22 Dec 2025 | By YGG
Against the backdrop of the booming global health industry, China’s plant extract sector presents a unique paradox: as the “heart” supplying approximately 70% of the world’s raw materials, numerous Chinese enterprises remain chronically trapped at the bottom of the “Smile Curve” of the industrial chain—characterized by high output value but low profit margins. This report aims to move beyond a simple description of corporate categories to dissect the economic nature of this structural dilemma and systematically explore the strategic pathways leading manufacturers are taking to climb out of the trough and ascend towards both ends of the value curve.
Chapter 1: Mapping the Dilemma: The “Value Capture Gap” in Data
The “Smile Curve” theory clearly depicts the value distribution in modern industrial chains: high value-added segments lie at upstream R&D, technology, and standard-setting (left side) and downstream branding, channels, and consumer services (right side), while midstream manufacturing and processing are relegated to thin profit margins.
The current state of China’s plant extract industry is a vivid illustration of this theory. Taking the 2023 financial data of leading listed companies as an example: the industry leader Chenguang Biotech Group reported a gross margin of approximately 17.6%, while Layn Natural Ingredients, focusing on natural sweeteners, saw a gross margin of about 20.1% for its plant extract segment [1, 2]. In stark contrast, European and American brand owners, who heavily rely on Chinese raw materials, typically enjoy gross margins generally above 60% to 70% or even higher. For instance, major international nutrition giants consistently report gross margins above 60% in their financial statements, while some high-end skincare brands centered on plant-based ingredients boast gross margins exceeding 80% [Note 1].
This disparity constitutes the “value capture gap.” It is not merely an issue of unfair profit distribution but a reflection of industrial structure, technological barriers, and positioning within the global value chain. Chinese manufacturers bear the majority of risks and investments—from agricultural uncertainties and complex production processes to environmental costs—yet capture only the smallest share of profit from the entire value chain.
Chapter 2: Deep Analysis of Causes: The Four Structural Shackles Behind the Dilemma
The formation of this predicament results from the long-term interplay of multiple factors:
Technological Homogenization and the “Patent Cliff”: The industry has long relied on imitating and improving mature processes, with a multitude of companies clustered in standardized bulk product areas like green tea extract (EGCG) and grape seed extract, leading to highly homogeneous competition and price wars. Meanwhile, core patents for key functional ingredients (e.g., specific forms of curcumin, plant compounds with specific activities) are largely held by multinational corporations and international research institutions. Chinese companies often face patent licensing barriers or the “patent cliff” when producing high-value products, making it difficult to establish exclusive advantages on the left side of the curve.
Lack of Branding and Solidified Value Chain Positioning: The vast majority of Chinese manufacturers are perceived by global clients as “B2B raw material suppliers.” Their brand value fails to effectively reach end consumers. This confines their bargaining power largely to cost, rather than brand premium. The industry’s value remains firmly locked in the “production and manufacturing” segment, hindering extension towards end brands and consumer mindshare.
Weak Pricing Power in the Supply Chain: Despite the industry’s large scale, Chinese manufacturers still wield limited influence over key international market channels, consumer product formulation databases, and end-market marketing narratives. Buyers often dominate, able to transfer risks from commodity price fluctuations and stringent compliance costs upstream to producers.
Passive Response to International Compliance: For a long time, adapting to regulatory changes in markets like the EU and the US (e.g., Novel Food, NDI filings) has been viewed as a necessary “cost” and “hurdle” to overcome, with companies primarily adopting a follow-and-react strategy. This has led to a lack of voice in rule-making, preventing the industry from translating its technical strengths or production practices into widely accepted standards, thereby forfeiting the opportunity to influence value distribution through rules.
Chapter 3: Observing Breakthrough Paths: Three Expeditions to Scale the “Smile Curve”
Confronting this dilemma, leading Chinese manufacturers are not passive. They are embarking on three distinct paths in a challenging ascent towards both ends of the “Smile Curve.”
Path A (Scaling the Technology Side): Reconstructing the Source of Value with “Synthetic Biology” to Build Patent Moats
Strategic Logic: Bypassing the limitations of traditional plant extraction—subject to cultivation cycles, land, and climate—by using synthetic biology to efficiently synthesize ultra-high-value natural products like rare ginsenosides (e.g., CK, Rg3), gastrodin, and salidroside directly in microbial cell factories [3]. This is not merely a revolution in production technology but a reconstruction of the value source itself.
