US Outbound Investment Rules May Hinder China's Biotech Expansion

Analysts say Washington's proposed outbound investment restrictions threaten to disrupt deal structures as Chinese biotech companies expand internationally. Conventional drug licensing agreements remain unaffected for now. Trivium China analyst David Zhang said Treasury Department draft rules released last week would make direct US investment and joint ventures much harder for Chinese biotech companies to secure.

US Treasury Secretary Scott Bessent added biotechnology to an outbound investment screening programme. The move subjects a broad set of transactions involving designated countries of concern, including China, to closer scrutiny. The Treasury Department said restricted transactions would include purchases of equity stakes and the establishment of joint ventures. Bessent said last week that the measures aim to stop adversaries from using US investment to develop critical technologies threatening US national security. The proposals reflect increasing concern in Washington about China's growing biotech industry.

Chinese companies have taken a larger role in the global biopharmaceutical industry in recent years. China's National Development and Reform Commission said out-licensing agreements for China-developed innovative drugs had reached US$130 billion this year, nearing the full-year total for 2025. The Treasury Department left conventional drug licensing outside the proposed restrictions, as widely expected. Zhang described licensing as an important source of China's biotech expansion in recent years. Zhang said strong commercial incentives for US drug makers to source promising drug candidates from Chinese companies made a broad withdrawal from China's biotech sector unlikely. Zhang expects companies to spend more effort designing cross-border agreements that avoid direct equity investment.

Jefferies head of Asia healthcare research Cui Cui said in a note last month that cross-border biotech agreements increasingly involved co-development and wider platform partnerships. Cui linked that shift to Chinese companies' expanding resources and ambitions. Earlier this month, China's Ministry of Commerce and Ministry of Science and Technology proposed export bans on 14 technologies in sectors including artificial intelligence, biotechnology and photovoltaics. The proposed bans would cover certain cell and gene therapy platforms and small interfering RNA technology platforms. Cui said in a separate note on Friday that both countries' measures were less extensive than feared but would likely make companies adjust arrangements to protect capital flows and core intellectual property.

Foley Hoag partner Morgan Xu, based in Washington, compared the two countries' approaches in a Sunday article in the biopharmaceutical publication Tonacea. Xu said Washington seeks to restrict investments that could strengthen China's technological capabilities, while Beijing seeks to maintain control over foundational technologies developed in China.

The proposed US restrictions remain uncertain amid opposition from some industry participants. Biotechnology Innovation Organisation president and CEO John F. Crowley warned last week that an overly broad approach could create uncertainty for innovators and investors and unintentionally weaken US biotech competitiveness. However, Zhang said bipartisan political pressure favored tougher restrictions, potentially extending to licensing agreements. Zhang expects some form of biotech restrictions to proceed, with the eventual extent of Treasury's measures remaining the larger question.