China is the world’s second largest pharmaceutical market and owner of the second highest number of biotechnology and pharmaceutical intellectual property rights, but only a few domestically developed inventive new drugs have won government approval to be marketed. In the first 10 months of last year, out of 35 new drugs that received Chinese regulatory approval, just one was developed by a domestic firm, according to a report by business consultancy McKinsey. Three of the 11 drugs given the marketing green light in 2015 and 2016 were developed by local firms. In the United States, of the 46 new drugs given consent for marketing by regulators last year, 28 were developed by U.S. firms and none were Chinese. “Drug innovation is still nascent in China but, following sweeping regulatory reform, it has been moving rapidly in that direction in the past couple of years,” said Marietta Wu, Managing Director of private equity firm Quan Capital and a co-founder of Shanghai-based drugs developer Zai Lab. “Compared to the U.S., the innovation gap is still significant,” but the Chinese government is determined to change that.

The “Made in China 2025” strategy unveiled in 2015 laid out specific five and 10-year targets for domestic firms on drugs innovation, export market development and import substitution. Being able to produce better drugs domestically is key to China’s ability to lower costs and improve accessibility of medicines, especially for life-threatening cancers. Recently, Premier Li Keqiang renewed his call on officials to speed up price cuts for cancer treatment. The elimination of tariffs and drastic cuts to value-added tax (VAT) on imported cancer drugs in May and June this year reduced drug costs in the short term, but greater self-sufficiency and intellectual property ownership are the longer term answers.

Some domestic firms have already achieved partial breakthroughs on innovative drugs development for cancers. Nanjing-based Genscript Biotech announced in December that Johnson & Johnson’s offshoot Janssen Biotech had agreed to pay Genscript USD350 million upfront to co-develop a blood cancer treatment. China is a latecomer in drug innovation. Two of only a handful of drugs to make it past the industry watchdog in decades were Shenzhen ChipScreen Biosciences’ treatment for relapsed T-cell lymphoma in 2014, and Jiangsu Hengrui Medicine’s new breast cancer treatment in August this year. Last month another approval was announced, by Hong Kong tycoon Li Ka-shing’s Hutchison China MediTech, which has invested USD590 million since 2000 into its mainland drug research projects. China MediTech Chief Executive Christian Hogg said the sheer size of China’s patient pool – with a third of the world’s cases of colorectal cancer, half for gastric cancer and 40% for lung cancer – is key to its potential as a future power in biopharmaceutical industry development.

As part of “Made in China 2025”, the Chinese pharmaceutical industry is expected to develop 10 to 20 innovative drugs by 2020 and commercialize 20 to 30 by 2025. The government also wants to see at least 100 pharmaceutical firms gaining U.S., EU, Japanese and World Health Organization (WHO) certification. By 2020, Beijing wants registration completed for five new biological drugs so they can be marketed in developed nations, rising to 10 by 2025. Other objectives include breakthroughs in 10 to 15 “major core technologies” by 2020, and the ability to produce generic versions of 90% of blockbuster drugs after their international patents expire, the South China Morning Post reports.

China’s pharmaceutical firms have spent a combined USD7.2 billion on research and development in 2016, according to the Brookings Institution. While modest compared to the USD156 billion spent globally by pharmaceutical firms and the USD93.6 billion outlay of the world’s top 20 drug developers – mostly based in Western nations – China’s spending has jumped 44-fold from USD163 million in 2000.