CHINA has launched a new offensive in the battle to contain a hepatitis epidemic infecting more than two million babies every year, with the opening of an innovative medical facility in Shenzhen last week. The plant will produce up to 20 million units a year of a genetically-engineered vaccine to guard against hepatitis B. One in eight people in China are believed to be chronic carriers of the disease. ''Hepatitis has for years been one of the worst health problems in China,'' a foreign health specialist based in Beijing told the Sunday Morning Post. ''It's an epidemic affecting every city and part of the country.'' China has invested over $250 million in the Shenzhen vaccine manufacturing facility. It will be run by Shenzhen Kangtai Biological Products Company in an unusual joint venture with American-based Merck and Company under the terms of an agreement signed in 1989. Merck brought a team of 17 Chinese scientists, technicians and production workers to the United States for extensive training. The biological technology is being provided to China in a rare royalty-free arrangement. The plant itself was assembled in the US, dismantled, then shipped to China, according to a spokesman at Merck's headquarters in New Jersey. ''Now, they are essentially self-sufficient and our role is, for all purposes, over,'' he said. He declined to reveal the exact terms of the contract, but confirmed that Merck received several million US dollars in the deal. However, Merck, with manufacturing facilities in 17 countries, will receive no royalties or future benefits from the venture. ''Merck recognised that the only effective way to solve the hepatitis crisis in China was through vaccination, and the only way China could produce enough quality vaccine would be through genetic engineering,'' said Merck executive vice-president Jerry Jackson at the Shenzhen opening ceremony. ''In this special case, we were eager to invest our resources not to turn a profit, but to create a solution; the elimination of a devastating epidemic in China,'' he said. ''Rather than sell the finished product, we set out to provide the Chinese people with a means to produce the vaccine themselves.'' Kangtai Biological Products has been among the leaders in China in the production of a plasma-based hepatitis vaccine. A Merck spokesman said vaccine derived from blood plasma was more prone to contamination and could not be produced in sufficient quantities or economically enough to halt the hepatitis epidemic. Merck has already helped China in the construction of a similar vaccine production plant in Beijing, which opened last October. An estimated 150 million people in China have hepatitis B - about half the world's total chronic carrier population. The majority experience no symptoms, but are highly contagious and can unknowingly transmit the disease to others. Spread of the disease is mainly through contact with infected blood, saliva, body fluids or contaminated needles. Infants can become infected by their mothers during pregnancy and are much more likely to become chronic carriers. While only 10 per cent of adults infected by hepatitis B become chronic carriers, an estimated 80 per cent of infants become chronic carriers. The virus damages the liver and can cause lifelong HBV infection, and death. Hepatitis B is the second leading cause of cancer, after cigarette smoking. The World Health Organisation, which recommends routine vaccination against hepatitis for all infants by 1997, has reported that 80 per cent of all primary liver cancer is caused by hepatitis B.