Original source：Morgan Stanley Asia LimitedFirst published on Unhidea：Original source date：
Key takeaway
Growth in pharmaceutical exports is occurring alongside pressure on API prices, and some Chinese manufacturers are expanding into formulations and CDMO services to address persistent overcapacity and competition.
Why is the trade deficit still widening as pharmaceutical exports grow?
In September 2026, China’s pharmaceutical exports totaled 1.485 billion US dollars, up 8.5% year on year; imports totaled 3.664 billion US dollars, down 4.0% year on year.
Looking at the first three quarters of 2026, exports and imports rose 10.5% and 8.4% year on year, respectively, while the trade deficit widened 7.3% to 21 billion US dollars. Although exports grew faster, imports remained larger in value.
Morgan Stanley notes that China remains a net importer of branded drugs; generic APIs account for most of China’s pharmaceutical exports, at around 80%.
Why has export growth not relieved the pressure on APIs?
Based on results for generic APIs in the third quarter of 2026 disclosed as of the report’s publication, Morgan Stanley believes overcapacity is still suppressing prices and capacity utilization remains low, particularly in antibiotics.
This assessment is consistent with the bank’s previous export tracking: in the first half of 2026, the average selling price of China’s API exports fell by a mid-single-digit percentage year on year. Growth in total pharmaceutical exports therefore coincided with a decline in API prices.
The last 10% fentanyl tariff previously imposed by the United States under IEEPA was removed in February 2026; the report says the current tariff rate on generic API imports into the United States is zero.
How are manufacturers responding to overcapacity?
Morgan Stanley believes persistent industry oversupply after the pandemic and intensifying price competition have prompted some API manufacturers, such as Huahai Pharmaceutical and Hepalink, to move downstream into finished formulations; others, such as Jiuzhou Pharmaceutical and Apeloa Pharmaceutical, are expanding into CDMO services, providing drug development and manufacturing on behalf of clients.
Some manufacturers are repurposing underutilized API production lines for CDMO manufacturing to fulfill strong new orders in 2026. The bank says even smaller Chinese CDMOs have reported high capacity utilization and are increasingly directing capital expenditure toward expansion to support their growing order books.
