Jinan Zhuocheng Bio-Tech Co., Ltd.

Active pharmaceutical ingredients (APIs) and pharmaceutical intermediates occupy a central position in the pharmaceutical value chain. They connect upstream basic and fine chemical raw materials with downstream manufacturing processes for chemical formulations and biological medicines, forming an essential foundation for pharmaceutical production.

In recent years, global pharmaceutical demand has continued to grow, driven by population ageing, the rising prevalence of chronic diseases, and improved access to healthcare in emerging markets. At the same time, the global pharmaceutical industry is entering a new patent-cliff cycle. The expiration of patents on many high-value innovative medicines is creating additional market opportunities for generic drug manufacturers and, consequently, for their upstream API and intermediate suppliers.

Global manufacturing patterns are also changing. Stricter environmental regulations and rising energy and labor costs have encouraged some developed economies in Europe and North America to reduce their capacity for conventional API production. As a result, API manufacturing has increasingly shifted toward Asia, particularly China and India.

China has become one of the world's leading producers and exporters of APIs and pharmaceutical intermediates. In 2025, China's exports of APIs and intermediates reached USD 42.87 billion, while its chemical API supply accounted for approximately 40% of global demand.

Despite these scale advantages, the industry faces several challenges, including pressure on margins in bulk API segments, the need to upgrade product portfolios, and accelerating requirements for green and low-carbon manufacturing.

This article examines the development of China's API and pharmaceutical intermediates industry from three perspectives: industry development, barriers to entry, and the competitive landscape.

1. Development of the API and Pharmaceutical Intermediates Industry

1.1 Industry Overview

(1) Overview of the Chemical Pharmaceutical Value Chain

The pharmaceutical manufacturing industry includes several major segments, such as chemical API manufacturing, finished chemical formulations, processing of traditional Chinese medicinal materials, proprietary Chinese medicines, biological products, medical materials and supplies, pharmaceutical excipients, and packaging materials.

Chemical API manufacturing is an essential part of the chemical pharmaceutical industry.

The complete chemical pharmaceutical value chain generally consists of four stages: basic chemical raw materials, pharmaceutical intermediates, chemical APIs, and finished pharmaceutical formulations. Basic chemical materials undergo multiple chemical reactions or biotransformation processes to produce pharmaceutical intermediates. These intermediates are then converted into APIs, which are subsequently processed into finished dosage forms such as tablets, capsules, and injections.

(2) APIs and Pharmaceutical Intermediates

Chemical APIs are active substances obtained through chemical synthesis, biological fermentation, or other manufacturing processes. They are responsible for the pharmacological activity of a medicine. APIs generally cannot be administered directly to patients and must undergo further processing to become finished pharmaceutical dosage forms.

Pharmaceutical intermediates are key intermediate compounds used in API synthesis. They are typically small-molecule organic compounds produced through multiple chemical reactions or biotransformation processes, using basic resources such as petroleum, natural gas, or biomass as starting materials.

Based on product lifecycle, market characteristics, and technical requirements, APIs can generally be classified into three categories:

• Bulk APIs: These products have relatively stable demand, broad applications, and large production volumes. Typical categories include antibiotics, vitamins, amino acids, and hormones. Their manufacturing processes are generally mature, but value-added levels are relatively low and price competition is often intense.

• Specialty APIs: These mainly include APIs used in generic medicines following the expiration of the relevant formulation patents. Major therapeutic areas include cardiovascular diseases, antiviral treatments, and oncology. Compared with conventional bulk APIs, specialty APIs generally involve higher technical and quality requirements and offer greater value-added potential. Their global supply chains are increasingly expanding into manufacturing-oriented countries such as China.

• Patent-related APIs: These are primarily APIs associated with innovative medicines under patent protection, together with certain advanced intermediates subject to stringent regulatory controls. They support the development and commercialization of original medicines and typically require advanced technologies, robust quality systems, and intellectual property protection. Production is often carried out by originator companies themselves or through contract manufacturing arrangements.

1.2 Global Market Development

(1) Growing Market Demand and Patent Expirations Supporting Industry Expansion

APIs and pharmaceutical intermediates are closely linked to global pharmaceutical consumption and the development of the pharmaceutical manufacturing sector.

