China Two Sessions: Takeaways for the Innovative Drug Sector

With the conclusion of the 2025 China Two Sessions (Lianghui), healthcare has once again emerged as one of the top policy priorities. Among the 10 key focus areas outlined in the 2025 Government Work Report, six directly address healthcare—highlighting its critical role in China’s long-term economic and technological ambitions:

• Improving the drug pricing mechanism and developing an innovative drug list to drive pharmaceutical innovation.
• Establishing a mechanism to ensure funding increases for industries of the future, fostering the growth of emerging sectors like biomanufacturing, quantum technology, embodied intelligence, and 6G.
• Implementing a health-first strategy to promote integrated development and governance across healthcare services, medical insurance, and the pharmaceutical sector.
• Strengthening drug procurement policies through enhanced quality controls to bolster public trust in medication safety.
• Advancing preservation and innovation in the traditional Chinese medicine (TCM) sector to drive high-quality development in the sector and broader industry.
• Establishing a robust traceability system for pharmaceuticals and medical consumables while enhancing oversight of medical insurance funds.
• Enforcing stricter food and drug regulations, with a particular focus on school meals and online food delivery platforms.

These policy shifts signal a strategic transformation of China’s healthcare ecosystem, with far-reaching implications for pharmaceutical innovation, investment, and patient access. As regulatory frameworks evolve, so do the opportunities and challenges for pharmaceutical companies, medical device manufacturers, and investors.

This article—the first in a series examining the Two Sessions—explores the strategic implications of these policies and outlines key actions for industry stakeholders.

At a Glance: Supporting Innovation Across the Full Value Chain

Over the past decade, China’s biopharmaceutical industry has transitioned from a generics-driven market to an innovation-centric ecosystem. R&D investment has surged, drug quality has improved, and domestic companies have made significant progress in developing novel therapies. However, incentives for R&D and real-world patient access to these innovations remain key challenges.

To address these barriers, a series of initiatives were introduced during the Two Sessions, focusing on:

• Gradually decoupling reimbursement standards from drug prices.
• The introduction of third-party reimbursement mechanisms.
• The development of commercial insurance.
• The expansion of funding sources.

Key interventions include:

R&D Acceleration: Expanding tax incentives and encouraging pharmaceutical companies and research institutions to jointly set up laboratories to drive R&D.

Streamlined Regulatory Approvals: Piloting the normalisation of “conditional approval” to accelerate market entry for innovative drugs.

Enhanced Pricing & Reimbursement Mechanisms: Improving the drug pricing mechanism, establishing an innovative drug list to sustain industry growth, and exploring the use of the Category C Drug List to expand reimbursement channels for high-cost innovative drugs. The country’s National Healthcare Security Administration (NHSA) plans to release the first version of the Category C Drug List in 2025.

To encourage hospital adoption, NHSA will also refine reimbursement policies for Category C drugs by:

• Excluding them from out-of-pocket expense calculations for insured patients.
• Exempting them from volume-based procurement substitution monitoring when alternative drugs exist.
• Ensuring reimbursement follows a fee-for-service model rather than being bundled into DRG/DIP payment schemes for eligible cases.

Among the various initiatives, the Category C Drug List has garnered significant attention.

What are Category C Drugs?

In China, drugs reimbursed under the basic medical insurance (BMI; a social health insurance scheme) are listed on the National Reimbursement Drug List (NRDL), which is managed by the NHSA. The NRDL categorises reimbursable drugs into two groups:

• Category A: These are essential, widely used, and cost-effective medicines that are fully covered, with patients only responsible for standard copayments.
• Category B: These are higher-cost medicines that require partial out-of-pocket payments from patients before insurance reimbursement applies.

Drugs that are excluded from the NRDL are informally known as Category C drugs.

Why is the Category C Drug List Important?

While patients may access innovative treatments via various channels, the NRDL remains the primary route of drug access for most patients in China. In this context, commercial health insurance in China serves as a supplement to the BMI scheme by covering indications or drugs that are not covered by the NRDL.

