Promises of higher salaries and greater freedom at work are luring officials from China's high-profile drugs watchdog to the companies they had regulated, a blow just as the country looks to tighten oversight and drive innovation.

China wants to crack down on substandard drugs and healthcare as it seeks to produce more of the drugs consumed in the country and to build up its pharmaceutical exports. It also has ambitions to develop cutting-edge drugs to combat major diseases, from cancer to Ebola.

But in the past two months alone, high-profile scandals concerning a criminal vaccine ring and experimental cancer treatments have exposed what Li Guoqing, head of the China Food and Drug Administration's (CFDA) drug supervision department, in March publicly called "dead spaces and blind zones."

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Current and former officials at the CFDA told Reuters the staffing issues are hampering its ability to police the world's second-largest drugs market, including the monitoring and testing of new medicines.

"The brain drain of skilful people definitely impacts the CFDA's ability to operate, especially for example its ability to evaluate new drugs," said Cheng Gang, 44, a former CFDA section chief who left to set up his own drugs company at the end of 2014.

He said senior staff eventually moved on for bigger pay packages at drug companies, where he said they could earn more than 600,000 yuan ($92,000) a year, versus around 120,000 yuan at the regulator.

One current senior official at the CFDA, who declined to be named because he is not authorized to speak to the media, told Reuters some areas like drug supervision and front line enforcers were particularly hard hit. An analysis by Reuters of professional websites such as LinkedIn China show that departures have included section heads and senior enforcement officers.

At the heavily guarded Beijing office block that houses the CFDA's headquarters, a tightly controlled work environment has done little to stem the flow of departures. Cheng said staff were not allowed to go online or even use messaging apps when he was there, though it could not be ascertained whether that was still the case.

In some ways, the CFDA is a victim of its own progress - those with regulatory experience are increasingly in high demand in China partly because drug firms are facing an ever more complex regulatory environment. They leave the CFDA for multinational companies, local drugmakers, consultancies and investment firms.

Ge Li, CEO of Shanghai-based drug research firm WuXi AppTec, said only around a third of drugs approved in the United States have made it through the approval process in China.

"China wants to set a standard, but it also needs to have the expertise and the talent," he said.

In a speech earlier this year, CFDA boss Bi Jingquan, put the size of his drug evaluation center at 130 people, versus 5,000 at the FDA in the United States.

A third of front line drug evaluation staff have left in the last three years, he added, moving to a private sector where salaries could be as much as ten times higher.

"We have been drained of a lot of our core people," said Bi. The CFDA is candid about the challenge - it said in a statement to Reuters that it needs to offer higher salaries and improved status to deal with the staff shortage.

"Being able to evaluate and approve drugs is what decides the competitiveness of a country's pharmaceutical market," the watchdog said.

In his comments in response to the illegal vaccines scandal in March, the CFDA's Li was stark in his assessment of the talent problem. "There aren't even 500 people with the aptitude to inspect drugs," he said. "Regulatory targets are many, but there are few people on the ground."

The CFDA declined to provide Bi or Li for interview for this story.

CRACKING DOWN

Since his appointment last year, Bi has sought to shake up regulation by introducing new policies for drug approvals, tougher testing for generic drugs and a crackdown on dodgy drug trial data.

Among others, Li Chen, the chief executive of drug development firm Hua Medicine, said that Bi takes a "no mercy" approach to regulation.

China's drug exports are rising: they hit 25 billion yuan in 2015, up almost tenfold from 2002, according to Fitch-owned BMI Research. These exports are set to hit around 44 billion yuan by 2020, BMI said.

The staffing crunch, however, raises doubts, over whether China really can implement and enforce the new rules - raising the risk that bad corporate behavior will continue, and new drug development will be held back, even as China's drugs reach more people.

Slow approvals for new drugs are already a bugbear for multinational firms - despite China's pledges to speed up proceedings. Drugs like Merck & Co's vaccine for HPV and others to treat hepatitis and cancer have been waiting for approval for lengthy periods, a number of years in some cases.

"China's growth and appetite for medicines are growing faster than its regulatory infrastructure can keep up," said Sophie Cairns, senior analyst at consultancy IHS Life Sciences.

(Reporting by Adam Jourdan; Additional reporting by SHANGHAI newsroom and Damir Sagolj in BEIJING; Editing by Clara Ferreira-Marques and Martin Howell)