Jinan Zhuocheng Bio-Tech Co., Ltd.

China’s veterinary API industry is experiencing a classic “siege” scenario.

Those outside the industry want to get in. Since the second half of 2025, announcements of new veterinary API projects have continued to emerge. Huisheng Bio-Tech, for example, plans to invest RMB 1 billion in a 2,000-tonne macrolide API production project in Horgos, Xinjiang. Shandong Dinghao Pharmaceutical is investing RMB 320 million in a project with an annual capacity of 120 tonnes of cephalosporin APIs, while Lingbao Hasen Pharmaceutical plans to invest RMB 550 million in a 300-tonne streptomycin sulfate project.

Each investment reflects the determination of new entrants to secure a position in the market.

Yet companies already inside the industry are looking for ways out. At the 2026 Two Sessions, Zhang Weiyuan, CPPCC National Committee member and chairman of Huisheng Bio-Tech, described the industry as facing intense competition among approximately 1,700 veterinary pharmaceutical companies, with around 70% of production capacity underutilized and nearly 90% of low-value-added segments caught in severe competition.

Veterinary API prices also remained under pressure at the beginning of 2026. Major products such as Florfenicol were trading near historically low levels, while Doxycycline Hydrochloride recorded a decline of 17.71%.

If the industry is already facing serious overcapacity, why are new projects still being launched?

The Reality Behind Overcapacity: Excess at the Low End, Shortages at the High End

The key to understanding this apparent contradiction is recognizing that the industry's “overcapacity” is structural rather than universal.

According to industry research, capacity utilization remains relatively low in several veterinary API categories. Utilization of antimicrobial production capacity is estimated at approximately 61.6%, while antiparasitic products are even lower at around 41.6%. A significant portion of existing capacity is therefore underutilized.

Domestic manufacturers are competing aggressively for thin margins, with intense price competition and increasingly crowded marketing channels further squeezing profitability.

However, this does not mean that all veterinary APIs are oversupplied.

China controls nearly 30% of global API production capacity, making it the world's largest API manufacturing base. At the same time, high-end veterinary pharmaceutical and formulation markets remain dominated by international animal-health companies such as Zoetis, Elanco, and Boehringer Ingelheim.

While international animal-health leaders can generate substantial revenue from high-value products such as companion-animal vaccines and advanced formulations, many Chinese manufacturers are still competing primarily in traditional chemical veterinary drugs, where growth remains relatively modest.

R&D investment is another major gap. The average R&D intensity of China's veterinary pharmaceutical industry is estimated at only around 2.3%, significantly below the approximately 8% level of major international players.

In other words, low-end capacity is oversupplied, while high-end capacity remains insufficient. This structural mismatch is one of the most important reasons behind the current investment cycle.

New Projects Are Not Simply Repeating Old Capacity

A closer look at recent investment projects shows that many of them are not simply adding conventional capacity. Instead, they are attempting to secure positions in segments where cost advantages or technological barriers can provide stronger competitiveness.

Huisheng Bio-Tech's Xinjiang project is essentially a cost-structure strategy. Energy is one of the major cost components in fermentation-based API production, particularly electricity and coal-related costs. The relatively competitive energy costs available in the Horgos area can provide manufacturers with a structural cost advantage compared with plants located in eastern and central China.

Locating production closer to lower-cost energy resources could therefore provide greater resilience when API prices decline. Rather than relying purely on higher market prices, the project attempts to improve profitability through a lower production-cost base.

The technology route is also important. The project incorporates a synthetic-biology-oriented manufacturing approach aimed at producing higher-purity molecules and addressing certain challenges associated with high-end veterinary and companion-animal applications. As regulatory requirements concerning toxicity, residues, and environmental protection become stricter, reducing impurities and waste generation at the production stage can also help lower downstream treatment costs.

Shandong Dinghao Pharmaceutical's cephalosporin project follows a different logic: import substitution.

Products such as Ceftiofur Sodium and Cefquinome Sulfate have traditionally faced relatively high barriers in the high-end veterinary pharmaceutical market, where imported products have maintained a strong position. As demand for high-end disease-control solutions increases, domestic production capacity with competitive quality and cost could accelerate the substitution of imported products.

