The German pharmaceutical giant’s plans for China remain long-term and its investment policy unchanged after eight decades despite geopolitics.
German company Merck at the Display Innovation China EXPO held in Shanghai on July 2, 2021.
If Willy Merck had not decided to take a trip around the world in 1887 and then land on the Chinese mainland the following year in the course of that journey, the story of Merck, one of the oldest pharmaceutical companies in the world, might have been vastly different. But the then 28-year-old, a scion of the chemical manufacturing firm E. Merck in Germany’s “city of science” Darmstadt, made the visit, and with the characteristic business acumen of generations of Mercks, spotted the potential of the China market even then. One of his letters showed a prescience of the future, “A time will come when we too in Europe will have to watch out for the Chinese,” he wrote. “For my part, I absolutely believe that China, should it wish to, shall become considerably more powerful than any other nation.”
Willy Merck established the family-run company’s trade connections in “Old China” and in the next century, they had strengthened sufficiently for Merck to found its first Chinese subsidiary. The E. Merck Chemical Co., Ltd. was established in Shanghai in 1933.
Fast forward to present times and according to Belen Garijo, CEO of Merck, it now has 20 entities on the mainland, about 4,500 employees and an investment of US $750 million. Merck is here for the long term, with its “China for China strategy,” she said. “[We have got] significant benefits from our presence in Shanghai.”
A sign of that was Merck’s presence at the fifth China International Import Export (CIIE) in Shanghai. The multinational has been present at the CIIE since the latter’s inception in 2018 and from its first booth, a relatively modest affair of 300 square meters, the successive ones have more than trebled in size. The importance of the China market – and the CIIE – was demonstrated this time when Garijo flew from Darmstadt to attend it as part of the business delegation accompanying German Chancellor Olaf Scholz on his first official visit to China after assuming office.
Garijo spoke about the widening of Merck’s operations in its nearly nine decades on the mainland. “[Our] main interest sits with oncology,” she said in an interview on CGTN. “To develop innovation in cancer [treatment] for tumors more prevalent in China like liver and lung cancer.” Merck is aiming to “become an even bigger player in oncology” and has deep relations with major academic centers and hospitals in China to make China part of the company’s global strategy.
From the first pharmaceutical business, Garijo said the plan is to expand the footprint in life sciences, healthcare, and electronics in China. She said since the start of the pandemic, “We started to look at how our science and technology business could contribute” to the fight against COVID-19. The life science business has helped vaccine makers accelerate production by contributing components to more than 80 vaccine projects, while its electronic components have helped people stay connected.
Merck produces chemicals and materials for semiconductors. This year, it announced its single biggest investment in the sector so far, US $82 million for a new semiconductor factory in Zhang-jiagang, another city in east China close to Shanghai. In a press release, Allan Gabor, Merck China’s president, said China is not only the largest end market for semiconductors but also the fastest growing semiconductor manufacturing market, given the unprecedented capacity investment and expansion of domestic chip manufacturers. “We believe a golden era for China’s semiconductor industry has just begun,” he said.
In the healthcare and life sciences sphere, Garijo said the focus is on greenfield manufacturing capabilities in China. She was in China in 2014 for the ground-breaking ceremony of Merck’s new healthcare factory in Nantong in the Greater Shanghai region. With an investment of over US $170 million, it is Merck’s largest plant outside Europe. At that time, the company said in a statement, “With our new state-of-the-art pharmaceutical production, Merck is transforming from an import-based company to a full-fledged local industry player in China. By dedicating the largest manufacturing plant outside of Europe to the production of pharmaceuticals to address widespread healthcare needs in China, Merck is connected with China more than ever.”
Garijo sees boundless potential in healthcare, especially with the use of advanced science and technology and artificial intelligence. She sees the scope for personalized cancer therapies. “Each and every tumor is very different. [With] better mining data (sic) and using novel technologies,” healthcare can embrace precision-based personalized medicine which will look into how a tumor has developed and which will help address that abnormality. The “efficacy and potential tolerability of that medicine will be adapted to the patient and the tumor,” so that the risk-benefit profile of the medicine can be improved.
Will such advanced medicare be accessible and affordable to all? Her answer: “Access depends on a country-by-country basis. We want to make affordability part of our mission and bring these therapies to all patients… But to fully benefit from the digitization of healthcare, we have to go beyond the industry. This is a topic that has to be addressed by multiple stakeholders: industries, payers, regulators, and policymakers.”
So Merck is going beyond products, she said, and establishing “partnerships” to reach additional patients. It is involved in educational programs in pre-diabetes, which is an “epidemic” in China, and is working with academia, hospitals, and startups to promote innovations.
People are visiting Merck’s booth at the fifth CIIE in Shanghai on November 6, 2022.
Innovation is a keyword in the China relationship. The first Merck innovation centers outside Germany are in China – in Shanghai and the city of Guangzhou in southern Guangdong Province.
Ahead of the opening of the Merck Guangdong Inauguration Hub in 2019, Kai Beckmann, a member of Merck’s executive board, said, “China is a major innovation hotspot and one of our most important growth markets. Therefore, Merck will continue to invest in China and strengthen its collaboration with local companies, startups and research institutes.”
The Guangdong hub’s importance is two-fold. It is supporting the development of the Greater Bay Area, a megalopolis comprising nine cities in Guangdong Province and its two neighboring special administrative regions Hong Kong and Macao, sprawling over about 56,000 square kilometres with a population of over 86 million. The government blueprint for developing the area includes promoting it as an international innovation and technology hub with special policies and facilitation measures. “The Chinese government is making great efforts in cooperating with other countries and promoting trade liberalization. Merck can confirm that,” Beckmann said.
While benefiting from the state drive, Merck is also contributing to the development plan by bringing in its advanced technology and through a specific program to help startups. The Merck Accelerator program supports promising new entrants in emerging technology fields. The company said its objective is to nurture “innovation in China, for China and beyond”. As part of that, Merck has a US $13.4 million seed fund for startups and innovators in China.
A significant academic tie-up is the partnership with the Tongji University in Shanghai, known for its stem cell research. The collaboration means the university can access Merck’s genome-editing technology as well as network with other renowned institutions like Harvard Medical School and Johns Hopkins University.
Besides its regular commercial activities, Merck has also been a prompt respondent to Chinese needs. During the COVID-19 pandemic, Merck donated equipment and reagents to research institutions in Wuhan, where the first cases in China were reported, for virus detection and analysis. It also provided medical masks to five designated hospitals in the city.
Given the benefits of the Chinese market, the deep investment and a multifaceted bond, Merck remains committed to China despite geopolitical turmoil from time to time. This year, when U.S. Speaker Nancy Pelosi’s controversial visit to China’s Taiwan region ratcheted up tension between China and the U.S., Reuters asked Garijo about Merck’s investments in China. “We are mindful of the potential risks,” she said at that time. “But our investment policy has not changed.”
And during her China visit this time, when the Western media was questioning the wisdom of Scholz’s visit in view of the rift between China and Europe over the Ukraine crisis, her answer remained equally forceful when asked about the direction of Sino-German relations. “It is absolutely critical that we continue to think globally, continue to share our purpose and value to generate impact for society at the global level [and] keep a great and fruitful collaboration,” she said. “We need each other.”
SUDESHNA SARKAR is a journalist and editor based in Beijing. A former commentator for a regional program of Deutsche Welle Radio, she follows China’s development, culture, and international links.