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How biopharma can leverage China's Biotech Park ecosystem for success

Hainan FTP to bring new growth impetus to local biopharma industry

Published: 6 May 2021

A new whitepaper from Deloitte China's Life Sciences & Health Care team explores how biopharmaceutical companies can benefit from China's fast-growing biopharmaceutical industrial park ("BPIP") ecosystem, including through investment and site selection, and access to policy support and incentives.

The whitepaper, China's Biotech Parks – Leveraging the ecosystem for success, notes that biopharmaceuticals has become a strategically important industry in China, receiving strong policy support from the national government. This support, including preferential enterprise income tax, individual income tax and VAT rates, is set to continue during the 14th Five-Year Plan period (2021-2025), giving the industry yet more development impetus at the national level.

At the regional level, meanwhile, many local governments are striving to attract biopharma enterprises and develop the industry by establishing BPIPs and introducing related incentives, including subsidies for early stage R&D expenses, the cost of obtaining international certifications and industrialization projects.

As a result of this extensive policy support, China's BPIPs reached a combined output value of more than RMB2,510 billion (USD385.6 billion) in 2020, and this is expected to hit RMB5,840 billion by 2025.

"In terms of infrastructure, transport and labor costs, BPIPs today aren't much different from one another," says Jens Ewert, Deloitte China Life Sciences & Health Care Leader. "Factors like supply chain accessibility and reliability, the public service capabilities of BPIPs, and the support policies available, are much more important factors for enterprises when selecting a site in China."

"For example, Hainan's plan for a Free Trade Port ("HNFTP") includes measures to encourage biopharma development. Its zero customs duty, preferential tax rates and other business-friendly policies on foreign exchange and government registration and approvals, will appeal to many BPI multinationals, including as part of their overall strategic planning in China."

Although China provides strong support for biopharma development, medical system reforms introduced in recent years have prompted a sharp drop in drug prices that has put some industry participants under pressure, according to the whitepaper. To thrive in China's BPIP ecosystem, enterprises need to optimize their layouts and supply chains, enhance tax efficiency, and leverage available support policies.

"On the latter front, it is particularly important that biopharma enterprises communicate effectively with local governments to obtain optimal financial support," adds James Zhao, Deloitte China Life Sciences & Health Care Industry Tax Leader. "This depends on several factors, including their industry status, core technology or product, influence on the biopharma value chain, scale of investment, and contribution to local employment and tax revenue."

Talent attraction and retention is the last piece of the puzzle, not just by accessing support policies, but also by developing tax-efficient compensation structures, including equity incentives.

China's Biotech Parks – Leveraging the ecosystem for success is available here.

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