Dangerous Dependence: What If China Stops Supplying Medicines?

Corona hits China with full force, fever and cold medicines are out of stock in many places.

Dangerous Dependence: What If China Stops Supplying Medicines?

Corona hits China with full force, fever and cold medicines are out of stock in many places. In order to prevent a supply gap, Beijing could restrict their export - with fatal consequences for Germany and Europe.

This Friday, Dalian Leasun Food, a Chinese canned fruit maker, felt compelled to clarify on Weibo. The short message was that peaches in a can are not a medicinal product. The belief that canned fruit can alleviate the symptoms of Covid-19 has led to hamster purchases in China - probably out of desperation because conventional flu and painkillers are out of stock in many places. The abrupt end of the zero-Covid strategy plunges the country into chaos. Although the government has so far only acknowledged a few deaths, reporters on the ground paint a different picture. Full clinics, crematoria in continuous operation and endless queues in front of pharmacies could only be the beginning.

China's largest manufacturer of ibuprofen, Xinhua Pharmaceuticals, is already struggling to keep up with post-production of the painkiller. Where there are still cold medicines, they sell out quickly because many people send the medicines to family members in other regions of the country. "We Chinese are too many," says a Beijing pharmacist, explaining her empty shelves. The government's failure to build up sufficient stocks of medicines has long since affected neighboring regions as well. According to CNN, generic versions of paracetamol and ibuprofen are sometimes out of stock in Macau, Taiwan and even Australia, prompting some local pharmacies to limit sales.

If the forecasts of experts are correct, 80 to 90 percent of the Chinese will be infected with Covid-19 in three waves. Almost a million people could die from the disease. Beijing is required to prevent the worst - and that can also have consequences for Germany. In order to provide its own population with sufficient fever and cold medicine, China could restrict the export of generics, i.e. imitation products of medicines that are no longer patent-protected. That would also increase the shortage of certain medicines in Germany, because although generics cover 78 percent of the medicines required by statutory health insurance companies, they are hardly ever produced in Europe and Germany.

Although the sales market for generics is huge, you can hardly make money with it - unless you keep production costs low (China) or produce in large quantities (India). The example of ibuprofen shows how important China is as a supplier not only of finished generics, but also of many active ingredients: The finished drug is not only produced by Chinese manufacturers, but the underlying active ingredient, which is also made into tablets or tablets in India and the USA Fever juice is processed comes largely from the People's Republic. According to the Chinese market research institute Daxue Consulting, 70 percent of the generic drugs manufactured in India contain an active ingredient produced in China - the dependency on Chinese imports is high not only for ibuprofen, but also for paracetamol and penicillin.

In the worst case, an export ban could also mean that India, after China, could also fail as a supplier of certain medicines - the countries that account for two-thirds of global generics production. Germany and Europe have entered this dependency with their eyes wide open. For two decades, cost considerations have allowed generic drug production to increasingly shift to Asia (and to very few manufacturers there). All this is not new. Even before the corona pandemic, the Pro-Generica Association warned of the consequences that such a dependency can have on the supply of vital active ingredients in Germany. But nothing has changed in practice.

Instead, Minister of Health Karl Lauterbach initially exacerbated the imbalance. For local companies, producing generics is already unprofitable because the costs are high and the prices are capped by law. After Lauterbach announced an increase in the manufacturer discount for 2023 - i.e. the discount that pharmaceutical companies must grant to health insurers for prescription drugs - the industry fears additional burdens of 1.3 billion euros. As a result, corporations such as Stada, one of the largest German suppliers of generics and over-the-counter medicines, are coming under even greater cost pressure and will soon be able to do without the barely cost-effective production of generics.

To prevent this, Lauterbach now wants to loosen the price cap again. In the future, statutory health insurance companies will have to pay more for children's medicines so that their production is also worthwhile for German companies. In addition, the health insurers should be obliged to no longer only purchase generics from the cheapest manufacturer (e.g. in Asia), but also from more expensive European producers. Because that is also part of the truth: Because the health insurance companies have concluded discount agreements for years to exclusively supply their customers with generics from the cheapest provider, many local pharmaceutical companies have gone away empty-handed. Of eleven companies that were still producing fever juices with paracetamol in Germany in 2010, only one remained.

Will Lauterbach's corrections be enough to revive the generic drug market in Germany and Europe? Experts have their doubts. And anyway, the minister's plans are not a short-term solution for the worst case. Should China actually restrict its exports, Europe - after the shortage of medical masks in the first Corona year - would again face a distribution battle for the stocks of the few other suppliers. By then at the latest, according to coalition circles, the European Union would be in demand as a mediator to coordinate the fair allocation of scarce medicines and to prevent European countries from booting each other out.