The Lingbao Hasen streptomycin sulfate project is positioned more toward international markets. The project emphasizes compliance with EU-GMP and U.S. FDA requirements, indicating that its target market extends beyond domestic demand. In veterinary API exports, manufacturing facilities capable of meeting stringent international regulatory standards are themselves a scarce resource.

The common feature of these projects is clear: they are attempting to establish positions in segments where cost advantages, technological capabilities, or regulatory barriers make competition more difficult.

The Underlying Logic: Strategic Positioning at the Bottom of the Cycle

During the first half of 2026, the veterinary API industry generally showed moderate revenue growth but significant differentiation in profitability. For many companies, revenue growth did not translate into higher profits, as declining product prices continued to erode margins.

However, some companies have performed strongly despite the challenging market environment.

Huisheng Bio-Tech, for example, recorded a 75.59% year-on-year increase in attributable net profit, while its Tylvalosin Tartrate API reportedly achieved a market share of more than 50%, with a gross margin of 47.91%, up 14.91 percentage points year on year. Sito Bio-Tech also recorded a 157.37% year-on-year increase in attributable net profit, while sales of Neomycin Sulfate reached a historical high.

The difference lies largely in the gap between commodity-scale products and differentiated products.

Products such as Florfenicol and Doxycycline Hydrochloride face significant capacity pressure and intense price competition. Even when leading manufacturers increase sales volumes, it can be difficult to fully offset the impact of falling prices.

By contrast, products such as Tylvalosin Tartrate and Tylosin can benefit from higher technical barriers, production scale, and stronger market concentration. Leading manufacturers therefore tend to have greater pricing power and stronger profitability.

This is also the logic behind some companies expanding capacity during the bottom of the cycle. When competitors are struggling in low-value segments, companies with stronger technology and cost structures can use the downturn to secure future market positions.

In this sense, the bottom of an industry cycle can also become an opportunity for low-cost expansion and strategic capacity positioning.

Where Is the “Siege” Heading?

Several trends are becoming increasingly clear.

First, the elimination of low-end capacity is likely to accelerate. With prices remaining weak and margins under pressure, small and mid-sized manufacturers without meaningful cost advantages, technology, or compliance capabilities will face increasing pressure to exit the market. The industry is likely to move further toward a “stronger players gain share while weaker players exit” structure.

Second, the threshold for new production projects is rising. At the 2026 Two Sessions, Zhang Weiyuan proposed establishing a nationwide capacity monitoring and early-warning mechanism and strengthening controls on repetitive construction of low-end capacity.

This suggests that future policy may place greater restrictions on low-value, repetitive projects while providing more support for high-end formulations, green veterinary pharmaceuticals, biotechnology, and other technologically differentiated areas.

For new projects, technological capabilities and structural cost advantages may increasingly become essential requirements rather than optional advantages.

Third, contract manufacturing could change the industry's competitive structure.

Zhang Weiyuan also proposed appropriately expanding contract manufacturing in the veterinary pharmaceutical sector by drawing on the human pharmaceutical industry and exploring a marketing authorization holder system.

If implemented, companies with strong R&D and product-development capabilities could concentrate resources on innovation while outsourcing manufacturing to more cost-efficient production facilities. For manufacturers already operating large-scale plants, contract manufacturing could become an important channel for absorbing idle capacity.

Conclusion

The “siege” surrounding China's veterinary API industry is ultimately a manifestation of the pain associated with industrial upgrading.

What is oversupplied is homogeneous capacity built around the old business model. What remains scarce is competitive capacity supported by structural cost advantages, technology, quality, and regulatory capabilities.

New investment projects should therefore not simply be interpreted as another wave of capacity expansion. Many of them reflect a deeper shift in the industry's competitive logic: from eastern China toward lower-cost energy regions, from conventional fermentation toward synthetic biology, and from domestic price competition toward international markets and higher regulatory standards.

At the same time, the risks are real. A RMB 1 billion investment and a construction cycle of more than a year inevitably involve engineering and commercialization risks. Whether new strains can maintain stable performance during large-scale fermentation and whether purification costs can be reduced as expected remain important uncertainties.

The veterinary API industry does not need more low-end capacity. It needs more competitive capacity.

The ultimate winners of this “siege” will not necessarily be the companies moving the fastest, but those moving in the right direction.