremy Goldkorn

5. Cracks in Xi Jinping’s façade

Yesterday, I asked if the publication of a critical essay by Tsinghua University law professor Xu Zhangrun 许章润 marked “peak Xi Jinping.” Some follow-up from Tom Mitchell of the Financial Times in an article titled China’s controversies create cracks in Xi’s façade (porous paywall):

  • “‘It’s the hardest time for Xi since he assumed power,’ said Zhang Lifan 章立凡, a Beijing-based historian and prominent critic of the Chinese Communist party. ‘People are afraid that the captain has sailed the ship into a dangerous area and may sink it.’”

  • “At times the strains on Mr Xi, 65, have appeared to show. In mid-July, a report from the foreign media pool that covers the president’s public engagements noted that he ‘was noticeably exhausted’ and sometimes confused in meetings with Jim Yong Kim, World Bank president, and Audrey Azoulay, Unesco director-general.”

  • The trade war and “Mr Xi’s own efforts to reduce financial risk” could be a “double-whammy that could result in dramatically slower economic growth.”

  • “Social discontent in China is also bubbling to the surface,” as epitomized by the recent vaccine scandal.

  • “In private,” says the FT, “more Chinese officials and intellectuals are expressing doubts about his handling of relations with the U.S.”

Nonetheless, no one is suggesting that there are any real threats to Xi’s power at this stage. The FT’s take: “There is no evidence that Mr Xi’s grip on power has weakened because of the mounting challenges that lie ahead of him, and in official pronouncements the Chinese government appears confident of both its trade war strategy and the economic outlook.”

—Jeremy Goldkorn

6. I vote for the chicken

Some ephemera from the Chinese internet:

  • The abbot of Beijing’s Longquan Temple has been accused of sexually abusing multiple female nuns as we reported on Wednesday. Chinese internet wags are now using the hashtag #阿metoo佛 (ā me too fó) to refer to the scandal. It’s a play on the Chinese pronunciation of Amitābha (阿弥陀佛 āmítuófó), the name of a celestial buddha according to Mahayana tradition, which Chinese believers often use as a chant. China Digital Times has more.

  • Winnie the Pooh became ursa non grata in China in 2013 after internet users circulated a meme comparing the portly bear to Xi Jinping. Censorship of images and text about Pooh Bear continues to this day. Now Hollywood Reporter says that Christopher Robin, “a live-action/CGI family film that stars Ewan McGregor, received a no-go from the country’s film authorities.” The article cites a source who “pinned the blame on China’s crackdown on images of the Winnie the Pooh character.”

  • The Youth Department of the KMT (国民党 guómíndǎng), currently Taiwan’s opposition party, is choosing a new mascot, and they have revealed the 10 finalists (see image above), according to New Talk (in Chinese). I vote for the chicken.

—Jeremy Goldkorn


Here are the stories that caught our eye this week:

  • A secret, censored version of Google’s search engine for Android phones is reportedly under development for the Chinese market, but multiple reports have cast doubt on the likelihood of the product ever being released.

  • The Trump administration is impatient for an immediate solution to a range of issues it sees with China, and reportedly wants to inflict “painful measures” on China to “force it back to the negotiating table on trade.” China Foreign Minister Wang Yi responded: “Calm down.”

  • The abbot of Longquan Temple in Beijing, Xuecheng 学诚, is the latest public figure to be accused of sexual misconduct in China.  

  • The faulty vaccine scandal grinds on: Furious parents were seen protesting and demanding justice in front of the National Health Commission, while others are overwhelming Hong Kong’s private clinics by booking their children’s inoculations months in advance.


BUSINESS AND TECHNOLOGY:

POLITICS AND CURRENT AFFAIRS:

SOCIETY AND CULTURE:


VIDEO OF THE DAY

Viral Videos in China, July 27-August 3

What is China watching? This week: A safety net prevents a tragedy, dead fish stink up a reservoir after water temperatures rise to inhospitable levels, and a runaway wagon with an intent to harm.


ON SUPCHINA

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PHOTO FROM MICHAEL YAMASHITA

Waiting for the train

In this photo from 1982, people wait for a “green train” (绿皮火车 lǜpí huǒchē) at a railroad station in Wuxi, Jiangsu Province. The slower, old-style trains of the 1980s and ’90s are no longer common in China because of the country’s growing high-speed rail network. It currently covers 15,500 miles and has high-speed trains running through almost every large city and tourist destination. Watch this video to learn more about China’s fast-developing railroad network.

Jia Guo

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