If anyone had doubts that Cold War dynamics had re-emerged in the international arena, Biden put them to rest in October 2022 with draconian restrictions on computer chip exports to China. Dubbed a “watershed” moment in US-China relations, it promises to inhibit Chinese advances in computing for many years.
Biden’s decision was followed up shortly by the UK, which in November 2022 blocked its largest semiconductor manufacturing plant from being acquired by a subsidiary of a Shanghai-listed company.
Will biotech be next up in the tech wars? We look at how souring relations between China and the West could affect the bioeconomy, a sector threaded through with international trade and research relationships.
The build-up to the tech wars
Biden’s 2022 computer chip restrictions were not a new departure but a ramp-up of rules already introduced by Trump in August 2018. These laws allowed the US government to potentially subject more technologies to export restrictions and oversight. Geared towards starving foreign rivals of key inputs into high-tech manufacture, they all imply that the US could well extend restrictions from computing into biotech very soon.
The first Trump-era precursor for Biden’s chip restriction legislation was Section 1758 of ECRA, which orders the Department of Commerce and other authorities to identify ‘foundational technologies’ that are ‘essential to the national security of the United States’ and impose licensing requirements for their export.
In November 2018, the Department of Commerce explicitly suggested biotech as a brand-new section 1758 critical technology, earmarking the area for potential export controls from then on. Since then, the DOC has established 38 emerging technology controls, of which two are biotechnological: (single-use biological cultivation chambers with rigid walls), and ECCN 2D352 (software designed for nucleic acid assemblers and synthesisers).
August 2018 saw another legal innovation that promises to impact the business and trade of biotech. Called the Foreign Investment Risk Review Modernization Act (FIRRMA), this one relates to foreign business partnerships in the US. It expands the powers of the Committee on Foreign Investment in the United States (CFIUS), an inter-agency group, to review foreign investments and acquisitions that may impact national security.
This role is not a new one for the CFIUS: the group had been reviewing certain business transactions with foreign rivals going back to 1988. However, Trump’s FIRRMA extended their authority into new areas: most notably, it can apply to non-controlling foreign investments in U.S. businesses involving personal data, critical infrastructure, or critical technology – with swathes of biotechnology feasibly falling under the latter.
Is biotech next?
Although these laws apply to all trading nations, China was the country that had most reviewed transactions in 2019 (75), followed by Canada (49). Indeed, it is no secret that the US’ current biotechnology and biomanufacturing strategy at home is closely bound up with geopolitical concerns around the rising east Asian power.
In August 2022, the Center for a New American Security, which has ties to both the Obama and the Biden administration, published a report titled Regenerate: Biotechnology and US Industrial Policy, stating that the US is at a relative disadvantage in biotechnology compared to China and other rivals, “ceding American leadership over one of the most powerful and transformative fields of technology in recent memory.”
The 2018 laws and the 2022 chip export restrictions have set up the legal architecture to close off US industrial assets to Chinese access. In effect, they were designed to preserve the US’ relative advantage against other countries in tech-driven industries.
At the same time, Biden’s National Biotechnology and Biomanufacturing Initiative (NBBI) of 2022 worked on the problem from the opposite direction: by aiming to expand US biotechnology innovation and production capacity further, it sought to extend its absolute global lead in these fields.
It seems as though the two-pronged strategy of building up capacity and stamping down competitors will be effective. Biden’s federal package for biomanufacturing was on a scale that the industry had never seen before – designed to match the support that the Chinese government has been throwing at its own bioeconomy for years.
Importantly, the package will encourage robust domestic biotech supply chains, an economic autonomy inseparable from national security aims: it included detailed provisions for new cyber-security procedures to protect any budding US biotech industry from espionage.
The US-China ties to unravel
In September 2022, President Biden followed up his sweeping federal package for biomanufacturing with Executive Order 14083, which instructed CFIUS to consider the effect of transactions subject to CFIUS’s jurisdiction on supply chain resilience and security, including with respect to biotechnology and biomanufacturing.