Ideally, commercial insurance should provide pharmaceutical companies with a critical pathway to reach patients with high-cost innovative drugs. However, several challenges persist, limiting its effectiveness for pharmaceutical companies:

• Reliance on NRDL: Most commercial insurance plans rely heavily on the NRDL and lack independent frameworks for evaluating high-cost therapies. As a result, advanced treatments such as ADCs and CAR-T therapies remain excluded from coverage, limiting the market penetration of these drugs.
• Rigid Pricing Mechanism: Once included in the NRDL, drugs are subject to standardised pricing that often fails to help companies recoup high R&D costs.
• Limited Collaboration: Insurer-pharma partnerships remain largely limited to basic data-sharing, with few innovative reimbursement models in place. This weakens incentives for continued pharmaceutical innovation.
• Inadequate Risk Management: Without sophisticated claims monitoring, insurers struggle to manage the risks associated with the misuse of high-cost drugs, increasing operational pressures.

With the newly proposed Category C Drug List, these gaps are expected to be overcome by including high-cost, innovative therapies that fall outside the basic coverage criteria of the NRDL but provide significant clinical benefits.

Pharmaceutical Industry Opportunities and Challenges

As these policies gradually take shape, the industry is poised for a new era of transformation, creating both opportunities and competitive pressures for stakeholders. In particular, the implementation of the Category C Drug List will be a defining moment, shaping market dynamics across insurance, pharmaceutical innovation, and R&D investment.

i. Redefined Role of Commercial Insurance

The introduction of the Category C Drug List expands the scope of commercial insurance, allowing it to cover a broader range of high-cost, innovative therapies. This shift enhances insurers’ ability to meet patient needs, which strengthens product appeal and unlocks new growth opportunities for the insurance industry. At the same time, it accelerates the sector’s move toward more differentiated and targeted offerings.

Beyond coverage expansion, the integration of basic medical insurance data with commercial insurance will enable insurers to make more data-driven decisions in product design, underwriting, and claims management. For example, insurers can leverage masked data from national medical insurance platforms to refine pricing models, assess claim rates, and accelerate product innovation. In underwriting and claims management, this data-driven approach mitigates adverse selection risks and enhances operational efficiency.

ii. Diversified Reimbursement Models

iii. Increased R&D Enthusiasm

A more structured pricing and reimbursement framework will directly impact pharmaceutical R&D. With clearer reimbursement pathways and improved investment returns, companies will have stronger incentives to advance innovative drug projects. This shift is expected to fuel R&D enthusiasm, accelerate drug development cycles, and enhance China’s position as a global hub for biopharmaceutical innovation.

iv. Industry Consolidation

The introduction of the Category C Drug List is also set to accelerate consolidation in the pharmaceutical sector, reshaping competitive dynamics. As the landscape evolves, companies will need to make strategic choices:

• Pursue Category B inclusion through national NRDL negotiations; or
• Opt for a Category C listing and leverage commercial insurance as an alternative funding source.

Leading pharmaceutical firms are expected to strengthen their market positions through targeted differentiation and global pipeline expansion, while small and mid-sized players must choose between:

• Integrating into the industry value chain via technology licensing and strategic partnerships; or
• Focusing on niche therapeutic areas and carving out leadership in specialised treatments.

v. Transformation Into a Global Innovation Hub

At present, Chinese pharmaceutical companies are actively expanding their global footprint through the license-out model.

A recent report by Ping An Securities revealed that in 2024 alone, more than 100 licensing deals were executed by domestic biopharmaceutical firms, with disclosed transaction values reaching an impressive US$50 billion, setting a new record. Of particular note, 88 of these deals were international licensing deals. This growth is twofold, with outbound licensing transactions now outpacing inbound deals by a factor of two, showcasing the momentum of China’s biopharmaceutical sector in global markets.

Meanwhile, MNCs continue to grow their local presence in China by ramping up R&D investments. These concurrent developments are expected to accelerate the internationalisation of China’s innovative pharmaceutical companies and drive the country’s transformation from a manufacturing hub to a global innovation centre.

Partnering for Success in a Dynamic Market

However, as the market evolves, companies will need to adopt a multi-dimensional strategy of aligning R&D, pricing models, strategic partnerships, and compliance frameworks to stay ahead of shifting policies and increasing competition.

If you’re looking to explore how other Chinese healthcare policies and highlights from the Two Sessions will shape the future of the biopharmaceutical industry, our life sciences recruitment consultants are happy to connect.

At JC Consulting, we have executive search firms in Singapore and China, which gives us deep insight into regional policy developments. With years of experience helping companies penetrate new markets and meet recruitment needs across China, Asia, and the US, we’re uniquely positioned to provide the resources and connections you need—whether it’s building a high-performing team, expanding into new markets, or advancing your career in life sciences.

Reach out to us today, and let’s take the next step together: Ivan.wu@jcconsulting.sg