Population ageing, the increasing prevalence of chronic diseases, and improved healthcare access in emerging markets are supporting long-term growth in global pharmaceutical demand. These factors provide a stable market foundation for the API and pharmaceutical intermediates industry.

Meanwhile, the pharmaceutical industry is entering another major patent-cliff cycle. According to Evaluate Pharma's World Preview 2025, innovative medicines with approximately USD 314 billion in cumulative sales are expected to lose patent protection between 2026 and 2030. The year 2028 is projected to be a particularly concentrated period, with affected medicines generating approximately USD 108 billion in annual sales.

The expiration of patents on high-value medicines creates opportunities for generic drug manufacturers to enter markets previously dominated by originator products. This transition also generates additional demand for the corresponding APIs and pharmaceutical intermediates.

According to Fortune Business Insights, the global API market was valued at approximately USD 245.26 billion in 2025 and is projected to reach USD 457.75 billion by 2034, representing a compound annual growth rate (CAGR) of approximately 7.26%.

Mordor Intelligence estimates that the global pharmaceutical intermediates market reached approximately USD 45.45 billion in 2025 and could grow to USD 68.37 billion by 2031, with a CAGR of approximately 7.05%.

(2) Global Manufacturing Capacity Shifting Eastward: China and India Reshaping the Industry

Before the 1990s, Europe and North America dominated global API and high-value pharmaceutical intermediate manufacturing. Their advantages included established chemical industries, advanced synthesis technologies, and relatively comprehensive quality and environmental standards.

Over time, stricter environmental regulations, rising energy and labor costs, and the strategic shift of multinational pharmaceutical companies toward innovative drug R&D and finished formulations led some manufacturers in developed economies to reduce conventional API and intermediate production.

Certain manufacturing activities were increasingly outsourced or transferred to emerging markets with stronger cost advantages and industrial support systems.

China and India have become major beneficiaries of this transition. Their advantages include relatively complete chemical supply chains, a substantial pool of engineering and technical talent, improving GMP and EHS compliance capabilities, and supportive industrial policies.

Today, global API and pharmaceutical intermediate manufacturing is increasingly centered on China and India, while Japan, North America, and Western Europe continue to play important complementary roles. In addition to cost efficiency, the industry is placing greater emphasis on supply chain resilience, regional diversification, and regulatory compliance.

1.3 Development of China's API and Pharmaceutical Intermediates Industry

(1) Capacity Development and Structural Optimization: From Scale Expansion to High-Quality Growth

China's API industry began developing in the 1950s. During the planned economy period, production mainly focused on meeting basic domestic medical needs, with relatively limited manufacturing scale and technical capabilities.

Following the reform and opening-up period, market-oriented economic reforms and industrial policy support accelerated the industry's development. Chinese manufacturers gradually integrated into global pharmaceutical supply chains by leveraging their cost advantages. From the 1990s to the early 2000s, China established a leading position in several bulk API categories, including penicillin and vitamin C.

Since 2018, stricter environmental and workplace safety regulations, together with supply-side structural reforms, have accelerated the exit of certain small manufacturers with outdated, energy-intensive, and highly polluting processes. This resulted in a period of capacity adjustment across parts of the industry.

From 2020 onward, leading manufacturers accelerated investment in modern production facilities featuring higher manufacturing standards, automation, and environmentally friendly technologies. Advanced production capacity has gradually entered operation.

Since 2021, supported by China's carbon peaking and carbon neutrality strategy and the recovery of domestic and international demand, the industry's structure has continued to improve. Its growth model is gradually shifting away from extensive capacity expansion toward technology innovation, green manufacturing, and operational efficiency.

(2) Strong Domestic Demand Supporting Steady Market Expansion

China's large population, ageing demographic structure, rising prevalence of chronic diseases, and continuously improving medical insurance system have supported the growth of domestic pharmaceutical consumption.

These factors provide a stable demand base for upstream API and pharmaceutical intermediate manufacturers.

According to data from China's National Bureau of Statistics, in 2024, above-designated-size chemical API manufacturers generated operating revenue of RMB 578.3 billion, accounting for 22.90% of the total revenue of China's above-designated-size pharmaceutical industrial enterprises.