Protectionist measures on biotech will run against the grain of what is a highly globalised, sector-spanning industry. Commercial biotech today spans everything from fermented proteins to biopharmaceutical generic drugs with the biggest companies traversing continents for extended markets.
The US and China currently share strong biotech ties both in R&D and commerce – unsurprising given that China is already home to a vastly scaled bioeconomy. As the President’s Council of Advisors on Science and Technology reported in December 2022, it “is rapidly becoming a leader in biobased production and a source of manufacturing expertise and assistance.” In 2019, 5 of the largest 10 biotech firms that published initial public offerings were based there.
China’s bioeconomy growth has undoubtedly benefited from many US tech and expertise transfers over the years. Yet while the US’ hostile stance might suggest that it has been haemorrhaging hard-earned national capital to foreign subterfuge for years, the relationship between the two economic powerhouses has often worked both ways.
This has particularly been evident in fundamental biotech research, where Chinese companies and researchers have played an important role in US biotechnology innovation through US-based R&D centres and incubators, as well as corporate and academic partnerships.
The allure of Chinese capital
Then there are commercial ties. Although China has managed to profit from US technological expertise, the way they have diverted it to their home market is through foreign direct investments in US companies.
For years, Chinese firms have targeted promising US startups, particularly to those open to serving the Chinese market. In fact, Chinese capital to US biotechnology firms grew 187% in 2017 as compared to 161% growth in broader industry groups, largely through acquisitions and start-up financing,
One of the beneficiaries was Bri, a biopharmaceutical company with headquarters in both Durham and Beijing. Its plan is to market US biopharma in the Chinese market. In 2017, it had raised $260 million mostly from Chinese and Asian investors.
Another was Cultured decadence, the first American startup focused on lab-cultured shellfish. Chinese incubator Dao Foods is now supporting the cell-based company, which has placed Chinese markets at the core of its strategy.
It is no accident, then, that Biden’s biomanufacturing package of 2022 underlines a commitment to building up both a domestic biopharma and alternative foods industry. Expect to see more federal funding measures fill the vacuum left by Chinese capital flight from the US industry.
A self-undermining advantage
Trump and Biden’s constrictive policies on tech trade with China are largely pre-emptive measures. There are, as yet, very few Chinese biotech firms with a global reach. Moreover, on most counts and across multiple sectors of the bioeconomy, the US is not only ahead of China on innovation and production capacity but also tops the global league by far.
While the media spotlight focuses on China’s growing biotech capabilities, it often omits the fact that the country is also a big importer. Take chemicals for instance: from January to August, the value of Chinese imports was $358 billion which made for an overall trade deficit in this key segment of $172 billion. Specifically, China imports specialty and fine chemicals (including pharmaceutical ingredients) that so far is not produced at scale in the country. Another area that China relies on imports for are lab equipment.
The US intent in firewalling its tech industry therefore is not to beat down Chinese biotech supremacy but to nip it in the bud. Given the sheer dominance of the US in both biotech and computing, these policies are better understood as sanctions: the very reason why they will be so effective at pressing the Chinese tech industry into a corner is because of China’s continuing reliance on imported knowledge and tech inputs from the West.
While in the short run, US biotechnology may benefit in its relative advantage over the rest of the world’s, it is questionable whether a scientific field so dependent on international collaboration will reap the same reward.
What is even more worrying about these tensions is that it will undermine prospects for collaboration between the US and China on carbon reduction policies. Net zero targets hang on China curbing its emissions and without this, even massive domestic decarbonisation in the US will not be enough to temper the most severe impacts of climate change.
If much of the biotech startup scene today sells itself as tools of climate mitigation, any gains its technical toolkit offers will certainly be offset by the inability of the world’s biggest emitters to come together at the negotiating table.
The post The US-China tech war: Will biotech be next? appeared first on World Bio Market Insights.