Case Study and Impact: Companies like Huaheng Biotech and Zhucheng Foreign Trade Group are making significant investments in this area. Their core value lies in the potential to create novel compounds that are either trace in nature or uneconomical to extract by designing and optimizing biosynthetic pathways, thereby establishing fundamental patent and intellectual property barriers at the very leftmost end of the industrial chain [Note 2]. Upon success, a company transforms from a cost competitor into the sole or primary technology provider for specific high-value ingredients, fundamentally altering its pricing model.
Path B (Scaling the Market Side): Extending Towards End-Value Through M&A and Brand Incubation
Strategic Logic: Directly acquiring established overseas consumer brands or incubating proprietary brands leveraging deep ingredient knowledge, bypassing intermediaries to capture brand premiums and consumer connections directly.
Case Study and Challenges: Some well-resourced Chinese companies have begun experimenting. Examples include acquiring overseas small-to-medium-sized health supplement or skincare brands to quickly gain market access and brand assets. Domestically, companies like Chenguang Biotech are actively promoting a “finished product strategy.” The fundamental challenge lies in the shift from a B2B manufacturing mindset to a B2C branding and marketing mindset, requiring a completely different skillset—including consumer insight, brand storytelling, channel management, and regulatory navigation. This is a high-risk endeavor that cannot be achieved overnight.
Path C (Reshaping the Rules): Using the “GEP Standard” as a Starting Point to Participate in Building a Global Quality Trust System
Strategic Logic: Transforming pure compliance costs into strategic investments for shaping industry rules. By leading or deeply participating in the creation of internationally mutually recognized industry standards, the baseline value and credibility of the entire high-quality Chinese supply chain is elevated.
Case Study and Outlook: The launch of the “Good Extraction Practice (GEP)” group standard and certification program in 2025, jointly promoted by Chinese and American industry bodies, marks a milestone [4]. For leading Chinese companies that obtain certification, this means their production systems gain a “credible passport” into global mainstream supply chains. In the long run, this not only reduces the trust cost for international buyers but also holds the potential for Chinese quality practices to be gradually accepted as an international procurement benchmark. When “compliance” shifts from being an exam paper set by others to rules one helps to draft, leading Chinese manufacturers can gain a dominant role in defining “what constitutes quality,” thereby influencing value distribution.
Conclusion: The Long Ascent from “Cost Depression” to “Value Highland”
The journey for China’s plant extract industry to traverse the trough of the “Smile Curve” is, in essence, a profound transformation from “cost competition” to “value competition” and from “passive承接 (undertaking)” to “active shaping.”
The three paths are not mutually exclusive but represent choices for companies with different resource endowments and strategic ambitions. Technological breakthrough (Path A) is a fundamental disruptor, capable of creating entirely new value highlands. Brand extension (Path B) represents the ultimate leap in value realization but comes with significant challenges. Rule reshaping (Path C) involves building a “highway” for the entire quality supply chain, capable of systematically raising the industry’s value baseline.
It is foreseeable that the industry will undergo accelerated differentiation in the coming decade. A handful of leading enterprises with strong R&D, capital, and strategic vision will successfully climb the left side of the Smile Curve through a combination of “technology + standards,” and may even attempt to extend to the right side. Meanwhile, a large number of companies unable to escape homogeneous competition will continue to struggle at the bottom. This battle for value capture will not only determine the global standing of Chinese enterprises but also profoundly influence the power dynamics and value distribution within the global plant extract and broader health industry landscape.
References
[1] Chenguang Biotech Group Co., Ltd. (2024). 2023 Annual Report.
[2] Guilin Layn Natural Ingredients Corp. (2024). 2023 Annual Report.
[3] Tianjin Institute of Industrial Biotechnology, Chinese Academy of Sciences. (2024). White Paper on Synthetic Biomanufacturing Research Progress and Industrial Outlook.
[4] China National Institute of Standardization, & China Chamber of Commerce for Import & Export of Medicines & Health Products. (2025). Joint Notice on the Release of the “Good Extraction Practice (GEP)” Group Standard and the Launch of the Certification Program.
Notes:
1.Data on gross margins of international brand owners is based on general industry observation from public financial reports. To protect commercial confidentiality, specific data from individual companies is not cited here.
2.Details regarding the specific layouts and patent situations of synthetic biology companies are often reflected in their R&D pipelines and patent applications. A generalized description of industry trends is provided here.