Pharma’s New Silk Road: Fiscal Shifts and COVID-19 Supply-Chain Failure in China, India, and the United States

Pharma’s New Silk Road: Fiscal Shifts and
COVID-19 Supply-Chain Failure in China,
India, and the United States
By Bryan Dominguez
Published June 23, 2025
Abstract
COVID-19 exposed a single-file pharmaceutical supply chain — Chinese key starting materials feed
Indian API and generic production, which feeds US pharmacies — and all three governments
responded with major fiscal shifts: India’s ₹15,000 crore (~$2 billion) pharmaceutical PLI scheme
plus a ₹6,940 crore bulk-drug PLI, and the US’s $354 million Phlow/BARDA contract atop at least
$11 billion in Defense Production Act (DPA) pandemic spending.
The cascade was real and sequential: China nationalized medical-supply production in February
2020; India restricted exports of 26 drug ingredients including paracetamol on March 3, 2020; and
US ongoing essential-medicine shortages jumped from 209 in March 2020 to 324 in April 2020.
These fiscal shifts represent a deliberate redrawing of pharmaceutical geography — a “new silk road”
of reshoring, nearshoring, and friendshoring — but the underlying concentration persists: China
roughly doubled its US-registered API facilities from 230 in 2019 to 467 in 2025, and India still
sources roughly 70% of its APIs from China.
Introduction and Context
The concentration that made failure possible. In testimony to the House Energy & Commerce
Subcommittee on October 30, 2019, FDA official Janet Woodcock stated that “as of August
2019, only 28 percent of the manufacturing facilities making APIs to supply the U.S. market
were in our country. By contrast, the remaining 72 percent…were overseas, and 13 percent are in
China,
” adding that “the number of registered facilities making APIs in China more than
doubled between 2010 and 2019.
” India led global finished-drug and API facility counts, and
China’s share was growing fastest. Because generic drugs account for 90% of US prescriptions
and India supplies roughly 40% of US generics while importing about 70% of its own APIs from
China, the world built a linear dependency: Chinese KSMs → Indian APIs → US pharmacies.
China: dominance built partly on state support, then weaponized. China is the world’s largest
API exporter, with export values rising from roughly $29 billion in 2017 to about $51.8 billion in
2022. Its share of global API production by volume is genuinely contested — authoritative
bodies place it in a 20–40% range, while Brookings economist Marta Wosińska concludes that
“Chinese-produced active ingredients are included in perhaps a quarter of the generic drug unit
volume sold in the United States—far less than some of the more alarmist claims.
” In early
February 2020, the Chinese government nationalized control of medical-supply production and
distribution, directing output to domestic use; subsequent NMPA export-certification
requirements in April 2020 further slowed exports.

India: the pharmacy of the world curbs its own exports. On March 3, 2020, India’s Directorate
General of Foreign Trade restricted exports of 26 APIs and formulations — which Pharmexcil
chairman Dinesh Dua noted “account for 10% of all Indian pharmaceutical exports”
— including
paracetamol, the antibiotics tinidazole, metronidazole and erythromycin salts, and vitamins
B1/B6/B12. Most restrictions were lifted by April 6, 2020, with paracetamol APIs freed on May
28, 2020. India’s structural fiscal response was the Production Linked Incentive (PLI)
framework.
United States: a scramble for domestic capacity. US ongoing shortages of generic essential
medicines rose from 209 in March 2020 to 324 in April 2020 and stayed above 300 until April
2021. The federal fiscal response combined the CARES Act, Defense Production Act spending,
and targeted contracts such as the $354 million Phlow award.
Analysis: Fiscal Shifts in Global Pharmaceutical Supply Chains
China — Fiscal Shift and Leverage
China’s rise in APIs reflects decades of scale advantages layered with state support. Documented
mechanisms include government-led venture funds, biomedicine science parks (the Ministry of
Science and Technology planned to spend about $1.45 billion on 20 such parks by 2020, per
ITIF), and provincial incentives such as Shanghai’s R&D grants of up to RMB 30 million per
innovative-drug project and a 15% reduced corporate income tax rate for High-and-New
Technology Enterprises. R&D expenditure by Chinese pharmaceutical manufacturing firms
reached about 60.96 billion yuan in 2019 — 75.3% higher than in 2013 — according to a 2023
peer-reviewed study in Frontiers in Public Health. Made in China 2025, released by the State
Council in 2015, explicitly named biomedicine as one of ten strategic sectors. Notably, a
Stanford analysis found that industrial subsidies under Made in China 2025 played a “negligible
role” in China’s drug-innovation surge relative to market-access reforms — a caution against
overstating the subsidy story.
On leverage, China’s antibiotics dominance is near-total. Rosemary Gibson, author of China Rx,
testified to Congress in October 2019 that “China controls approximately 90 percent of the
global supply of key starting materials” and that “the United States can no longer make
penicillin,
” the last US penicillin fermentation plant having closed in 2004. The February 2020
nationalization of medical supplies and the spring 2020 export-certification bottleneck
demonstrated this concentration risk in practice.
China’s API export values by year: ~$29 billion (2017),
~$33.7 billion (2019),
~$35.7 billion
(2020),
~$51.8 billion (2022), and ~$40.9 billion (2023, a post-pandemic decline). Per USP
Medicine Supply Map data, China holds 20% of FDA-registered API manufacturing sites,
“with
467 facilities as of February 2025, up from 230 facilities and a 13% market share in 2019”
— a
near-doubling that underscores that Western reshoring efforts have not reversed the underlying
trend.

