For Western life science investors, China’s healthcare and biotechnology ecosystem is often described in shorthand: fast, high-volume, state-backed, opaque. None of these labels are entirely wrong, but none are sufficient to explain how capital actually behaves inside China’s biotech market, or how that behaviour is increasingly diverging from Europe and the United States.
To explore this, BridgeCross Bio spoke with European and China-based venture investors, including Karl Naegler (Partner, Sofinnova Partners), Claus Andersson (General Partner, Sunstone Life Science Ventures), Yichun Cheng (VP of Investment, Apricot Capital), as well as one anonymous partner at one of China’s largest VC funds.
What emerges is not a story of convergence, but of parallel systems, shaped by distinct incentives, constraints, and expectations around what success ultimately looks like.
For anyone investing in, partnering with, or competing against Chinese biotech, misunderstanding these dynamics comes at a real cost.
China: on the radar, but rarely in the portfolio
For most European funds, China today sits firmly on the strategic watch list, not the active deployment list.
Karl Naegler describes the posture succinctly: China offers “structural opportunity and execution risk” in equal measure. The scale of domestic demand and government support for innovation is compelling, but for European VCs, regulatory complexity and geopolitical uncertainty remain significant barriers.
That does not mean China is irrelevant. Quite the opposite.
European investors are increasingly engaging around China, rather than in China - through licensing deals, NewCo structures, and operational partnerships.
“We are actively considering partnerships with Chinese biotech and pharma companies to license programs for development in the US and Europe through a NewCo model,” Naegler explains, “as well as collaborations between our existing portfolio companies and Chinese CDMOs to accelerate discovery and early development.”
Claus Andersson echoes this external vantage point. With a strictly Europe-only mandate, China is not investable for Sunstone but it is closely watched as a global benchmark.
“China’s pace of innovation and cost structure provide useful reference points when assessing the competitiveness of European companies,” Andersson notes, pointing to strengths in biomanufacturing, small molecules, AI-enabled drug discovery, and medtech engineering.
Where China is strongest: cost, speed, and scale
Across all respondents, there is broad alignment on where China exerts the most competitive pressure.
Chinese companies move faster, in manufacturing scale-up, in clinical trial enrollment, and often in early development iteration. Cost advantages remain real, particularly in CDMO platforms, biologics manufacturing, and small-molecule discovery.
Naegler highlights biologics such as bispecifics and ADCs, small molecules, and CDMOs as areas where China has built durable advantages. Andersson similarly points to manufacturing capacity and execution speed.
The strategic response from Western VCs is not to compete head-on.
Instead, it is to double down on differentiated science, platform IP, and global development and commercialization, while selectively leveraging China’s efficiency where appropriate.
The critical difference: exit pathways and founder intent
If there is one point where China’s VC ecosystem most clearly diverges from the US and Europe, it is how founders think about exits.
A partner at one of China’s largest VC funds put it bluntly:
“Most Chinese founders don’t want to be acquired. In many senses, that would seem like a defeat. They want to list and build an empire.”
This is not a nuance, it is foundational.
In the US and Europe, M&A is a core exit pathway. Acquisitions are culturally accepted, financially attractive, and structurally supported by large pharma balance sheets.
In China, the dynamics are different:
- Late-stage private valuations often make M&A unattractive
- Buyers are reluctant to pay strategic premiums, preferring “asset value” pricing
- Public listings, while regulated, remain the preferred route to liquidity
- Companies are often viewed as founders’ “personal babies,” making loss of control difficult
Only once a company lists, and its share price appreciates significantly, do founders become more open to partial exits.
For Western investors used to acquisition-led return models, this mismatch can be profound.
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RMB funds, USD funds, and the post-COVID reset
Another sharp contrast lies in who supplies capital.
Post-COVID, China’s VC environment has changed dramatically. USD-denominated funds have struggled to raise capital, while RMB funds now dominate.
International LPs have grown cautious about China exposure. As a result, domestic LPs, especially government-backed funds, now provide the bulk of venture capital. This has materially reshaped incentives.
Yichun explains that for many RMB funds, capital comes with additional constraints beyond financial return, including regional development goals and industrial policy alignment.
“Many factors influence investment decisions, rather than simply focusing on investment returns,” Yichun notes. “This is a significant difference compared with Europe and the US.”
Fund structure also matters. RMB funds typically operate on shorter cycles, which can bias investors toward nearer-term outcomes, although longer-duration, state-backed vehicles are beginning to emerge in hubs like Beijing and Shanghai.
Chinese VCs investing Westward: capital is available, conviction is harder
While much attention focuses on Western capital hesitating to enter China, the reverse flow, Chinese VCs investing into Western biotech companies, comes with its own set of frictions.
On paper, Chinese capital should be attractive. China-based funds bring scale, manufacturing know-how, and potential access to a vast domestic market. In practice, outbound investment is complex.
One challenge sits inside China itself.
Several China-based investors note that their own LPs are often skeptical of overseas investments, particularly in early-stage Western startups. A recurring internal question is simple: if the company is genuinely strong, why does it need Chinese money at all?
For Chinese LPs, Western companies seeking Chinese capital can trigger concerns around:
- weak local investor interest
- unclear relevance to China’s domestic market
- misalignment with national or regional policy priorities
As a result, Chinese VCs frequently need to justify outbound investments internally, especially within RMB-denominated funds.
At the same time, regulatory approvals for outbound capital can be slow, and political considerations increasingly shape what is feasible.
Western caution: trust, IP, and political exposure
If Chinese VCs face skepticism at home, they encounter a different, but equally real, set of concerns in Europe and the US.
Across Western biotech, persistent caution remains around:
- intellectual property leakage, particularly for platform technologies
- governance and control, especially beyond minority stakes
- political exposure, including potential future restrictions on Chinese-linked assets
- regulatory scrutiny, both actual and anticipated
Yichun describes this as a trust gap rather than an information gap. Western teams often understand Chinese investors well enough, but still hesitate. If local capital is readily available, many founders see little incentive to introduce geopolitical complexity unless China market access is explicitly strategic.
As a result, Chinese capital is most welcomed under narrow conditions: minority investments, clear IP boundaries, and a well-defined strategic rationale.
China going global - selectively, but intentionally
Despite the size of the domestic market, leading Chinese investors increasingly believe that China-only strategies cap returns.
Yichun is explicit: Apricot Capital meaningfully upgrades its return expectations only when a portfolio company has a credible global expansion plan, targeting high-value markets like the US and Europe, alongside mid-range markets such as Southeast Asia and Brazil.
Chinese companies are increasingly encouraged to compete globally, but doing so requires navigating regulatory complexity, trust barriers, and very different capital market expectations.
Two systems, one global industry
China’s life science funding ecosystem is not converging on the Western model. It is evolving in parallel, shaped by industrial policy, domestic capital, founder culture, and a strong preference for public listings over trade sales.
For Western investors, the implication is clear:
China is less about direct portfolio construction, and more about partnerships, licensing, benchmarking, and selective collaboration.
Understanding that most Chinese founders are not building to be acquired, but to list, is essential. Without that lens, Western expectations around valuation, control, and exit will continue to misalign.
In a global life science industry, capital may be increasingly mobile, but incentives remain local.