China has announced new controls over the production of precursor chemicals used to make fentanyl, the deadly illicit drug that’s killing thousands of Americans every year. But the new controls do nothing to dismantle the domestic policies that have led to China’s fentanyl dominance, and they apply to only three precursor materials out of hundreds produced, promoted and exported by China over the past two decades.
On 7 August, The Financial Times reported the change in China’s regulation of the three precursors: 4-AP, 1-boc-4-AP and Norfentanyl. But, as the newspaper noted, UN member states agreed to those restrictions back in 2022. For almost two decades China has been a major global source country for synthetic illicit drugs or their precursors. Almost all of the methamphetamine is manufactured using precursors from China.
The new controls—a result of a cooperative agreement reached by presidents Joe Biden and Xi Jinping in November 2023—may appear to signal a commitment to counter narcotics, but China’s government has been subsidising the production of fentanyl through longstanding tax rebates.
Fentanyl, a synthetic opioid 50 to 100 times more potent than morphine, is a central driver of the US overdose crisis. In 2022, it was linked to around 71,000 of the more than 100,000 reported US drug overdose deaths. Even a 2 milligram dose can be fatal.
While fentanyl and other synthetic opioids are trafficked into the US by Mexican cartels, almost all the global supply originates from China. Fentanyl is also not an outlier. As reported in a paper by the US congressional Select Committee on the Chinese Communist Party, Chinese companies are the major global supplier for methamphetamines, ketamine, tramadol, nitazenes and xylazines.
That market dominance is the result of the promotion and protection of illicit pharmaceutical industries by the CCP.
The Financial Times article, written by Demetri Sevastopulo, reported that China’s new controls on three precursors signal improved cooperation with the US. On the Biden–Xi agreement, a Chinese Embassy spokesperson in Washington, Liu Pengyu, said, ‘China has always attached great importance to international counter-narcotics cooperation and is willing to co-operate with countries worldwide including the United States. We hope that the US side can work with China in the same direction and continue our cooperation based on mutual respect, managing differences, and mutual benefits.’
The Financial Times and Liu Pengyu overlook two inconvenient facts.
First, the CCP has not only allowed fentanyl and precursor exports but promoted them. It’s alleged that, in some cases, the manufacturing operations appear to have direct government links. In leaked documents, companies boasted that the CCP owned them and that their illicit products were tax-exempt.
China has a value-added tax (VAT) system that reduces or eliminates the tax on exported goods through a ‘refund rate’ mechanism, incentivising companies to manufacture and export certain products. It’s a trade policy tool to regulate export prices and boost international competitiveness. As far back as 2018, the VAT system is alleged to have incentivised the export of at least 17 illegal narcotics that are Schedule I controlled substances and have no legitimate purpose, including 14 fentanyl analogues. Analogues are chemically similar to existing substances, designed to mimic or alter the effects of the original while varying slightly in structure to evade legal restrictions or to enhance specific properties.
The CCP provided unusually high VAT rebates of 13 percent for synthetic narcotics, compared with the standard rebates of 3 percent, 6 percent and 9 percent for most other commodities. The select committee’s report of April 2024 on the US fentanyl epidemic reported that those subsidies remained in place as recently as that time.
Further, the CCP’s new controls address only three chemicals out of the hundreds produced and exported by China to make fentanyl. Synthetic opioids, such as fentanyl, can be made through various chemical processes that require specific precursors. The CCP subsidises, and has no control measures on, NPP and ANPP—the two precursors most valued by Mexican drug cartels. Not only that, but the US has begun to intercept higher volumes of boc-4-piperidone (the other fentanyl precursor that was proposed for international control), 2-phenethyl bromide (including one shipment of 660 kilograms) and para-fluorofentanyl. These findings suggest a diversification by traffickers into the illicit manufacture of more fentanyl end products, bypassing the agreements made between the US and China. Chinese criminals used a similar approach to produce ‘novel substances’ and avoid regulatory controls. ‘Novel substances’ are designed to mimic the effects of existing illicit drugs or to produce new psychoactive effects.
Other synthetic opioids may use different precursor chemicals. The production of all synthetic illicit drugs involves complex chemical reactions that typically require specialised knowledge and equipment.
China has long claimed that it cannot control illegal activities in its chemical and pharmaceutical industries due to the difficulty of identifying manufacturers exporting synthetic narcotics. But to receive a VAT refund, a company must provide details of the name and amount of the exported substance to the government, including complete identification and sales records. The US select committee’s April 2024 report also presented solid evidence that the CCP provided monetary grants and awards to companies openly trafficking illicit fentanyl online.
Without addressing the CCP’s systemic support for illicit narcotics, the new controls on three precursors are little more than a public-relations stunt to save face and obfuscate the party’s complicity in this deadly problem. If China wants to be a good global citizen, it must remove VAT subsidies on illicit pharmaceuticals, increase regulatory oversight and domestic law enforcement’s counter-narcotics efforts, and remedy international compliance deficits for all illicit pharmaceuticals.
While Australia doesn’t, at present, have a fentanyl problem, we do have a methamphetamine epidemic. Our epidemic, like the US one, is fed by chemical precursors produced in China. It’s imperative that Australia maintains an independent sovereign foreign policy, but there’s great value in Australia and the US adopting a shared stance against China’s illicit narcotics role.