The pharmaceutical intermediates market has also continued to expand. Relevant estimates indicate that China's pharmaceutical intermediates market reached approximately RMB 272 billion in 2025 and is expected to grow to RMB 290 billion in 2026.

In terms of production volume, China's chemical API output reached 3.707 million tonnes in 2025, representing year-on-year growth of 1.6%. This provides continued support for demand across the upstream pharmaceutical intermediates sector.

(3) A Central Role in Global Supply Chains: China as a Major API Manufacturing and Export Base

Supported by a comprehensive basic chemical raw material supply system, established manufacturing capabilities, and well-developed industrial infrastructure, China has become one of the world's leading producers and exporters of APIs and pharmaceutical intermediates.

Since 2010, China's API production scale has consistently ranked among the world's largest. The country has significant capacity advantages in bulk API categories such as antibiotics, vitamins, analgesics and antipyretics, and hormones.

Chinese manufacturers have also made technological progress and achieved scaled production in specialty APIs and high-barrier intermediates used in therapeutic areas such as cardiovascular diseases, oncology, and diabetes.

According to data from organizations including the China Pharmaceutical Enterprise Management Association, Forward Industry Research Institute, and QY Research, China's chemical API supply accounts for approximately 40% of global demand. Certain key products, including heparin and paracetamol (acetaminophen), are estimated to hold global market shares of approximately 70%.

In international trade, Chinese APIs and pharmaceutical intermediates are exported to more than 200 countries and regions, placing China among the world's largest exporters in this sector.

According to the China Chamber of Commerce for Import & Export of Medicines & Health Products, China's API and intermediate exports increased from USD 23.75 billion in 2016 to USD 42.87 billion in 2025, representing a CAGR of approximately 6.8%.

In 2025, China's total imports and exports of APIs and pharmaceutical intermediates reached USD 55.25 billion, up 2.7% year on year. Exports amounted to USD 42.87 billion, while imports reached USD 12.38 billion. The original data indicates that exports increased by 14.5% year on year.

India and the United States remained China's two largest export markets. In 2025, China's API and intermediate exports to India and the United States reached USD 6.26 billion and USD 4.07 billion, respectively.

(4) Policy Support for Green Transformation: Biotechnology Manufacturing as a Key Development Direction

As China's carbon peaking and carbon neutrality strategy advances and environmental regulations become more stringent, green, low-carbon, and efficient manufacturing technologies are becoming increasingly important to the transformation of the API industry.

Biomanufacturing technologies, particularly enzymatic synthesis and biological fermentation, are demonstrating the potential to replace conventional chemical synthesis in selected products and manufacturing processes.

At the national level, China has introduced a series of policy documents, including the 14th Five-Year Plan for the Development of the Pharmaceutical Industry, the Implementation Plan for Promoting High-Quality Development of the API Industry, the Guiding Opinions on Promoting Green Development of the API Industry, and the Industrial Structure Adjustment Guidance Catalogue (2024 Edition).

These policies encourage the integration of pharmaceutical manufacturing and biotechnology, while supporting the development of API production toward industrial park-based, green, and intelligent manufacturing models. They also encourage the adoption of advanced technologies such as membrane separation, advanced crystallization, enzymatic synthesis, and continuous processing.

From an industrial perspective, enzymatic synthesis uses the high selectivity of biological enzymes to catalyze specific reactions. In suitable manufacturing processes, it can reduce the number of reaction steps required by conventional chemical synthesis, shorten production cycles, and improve selectivity and product yield. Its relatively mild reaction conditions can also help reduce energy consumption and unwanted by-products.

Biological fermentation uses raw materials such as glucose and nitrogen sources to produce target compounds through microbial metabolism. For suitable products, fermentation can replace certain complex chemical synthesis steps, reduce dependence on specific chemical raw materials, and offer advantages in by-product control and environmental management.

It is important to note that biomanufacturing is not universally suitable for all API products. Its commercial application depends on molecular structure, enzyme or microbial systems, process stability, production costs, and scalability. Nevertheless, continued technological progress is expected to make biomanufacturing an important direction for greener API production and process innovation.