India — The PLI Fiscal Shift
India’s dependence on China is the structural fact of its industry: roughly 70% of its APIs, and
near-total dependence (80–100%) for certain fermentation-based antibiotics like ciprofloxacin,
norfloxacin, and penicillin. In 2023-24, India imported roughly Rs 377 billion in APIs and bulk
drugs — about 35% of its total requirement — with China accounting for around 70% of that.
India’s fiscal response came in two linked schemes under the Atmanirbhar Bharat (self-reliance)
initiative:
PLI for Bulk Drugs (KSMs/DIs/APIs): approved in 2020 with a financial outlay of ₹6,940
crore, targeting 41 identified critical KSMs/DIs/APIs specifically to reduce China
dependence.
PLI for Pharmaceuticals: approved by the Union Cabinet on February 24, 2021, with a
financial outlay of ₹15,000 crore (~$2 billion), running FY2020-21 to FY2028-29 and
targeting high-value products (biopharmaceuticals, complex generics, patented drugs).
The government projected incremental sales of ₹2,94,000 crore and incremental exports
of ₹1,96,000 crore over the scheme period.
The Government of India explicitly cited the pandemic’s exposure of supply-chain
vulnerabilities as prompting the prioritization of domestic production. Progress has been
strikingly uneven: by March 2026, ₹6,659 crore had been disbursed under the Drugs PLI but
only ₹87.70 crore under the Bulk Drugs PLI — the latter hampered by land-acquisition delays,
environmental clearances, and long fermentation-drug gestation periods. India still imported
over 70% of key pharmaceutical ingredients from China as of 2025, indicating the fiscal
commitment has not yet delivered independence.
United States — CARES, DPA, and Reshoring
The US fiscal shift was multi-pronged and represents a sharp break from pre-2020 spending:
The US fiscal shift was multi-pronged and represents a sharp break from pre-2020 spending:
Phlow Corp: On May 19, 2020, Phlow received a $354 million four-year BARDA contract
(potential total up to $812 million) to manufacture essential medicines and APIs
domestically using continuous manufacturing — one of the largest awards in BARDA’s
history.
CARES Act (P.L. 116-136, March 2020): provided the Department of Defense $1 billion
specifically for DPA purchases related to COVID-19, and expanded drug-shortage
reporting and manufacturer risk-management-plan requirements.
Defense Production Act: From March 2020 to September 2021, agencies used the DPA and
similar actions over 100 times; the CARES Act and other appropriations provided at least
$11 billion for DPA purchases and related pandemic actions. GAO identified 43 contracts
initially valued at about $3.9 billion for domestic production-expansion projects.
Executive Order 13944 (August 6, 2020): directed the FDA to identify essential medicines
and critical inputs and directed agencies to “buy American,
” aiming to reduce foreign
dependence.
American Rescue Plan (2021): provided roughly $10 billion for medical-supply and
domestic-manufacturing investments.

