- China’s revised State Secrets and Data Security laws raise concerns in the global pharmaceutical sector, especially among German companies reliant on Chinese suppliers.
- The revised State Secrets Law mandates that all individuals and non-state entities with access to state secrets, such as organizations, companies, institutions, social groups, and private citizens, have a duty to uphold confidentiality.
- The expanded scope potentially impacts routine business practices like audits and inspections. This poses significant challenges for ensuring compliance with Good Manufacturing Practice standards and could disrupt the pharmaceutical supply chain.
- The German Medicines Manufacturers’ Association (BAH) is the pharmaceutical industry association with the largest number of members in Germany. They urge officials to seek clarifications and safeguards during diplomatic engagements with China. The potential implications on global trade and supply chains are profound, with concerns about maintaining quality compliance and potential drug shortages.s
China’s recent revisions to its State Secrets and Data Security laws have triggered significant concerns within the global pharmaceutical sector, particularly among German companies reliant on Chinese suppliers. The expanded scope introduces uncertainties that could inadvertently implicate routine business practices, such as audits and inspections. This poses formidable challenges for companies striving to maintain compliance with Good Manufacturing Practice (GMP) standards, potentially disrupting the pharmaceutical supply chain.
This article explores the implications of these changes, examines potential scenarios for the pharmaceutical industry, and provides solutions for overcoming the resulting challenges. It also discusses Qualifyze’s stance on China’s new law revisions.
China’s State Secrets and Data Security laws expand scope and uncertainty
The revised State Secrets and Data Security laws, effective in May 2024, grant Chinese authorities explicit rights to examine documents, question personnel, log relevant details, and register and secure facilities, equipment, and files when probing potential breaches. However, enforcement might still lack transparency and rely heavily on the authorities’ broad discretion.
These rights are compounded by the potential for severe penalties, including fines, business license cancellations, and exit bans for individuals suspected of espionage, which could also affect foreigners.
The new rules mandate private companies to secure state secrets by signing confidentiality agreements and adhering to agency requirements. The revised State Secrets Law also introduces new legal obligations for Chinese government bodies and organizations to prevent unauthorized disclosure of state secrets, particularly to foreign entities, or hiring foreign nationals with access to sensitive information.
Potential impact on pharmaceutical supply chains and regulation
It’s important to recognize that the revised laws could have a significant impact on the pharmaceutical landscape. Pharmaceutical companies may feel compelled to stockpile inventories due to challenges in maintaining a compliant supply chain without regulatory body inspection certificates. This could worsen drug shortages, especially concerning antibiotics, similar to experiences in 2022.
Furthermore, the evolving landscape might push pharmaceutical manufacturers to rethink their sourcing strategies and operational practices, potentially seeking alternative sources outside of China. Despite ongoing discussions, the practical viability of such measures remains uncertain.
European pharmaceutical companies are particularly affected. This market heavily relies on inspections and audits to ensure compliance with Good Manufacturing Practice standards, which are crucial for certifying production facilities. This, in turn, impacts the supply chain and the availability of medicinal products in markets such as the EU.
The German Medicines Manufacturers Association (BAH) has recently voiced concerns, urging German officials to seek clarifications and safeguards during diplomatic engagements with China. Additionally, there are worries that these rules may pose risks for sharing audit results by local auditors with authorities outside China. Hopes are pinned on arrangements such as a “Letter of Intent,” explicitly excluding GMP inspections from being classified under the espionage framework.
“Many German supervisory authorities have suspended their inspection activities in China until further notice. This is particularly worrying in light of the fact that travel restrictions to China during the coronavirus pandemic led to an enormous backlog of inspections due. Inspection activities in China should actually be intensified. Inspectors should be in China every day to catch up on this backlog.” – Dr. Fatima Bicane – German Medicines Manufacturers‘ Association.
Navigating China’s State Secrets and Data Security laws: facing the challenges ahead
As a reliable partner for over 1,200 pharmaceutical companies spanning across more than 75 countries and boasting a global network of over 250 auditors, Qualifyze stands ready to assist organizations in tackling these challenges. We offer continuous assessment of manufacturing site quality compliance with local auditors, covering over 2,500 sites, including more than 320 in China.
Moreover, Qualifyze extends its support by providing access to a comprehensive supplier database, streamlining the search, qualification, and connection with suppliers. This includes regulatory inspection histories, differentiation between manufacturers and distributors, country filtering, and more, all aimed at strengthening risk mitigation strategies and simplifying the onboarding process for pharmaceutical companies.
Our recommendations to protect critical points of concern
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Incorporate data security measures:
- Follow official recommendations.
- Implement data security measures such as staff training and policy updates.
- Define internal roles for sensitive data management and threat detection.
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Comply with data security requirements:
- Classify important data by relating it to sensitive sources, use cases, or official guidelines.
- Conduct data mapping and classification.
- Meet MIIT or industry regulatory filing requirements.
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Implement role-based access control:
- Segregate network and data access rights.
- Operate on a strict need-to-know basis.
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Conduct background checks and reviews:
- Regularly screen staff in key positions, especially in sensitive industries.
- Identify and mitigate potential leaks within the organization.
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Plan research and development carefully:
- Document background and foreground intellectual property, especially for China-based R&D centers.
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Exercise due diligence:
- Understand risk factors in M&A transactions.
- Perform supply chain due diligence.
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Prepare for dawn raids:
- If operating in sensitive fields, be ready for government inspections.
- Companies are expected to assist state security organs in their duties.
Final thoughts
As pharmaceutical companies and auditors navigate the complexities of China’s new State Secrets and Data Security laws, it emphasizes the broader challenges inherent in international business operations within countries characterized by opaque and shifting regulatory landscapes. Balancing compliance with local laws against operational risks is crucial.
The broader implications for global trade, particularly in critical sectors like pharmaceuticals, underscore the necessity for clear and consistent communication and international dialogue to ensure companies can operate without fear of unintended legal complications.
At Qualifyze, we offer a comprehensive understanding of the evolving regulatory environment in China, keeping pharmaceutical companies informed about the latest legislative changes and guidelines to ensure they remain compliant and proactive.
If you’re responsible for ensuring pharmaceutical compliance with suppliers based in China, we encourage you to reach out to our team of experts to initiate a dialogue and navigate these challenges effectively.