2. Barriers to Entry in the API and Pharmaceutical Intermediates Industry

APIs and pharmaceutical intermediates are directly related to medicine quality and patient safety. The industry is technology-intensive, capital-intensive, and subject to stringent regulatory requirements.

New entrants must establish not only manufacturing capabilities but also comprehensive systems covering R&D, quality management, environmental protection, workplace safety, and market access.

The main barriers to entry include the following five areas.

1. Regulatory and Market Access Barriers

In China, API manufacturing is subject to strict regulatory supervision under laws and regulations such as the Drug Administration Law of the People's Republic of China and the Measures for the Supervision and Administration of Drug Manufacturing.

Manufacturers must obtain a Drug Manufacturing License and comply with relevant Good Manufacturing Practice (GMP) requirements. Commercialization also involves regulatory procedures such as the associated review and approval of APIs and their corresponding formulations.

In regulated overseas markets, products entering Europe, the United States, Japan, and other jurisdictions must meet local registration, quality, and regulatory requirements. Depending on the target market and product, this may involve US FDA inspections, European CEP-related procedures, and requirements overseen by Japan's Pharmaceuticals and Medical Devices Agency (PMDA).

Regulatory systems, submission requirements, and inspection standards vary across markets. Establishing the necessary qualifications and compliance systems therefore requires considerable time, investment, and technical expertise.

2. Technology and Process Barriers

API and pharmaceutical intermediate manufacturing is a technology-intensive industry involving multiple disciplines and processes, including chemical synthesis, biological fermentation, enzymatic synthesis, separation, purification, and crystallization.

Manufacturing processes are often lengthy and involve numerous reaction steps. They require precise control of reaction conditions, impurity profiles, process stability, and product quality consistency.

Developing and optimizing core manufacturing processes requires long-term R&D investment, engineering experience, and validation at commercial production scale. Established manufacturers generally possess proprietary process technologies covering process development, manufacturing control, analytical testing, and continuous improvement.

These accumulated capabilities create a significant technological barrier for new market entrants.

3. Customer Qualification Barriers

APIs and pharmaceutical intermediates are essential inputs for finished drug manufacturing. Their quality and consistency directly affect the quality of finished formulations and, ultimately, patient safety.

As a result, downstream pharmaceutical manufacturers generally conduct rigorous supplier audits, sample evaluations, process assessments, and ongoing quality reviews before approving a new supplier.

For critical API products, formulation manufacturers are often reluctant to change suppliers frequently. Instead, they tend to maintain relatively stable procurement systems based on qualified and validated suppliers.

New suppliers may need to complete lengthy procedures involving sample testing, quality audits, process verification, and formal approval before entering commercial supply chains. Established customer relationships and supply records therefore represent important competitive barriers.

4. Capital Investment Barriers

The API industry requires substantial capital investment.

Initial R&D expenditure can be significant, while technology development and process validation may take considerable time. Projects also face uncertainties, including technical route adjustments and potential development failures.

Manufacturing facilities require substantial fixed-asset investment in production buildings, reaction equipment, separation and purification systems, analytical instruments, safety facilities, and environmental treatment systems.

Some advanced equipment and precision analytical instruments may also depend on imports. In addition, manufacturers must maintain ongoing investment in R&D, quality management, environmental protection, and workplace safety.

These requirements place considerable demands on a company's overall financial resources.

5. Environmental Compliance Barriers

API and pharmaceutical intermediate manufacturing involves multiple chemical reactions, separation processes, and purification procedures. Certain processes may generate wastewater, exhaust gases, solid waste, and pollutants with high salt content or high concentrations of organic compounds.

As a result, environmental compliance requirements are generally more demanding than those in many conventional manufacturing sectors.

With the continued implementation of China's carbon neutrality strategy and stricter environmental supervision, manufacturers must invest in cleaner production, process optimization, wastewater and exhaust gas treatment, solid waste recycling, and energy efficiency.

Companies lacking mature environmental technologies and effective cost-control capabilities may face increasing compliance pressure and operating costs. Some outdated production capacity may eventually be forced out of the market.

