An NBER working paper by Barwick, Xia and Xia (2026) provides the answer:
In 2010, China accounted for less than 8% of global clinical trials; by 2020, it had surpassed the US in annual registered clinical trial volume…We provide strong evidence that China’s rise was primarily driven by the National Reimbursement Drug List (NRDL) reform, which dramatically expanded the effective market size for innovative drugs. We document a sharp rise in both the quantity (86% increase) and novelty of drug trials post reform, with growth concentrated in reform-exposed disease categories, first- or best-in-class drugs, and among domestic firms. A decomposition exercise reveals that the NRDL reform accounts for 43% of the growth in oncology trial activity, nearly doubling the combined contribution of upstream knowledge accumulation and talent flows (24%), while other government policies play a minor role. Finally, dynamic gains from induced innovation exceed the reform’s static gains in consumer access to innovative drugs by threefold, underscoring the importance of accounting for the reform’s long-run effects on innovation incentives in addition to near-term improvementsin drug affordability.
Analytic approach
The authors used data a variety of data sources:
Citeline Trialtrove: census of all clinical trials globally Citeline Pharmaprojects: tracks development milestones such as patenting, out-licensing, and regulatory approvals. SinoHealth Drug Sales: Measures drug sales in ChinaOpenAlex Publication: Tracks global scientific publicationsNational Medical Products Administration (NMPA;国家药品监督管理局): Identify approvals of investigational new drugs (IND).Global Burden of Disease: Measures disease prevalence
Using these data, the authors use a difference-in-differences specification at the disease-country-year level comparing US and Chinese log number of clinical trials launch and test whether there was an uptake in clinical trials afer the NRDL reform.
Chinese Healthcare System Overview
Chinese healthcare system (CHS) provides nearly universal coverage to over 95% of the population, making it the world’s largest public health insurance program. Established in 1999, it has since evolved into two main schemes: the urban employee basic medical insurance (UEBMI), which covers formal-sector employees and retirees, and the urban and rural resident basic medical insurance (URRBMI), which covers the remaining population, including children and the elderly…
In 2022, the system spent over Y520 billion ($74 billion) on pharmaceuticals…In contrast, the private commercial insurance market remains underdeveloped, accounting for less than 7% of total health expenditures. Consequently, inclusion in the National Reimbursement Drug List (NRDL) is the primary gateway to the Chinese pharmaceutical market.
What is the NRDL?
…National Healthcare Security Administration (NHSA) launched a landmark reform in 2016, integrating innovative therapies into the national insurance catalog through centralized price negotiations. This ongoing reform represents a fundamental shift from a rigid, budget-capped formulary to a dynamic, value-based reimbursement model. The negotiation process follows an annual cycle. Each spring, NHSA defines an “eligible list” of drugs, targeting innovative drugs (obtaining market approval within the last five years) that address significant unmet clinical needs. Firms with eligible drugs and NHSA exchange information on costs and medical effectiveness during the pre-negotiation stage, which can last for months. On the day of negotiation, government representatives negotiate with delegates from each drug company simultaneously and independently. Successful negotiations result in inclusion in the NRDL, typically involving average price reductions of 50–60%. If negotiations fail, the drug remains on the private market with significantly lower volume. The reform has a huge impact on the drug market and has successfully included 699 drugs in NRDL by 2024, and the accrued spending on innovative drugs has reached Y460 billion ($67 billion) between 2016 and 2024 (Table 1), dwarfing the Y66 billion ($ 10 billion) innovative drug market in 2015
The authors point out a few key features of NRDL. First, NRDL has strongly favored coverage of innovative drugs. The authors wrote that >80% of negotiated drugs qualified as “new molecule entities approved within the past five years.” First or best-in-class drugs are strongly preferred. Second, the NRDL reform is large in magnitude with >Y100 billion ($14.5b USD) to negotiated drugs in 2024. This unsurprisingly had a large impact on incentives for life sciences R&D investment, particularly in China. Third, NRDL focuses on “price-for-volume” negotiations. Why is this a useful strategy? High prices are needed to incentivize R&D (dynamic efficiency), but low prices maximize consumer surplus conditional a drug being approved (static efficiency). “By leveraging its buyer power to guarantee volume in exchange for price concessions, the state aims to find a ‘sweet spot’ that expands access while preserving, or even enhancing, the net present value (NPV) of innovative drug projects.”
You can read the full paper here.
