Dragoman Digest

Pharmaceutical patent cliff drives Western giants toward Chinese biotech deals
Faster and cheaper clinical trials and growing early-stage research prowess position Chinese companies as preferred partners for pipeline replenishment
Drugs contributing approximately US$180 billion in annual revenue will lose patent protection in 2027-2028, representing nearly 12 percent of the global pharmaceutical market. Until recently, pharma companies were more fixated on potential US tariffs. By late 2025, however, over a dozen pharmaceutical companies had struck drug pricing agreements with the Trump administration. The S&P biotech index has surged to a four-year high as policy uncertainty has lifted, enabling an intensifying M&A spree among Western pharmaceutical giants seeking to address the impending cliff. Relaxed antitrust enforcement has also emboldened larger transactions, with four deals exceeding US$10 billion last year. Competition for coveted assets is fierce: Pfizer beat out Novo Nordisk in a public bidding war for weight-loss biotech Metsera at more than US$10 billion.

A significant and growing share of licensing activity is flowing toward Chinese biotechs. These companies signed licensing deals worth over US$85 billion in the past year across more than 100 transactions. Most relate to early-stage drugs where foreign companies acquire rights for further trials and commercialisation outside China. Chinese biotechs run clinical trials more quickly and cheaply, allowing them to reach proof of concept ahead of Western rivals. Beyond running trials faster, Chinese biotechs are increasingly developing novel therapies of their own. They now account for more than half of new antibody-drug conjugates in early clinical trials – which deliver chemotherapy in a targeted way – and are advancing next-generation cell therapies and treatments. Major deals include UK-based GSK’s partnership with Jiangsu Hengrui worth up to US$12 billion, Swiss drugmaker Novartis’s US$5.2 billion licensing agreement with Argo, and AstraZeneca’s US$4.7 billion deal with CSPC Pharmaceuticals.

Western biotechs now face the prospect of lower valuations as they find themselves undercut by more nimble Chinese competitors. Yet the US remains essential for late-stage commercialisation. Its venture ecosystem, regulatory expertise, and deep capital markets are still considered best in class. The emerging division of labour – early-stage innovation sourced from China, commercialisation infrastructure concentrated in the US – may prove durable. But with licensing proceeds reinvested into expanding capabilities, Western pharmaceutical companies risk funding the emergence of future competitors.


Chinese power equipment makers profit from US AI infrastructure rush
Tariffs fail to deter exports as data centre build-out outpaces alternative supply chains

Shares in Chinese manufacturers of batteries, transformers, and energy storage systems have surged this year as power-hungry data centres seek alternative power solutions to overstretched legacy grids. CATL, the world’s largest battery maker, has seen shares rise 45 percent in 2025, while Sungrow, the second-largest supplier of integrated energy storage systems after Tesla, is up 130 percent. The International Energy Agency forecasts data centre electricity consumption will more than double by 2030 to 945 terawatt hours – exceeding a fifth of current US annual generation. This demand is driving companies toward “micro grids” operating independently of conventional infrastructure.

Despite President Donald Trump’s tariffs and explicit decoupling rhetoric, Chinese companies have expanded their share of US lithium-ion battery imports from 43 percent in 2020 to 60 percent in the first nine months of 2025. The total value of such imports reached US$15 billion this year to September – more than triple the 2020 figure. Export sales are driving these profits. Chinese manufacturers earn three to five times greater margins on energy storage system exports than domestic sales, and 40-50 percent gross margins on transformer exports versus 10-20 percent domestically. These margins remain attractive even after absorbing tariff costs.

The dependence reflects structural advantages that tariffs cannot quickly overcome. Chinese companies dominate lithium iron phosphate batteries, with alternatives unable to meet demand at scale. Transformers present similar constraints. The US imports 80 percent of its power transformer supply and faces a 30 percent deficit this year, yet new capacity requires specialised equipment and workers that take years to develop. Established Japanese and Korean suppliers have two-to-three-year backlogs. The Trump administration plans to raise battery tariffs from 30.9 to 48.4 percent next year and restrict tax credits for equipment with Chinese content, but such measures will only go so far in the near term. Washington’s AI infrastructure ambitions, for now, remain tethered to Chinese supply chains.