The scale shift is quantifiable: from FY2010 through FY2019, Congress appropriated $952
million to the DPA Fund for Title III purposes; from FY2020 through FY2025, at least $4.4
billion — a roughly fourfold increase driven by the pandemic.
The COVID Cascade and Export Nationalism
The failure was systemic. The Congressional Research Service documented that reduced Chinese
exports caused US shortages, and that India — supplying about 40% of US generics while
importing nearly 70% of its APIs from China — imposed March 2020 restrictions that raised
fears of global generic shortages, escalating after India’s nationwide lockdown. Export
nationalism was widespread: per the WTO (via Sidley Austin),
“85 countries imposed such
restrictions, with around 58% of the products targeted being medical devices or medical
consumables.
” The US reported its first COVID-linked drug shortage in late February 2020. Per
Pedersen et al.
’s 2020 ASHP national survey,
“eighty-seven percent of hospitals changed
operational activities…Hospitals experienced shortages of many medications, including
albuterol inhalers (60%), sedatives and anesthetic agents (58%), neuromuscular blockers (43%),
corticosteroids (34%), cardiovascular agents (24%).
”
The "New Silk Road" Framing
The post-COVID response reoriented pharmaceutical geography around resilience rather than
pure cost.
“Friendshoring”
— coined by US Treasury Secretary Janet Yellen in an April 2022
speech — joined nearshoring and reshoring as organizing concepts, describing supply chains
built with politically aligned partners. Biden’s Executive Orders 13987 and 14001 (2021) and the
February 2021 supply-chain review institutionalized the shift. Yet the new map remains
concentrated: China surpassed India in annual API Drug Master File filings for the first time in
over two decades in 2024, signaling that the next generation of generics will be even more
Chinese-dependent.
Conclusion and Policy Implications
Anchor the “new silk road” thesis in fiscal-shift contrasts, not disputed volume shares. The
strongest empirical spine for the analysis is the tri-national fiscal pivot — India’s ₹15,000
crore + ₹6,940 crore PLI commitment, the US’s at-least-$11 billion in DPA pandemic
spending (a ~4× Title III increase), and China’s diffuse but large state support. Explicitly
flag that China’s “share of global API” is contested (20–45%) and present Brookings’
~25%-of-US-drug-volume figure as the most methodologically rigorous, since it avoids
conflating facility counts with output.
Track disbursement, not allocation, as the primary benchmark. India’s Bulk Drugs PLI has
disbursed only ₹87.70 crore against a ₹6,940 crore outlay — the clearest signal that fiscal
commitment has not translated into China-independence. If that disbursement rises
sharply and China’s share of India’s API imports falls below 70%, the reshoring thesis
gains real support; if it stays flat, the schemes are announcements more than structural
change.

Test whether US reshoring is structural or cyclical. Phlow and continuous-manufacturing
bets depend on sustained procurement. If DPA Title III appropriations revert toward
pre-2020 levels (~$95 million/year average), US reshoring should be interpreted as a
pandemic-era spasm rather than a durable shift. Watch the FDA Essential Medicines list
and BARDA renewal contracts as leading indicators.
Limitations
- API “market share” figures conflate three distinct metrics — FDA facility counts, Drug
Master File filings, and actual production volume — that are frequently confused. Facility
counts and DMF filings measure capability, not output; the FDA has itself testified it
cannot determine the volume of API China actually produces or how much enters the US
market.
Several vivid statistics (notably “45% of global API by volume”) trace to industry/trade
sources without verifiable primary citations and should be treated with caution; the more
defensible framing is the ~20–40% range from WHO/ITIF and Brookings’
~25%
US-exposure estimate.
Some sources are think tanks or advocacy bodies with policy positions (ITIF, Coalition for a
Prosperous America, Council on Foreign Relations); their factual data can be used but
should be distinguished from their framing.
Post-2024 figures (2026 PLI disbursement data, US tariff threats on generics) describe a
rapidly evolving situation and may date quickly.
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