China is stifling biotech research with regulations that deter foreign companies from investing in an industry that grew 30 percent a year from 2000 to 2005, Bloomberg News reports. Venture capital is also being hampered by intellectual property laws that don’t adequately protect innovations from being copied, according to researchers at the University of Toronto, whose study Bloomberg cites.

“The critical missing part in the Chinese biotechnology industry is the venture capital community,” Sarah Frew of the university’s McLaughlin-Rotman Centre for Global Health, tells Bloomberg. “You have very few venture capitalists who are willing to invest in what are risky biotechnology projects that have a long turnaround time on investment.” She co-authored a study that was published yesterday in the journal Nature Biotechnology and is based on interviews with representatives from 22 companies.

Thanks to insufficient foreign investment, some local drugmakers are generating revenue by selling generic meds or by providing contract research services to overseas rivals, according to the study. These activities, of course, can dilute resources and deter venture capitalists who prefer “a well-defined targeted strategy,” the authors wrote.

China’s biotech market increased to $3.5 billion in revenue in 2005 from $230 million in 1990, according to venture capital firm Burrill & Co., which is looking to invest in Chinese biotechnology companies. By contrast, US biotechs had sales of $50.7 billion in 2005, according to Ernst & Young.