 
Cambodia seeks to reduce Chinese dependencies amid US tariff threats
Phnom Penh is quietly broadening its economic and security partnerships
Cambodia is seeking to readjust its economic strategy to reduce overreliance on China and shield its export-driven economy from escalating US trade pressures. Deputy Prime Minister Sun Chanthol stated on 14 January that Phnom Penh realised it “cannot depend on one country”, prompting renewed efforts to attract investment from the US, Japan, South Korea, and other partners. The urgency reflects Cambodia’s exposure to tightening US scrutiny of Chinese content in regional supply chains, including proposed 40 percent tariffs on goods suspected of being transhipped through third countries. This vulnerability is compounded by China’s dominance as a supplier of materials for textiles – Cambodia’s primary export – and the fact that many textile and garment factories operating in Cambodia are Chinese-owned. At the same time, more than 40 percent of Cambodian exports go to the US, compared with 6.6 percent to China and 13.6 percent to Vietnam, underscoring the risks posed by threatened transshipment tariffs. This vulnerability was highlighted when US tariffs on Cambodian goods briefly reached 49 percent before later being reduced to around 19 percent, easing pressure but underscoring Cambodia’s continued exposure.

Strategically, Cambodia’s adjustment reflects a broader effort to avoid being caught between Washington and Beijing, with Prime Minister Hun Manet arguing that smaller Southeast Asian states cannot afford to choose sides. To counter perceptions of excessive dependence on China, Phnom Penh has opened Ream Naval Base (suspected by some analysts of being a Chinese base) to foreign naval visits, including recent port calls by Japanese Maritime Self-Defence Force vessels and a US Navy ship. Cambodia has also officially resumed military engagement with the US after an eight-year hiatus. Nevertheless, Phnom Penh remains cautious not to unduly alienate Beijing. China remains Cambodia’s largest investor and aid partner, funding major projects including transport infrastructure, energy developments, and special economic zones. Cambodia’s strategy looks to be more of a recalibration than fundamental realignment.


India’s China tech transfer strategy hits a roadblock
Beijing’s industrial controls are exposing vulnerabilities in India’s localisation drive
A range of Indian companies have sought to accelerate manufacturing plans by licensing technology from China. Reliance Industries is a case in point. To expedite its ambitions to manufacture lithium-ion battery cells, Reliance pursued a partnership with China’s Xiamen Hithium Energy Storage Technology with production targeted for this year. Technology from the Chinese partner was to be central to Reliance’s goal of building four gigafactories backed by roughly US$10 billion. Alternatives from Japan, Europe, and South Korea were considered, but were found to be too expensive. However, negotiations recently collapsed after Hithium withdrew from talks, likely in response to Beijing’s tightening controls on overseas battery technology transfers and exports of key battery components. These measures were introduced by Beijing in late 2025 as part of a concerted strategy to leverage China’s centrality in global supply chains.

The challenges facing Reliance are unlikely to be a one-off. Indian companies such as Exide Industries and Amara Raja Energy & Mobility are also pursuing lithium-ion manufacturing through technology partnerships with China. Steel producer JSW is aggressively shopping around for a Chinese partner to undergird its pivot towards EVs. A keen student of the challenges caused by deindustrialisation in Western countries, Beijing will continue to stymie efforts to move supply chains out of China. Beijing has responded to Apple’s attempt to cultivate India as an alternate supply hub by putting restrictions on the movement of Chinese engineers and equipment to Indian factories. In this sense, Beijing’s interests are not perfectly aligned with those of Chinese companies, many of whom are eagerly eyeing opportunities in India which investment restrictions and tariffs have otherwise rendered elusive. Chinese export controls will not derail India’s manufacturing ambitions, but they will make them costlier.