Kundl: Tucked away in the green foothills of the Austrian Alps, the last fully integrated European penicillin plant faces an uncertain future in the shadow of rising Chinese industrial power.
The reason: China is churning out the same antibiotics and ingredients as the Sandoz factory in Kundl, Austria, at much lower cost for the European market.
The falling prices are a boon for cost-conscious European governments' public healthcare programs but an existential threat to the Kundl site - the only one making penicillin from start to finish in Europe, including key active ingredients.
After a number of peers announced they were closing or moving production to China, the plant has become a focal point for a widening debate about the West's self-sufficiency.
And, just three years after a €200-million ($225-million) expansion that included €50 million of public funds, Sandoz has asked the European Commission to open an anti-dumping investigation that could result in tariff measures against Beijing.
If the plant went out of business, Europe "would be fully dependent" on China, Kundl site manager Stephanie Jedner told Reuters in offices looking out over the plant's gleaming storage tanks, ringed by the Tyrolean Alps.
Alexander Fleming discovered penicillin a century ago in London, and it remains the main antibiotic class for life-threatening infections. Today, the manufacturing of ingredients for some 1.5 billion daily doses Europe administers each year is dominated by China.
China's share of EU imports of penicillins and their derivatives in mostly bulk active pharmaceutical ingredient (API) form has nearly doubled from 44% in 2019 to 86% last year, Eurostat data show, coinciding with Beijing's "Made in China" 10-year plan to move up the global manufacturing value chain.
Meanwhile, Europe's exports of the same are today barely a fifth of their early 2000s peak.
It's one example of how China has graduated from textiles and assembly plants to advanced manufacturing and traditionally European industries from pharmaceuticals to machine tools. With the EU goods trade deficit with China ballooning to around €1 billion per day in 2025, double the level of 2020, policymakers are scrambling for new measures to protect companies and jobs.
Sandoz, in written evidence to British lawmakers earlier this year, said Kundl's capacity to supply Europe was "not commercially sustainable" unless governments paid more for penicillin. It argued that Beijing's control of the penicillin supply chain creates an "inherent strategic risk" akin to China's stranglehold on critical minerals.
"Antibiotic supply could feasibly become a tool of economic coercion or hybrid warfare, particularly during periods of diplomatic tension," Sandoz wrote in the submission to lawmakers, asking for more support.
MEDICINE AS LEVERAGE IN TRADE WARS
China spent years establishing itself as a reliable supplier of essential medicines and is increasingly a player in cutting-edge pharmaceuticals. Sandoz says up to 90% of global antibiotic active ingredients are now produced outside Europe, mainly in China, or in India with Chinese chemicals.
"This is something that you should worry about," because China's market power gives it leverage to defend strategic interests, said Tim Ruhlig, a China analyst at EU foreign policy think tank, the European Union Institute for Security Studies.
China could face reputational damage if it used such leverage. Unlike its near monopoly over rare-earth refining, Chinese policy does not frame power in the antibiotic market in national-security terms.
Nonetheless, Chinese economist Daokui Li, a former member of the Chinese central bank's monetary policy committee, spooked Western nations during the COVID-19 pandemic when he suggested supplies of APIs should be on the table in trade disputes.
One US official in China, speaking on condition of anonymity, told Reuters that Chinese counterparts had suggested in meetings that Beijing could cut off exports of APIs for some medicines as retaliation in a trade conflict.
The Chinese foreign ministry said economic and trade differences with the EU could be resolved through dialogue and consultation. "China consistently opposes all forms of trade protectionism," it said in response to Reuters questions. The US State Department did not immediately provide comment.
For European policymakers, the withering of such a strategic industry leaves the bloc vulnerable to restrictions on supplies during pandemics or conflicts, said Bostjan Ceh, head of business development at Labena, Slovenia-based pharmaceutical contract research and development firm.
"It would seriously compromise Europe's ability to cope with a health crisis," Ceh said.
Only after the COVID-19 pandemic - when Europe noticed its dependence on Asian medical supplies - did policymakers begin treating pharmaceutical output as a strategic matter, said Anna Mihaylova, a policy expert at the Medical University of Plovdiv.
Alarm bells sounded in 2022, when supplies of amoxicillin, the penicillin type made at Kundl, ran low in Europe during a surge in respiratory infections after the pandemic.
A year later, citing repeated shortages, the European Commission approved €28.3 million toward the Kundl expansion, which raised production capacity by 20%.
SHIFTING DEPENDENCIES
Wearing a white coat and safety goggles, Cecile Stolz, head of Sandoz's manufacturing unit in Kundl, demonstrated in a small vial how green mould is cultivated to make the compound Scottish scientist Fleming in 1928 found destroyed harmful bacteria.
Fleming's discovery won him a Nobel prize. For years after, China depended heavily on Europe for production of penicillin and other generic drugs.
But Beijing's industrial investment has now reversed the roles, said analyst Ruhlig. China's newfound dominance also stems from fewer environmental regulations, drastically lower labour costs and state subsidies, along with investment by Western pharmaceutical companies seeking cost savings.
At the Sandoz site, which employs more than 2,000 people, Stolz's team ferments nutrients in metal vats to produce the penicillin. The process is energy intensive, another factor making Europe's producers less competitive: EU electricity prices for energy-intensive industries averaged nearly 50% above China in 2025, International Energy Agency statistics show.
Europe's high energy costs are acutely felt at the Kundl plant, which uses as much energy as the nearby city of Innsbruck, home to over 130,000 people, said its manager Jedner at the site Sandoz shares with former parent Novartis and chemicals maker BASF.
As energy prices rise, Europe's penicillin prices have been flat or falling, she added.
CHEAP ANTIBIOTICS, BUT AT WHAT COST?
Sandoz complains it cannot raise prices due to competition and the procurement processes of European countries.
The Kundl plant remains vulnerable, the company says, because of European governments' policy of procuring medicine based on the lowest price rather than seeking to maintain diverse supplies.
The company argues China is flooding the market with cheap APIs. In March, it filed a complaint to the European Commission about China's hold on parts of the antibiotics market. The case centres on proving Chinese amoxicillin APIs are being sold in Europe below production cost, propped up by subsidies.
The European Commission is expected to open the anti-dumping probe soon, though the timing remains unclear due to a backlog of complaints, EU trade experts, European officials and China scholars told Reuters.
The people told Reuters EU duties were likely to be levied given Europe is hardening its approach to China more broadly. Of 23 ongoing EU anti-dumping and anti-subsidy investigations, all but three have China as the sole or joint target.
The Commission declined to comment.
Other outcomes are possible. European Trade Commissioner Maros Sefcovic recently announced a deal with Beijing to lower its exports of hybrid vehicles rather than imposing tariffs, a bid to salvage Europe's automakers.
In public statements, Beijing says its subsidy support is in line with WTO rules. It accuses other countries of protectionism hurting global supply chains.
As Sandoz struggles with global trade dynamics, its CEO Richard Saynor said that to be sustainable, the life-saving medicines need more pricing power than everyday candy.
"I find it upsetting that we sell a pack of antibiotics more cheaply than a packet of Ricola in Switzerland or a Mars Bar in the UK," he told Reuters. "We take a lot of these things for granted - and we take them for granted until they're no longer around."