3. Competitive Landscape of the API and Pharmaceutical Intermediates Industry

3.1 International Competitive Landscape

Before the 1990s, European and North American manufacturers dominated global API production through their established chemical industries and advanced synthesis technologies.

After the 1990s, rising environmental requirements, higher production costs, and structural changes among multinational pharmaceutical companies encouraged some manufacturers in developed economies to reduce in-house API production and adopt more outsourcing-based supply models.

Meanwhile, emerging markets such as China and India strengthened their positions through comprehensive chemical industry support, competitive manufacturing costs, and large-scale production capabilities.

These developments have led to structural changes in global API supply chains.

Competition also varies across product categories. In specialty APIs and high-value patent-related products, European and American companies retain important advantages in R&D innovation, advanced manufacturing processes, intellectual property protection, and customer relationships.

China and India, by contrast, have established significant cost and capacity advantages in bulk APIs and generic drug APIs. They are also gradually expanding into specialty APIs and high-end pharmaceutical intermediates with more demanding technical requirements.

Overall, the global API industry is moving from a traditionally regionally concentrated production model toward a more diversified structure characterized by multi-regional supply, specialized manufacturing, and greater supply chain coordination.

Cost competitiveness, product quality, technological capabilities, regulatory compliance, and supply reliability are increasingly important determinants of international competitiveness.

3.2 Competitive Landscape in China

China's chemical API industry is highly market-oriented, with a large number of participants and relatively strong competition.

In the bulk API segment, China has established a mature industrial system and is one of the world's most important production and export bases.

According to statistics from China's National Medical Products Administration (NMPA), there were 1,712 API manufacturing enterprises in China in 2024. Only a relatively small number generated annual operating revenue exceeding RMB 10 billion.

Overall, the industry is characterized by a large number of manufacturers, significant differences in individual company scale, and relatively low market concentration.

In terms of technology and product structure, domestic manufacturers still face gaps with leading European and American companies in certain areas of advanced product development, core manufacturing processes, and innovation capabilities.

Competition is therefore increasingly segmented.

In bulk APIs and certain lower-end generic drug APIs with relatively low technological barriers, the number of market participants is high, product differentiation is limited, and price competition is intense.

By contrast, the number of participants in high-value specialty APIs, complex pharmaceutical intermediates, and patent-related products is relatively limited due to higher technological, quality, and customer qualification requirements.

From a profitability and operational perspective, the API industry generally faces greater margin pressure than downstream finished formulation manufacturers. Business performance can also be affected by fluctuations in raw material prices, energy costs, downstream demand, and foreign exchange rates.

In recent years, improvements in environmental and workplace safety regulations, together with rising labor, energy, and compliance costs, have increased operating pressure on small and medium-sized manufacturers.

Against this backdrop, the industry is accelerating its transition toward high-value specialty APIs, innovative drug intermediates, and integrated API-to-formulation business models with higher technological barriers.

Looking ahead, technological upgrading, stricter environmental requirements, and evolving international market access standards are expected to encourage further industry consolidation.

Market resources are likely to become increasingly concentrated among manufacturers with proprietary technologies, comprehensive global compliance systems, large-scale production capabilities, and integrated supply chain advantages. As a result, market concentration may gradually increase.

Conclusion

APIs and pharmaceutical intermediates form an essential foundation of the global pharmaceutical supply chain.

Population ageing, rising demand for chronic disease treatments, and the expiration of patents on innovative medicines provide long-term market opportunities. Meanwhile, changes in global manufacturing capacity and supply chain strategies create new opportunities for Chinese manufacturers to participate in international pharmaceutical production.

However, competition in the industry is no longer determined solely by production scale and cost advantages. As environmental regulations, quality standards, and international market access requirements continue to evolve, technological innovation, green manufacturing, process stability, quality management, and customer qualification are becoming increasingly important sources of long-term competitiveness.

For Chinese API manufacturers, future development will require more than maintaining their leading positions in bulk API supply. Companies will also need to strengthen their capabilities in specialty APIs, high-barrier pharmaceutical intermediates, and higher-value products.

Through closer API-to-formulation integration, stronger international compliance systems, and diversified global market strategies, Chinese manufacturers can gradually transform their scale advantages into broader and more sustainable competitive strengths.