GLOBALINSIGHT

May15,20141:12pm

Chinaprescribesanewwayofworkingfor
multinationals
ByJamilAnderliniinBeijing

Author alerts

GSKcaseisawarningtobusinessnottofallfoulofauthorities

hedetailedanddamningallegationsof
corruptionlaidagainstGlaxoSmithKlines
Chinesesubsidiarytravelwellbeyondtheofficesof
oneoftheworldslargestdrugmakers.
Alldepartmentsandpharmaceuticalproduction
subsidiariesofGlaxoSmithKline(China)
AFP
Investmentwerefullyengagedinbribery,asenior
officialintheeconomiccrimeinvestigationbureauoftheMinistryofPublicSecuritytold
journalistsonWednesday.
Thiswasnothingshortofapublicstatementdirectedatthe
foreignbusinesscommunityinChinathattherulesofengagementhavefundamentally
changed.
GSKsChinasubsidiaryanditsemployeeshavenotyetbeenformallychargedbutpolice
investigatorssaidthosechargesarecoming.
Executivesatmultinationalcompanieswhohavereliedforyearsonmiddlemen,agentsand
advisoryfirmstopayoffChineseofficialsinexchangeformarketaccess,licencesand
contractswillallbetakingnote.
Sowillthosewhohaveescheweddirectpaymentsandreliedinsteadoncosyrelationships
withseniorCommunistpartyofficialsandtheirprincelingchildrentoboosttheirsales
numbersintheworldsfastestgrowinglargeeconomy.
AlmostsinceChinabegantoopenitseconomytotheworldintheearly1980s,foreign
companieshavefoundthemselvesentangledintheweboffavoursandreciprocal
relationshipsknowninChineseasguanxi.
Guanxidoesnotautomaticallyequatetocorruptionbutveryoftenitdoes.
ThereisenormouspressureonseniorwesternexecutivessenttoChinatomakebumper
profitsintheworldssecondlargesteconomy.

WhentheyarriveinanenvironmentwherevirtuallyalltheirChinesecompetitorsarestate
ownedoratleastwellconnected,andwherebriberyinvariousformsisendemic,the
incentivesallpointinonedirection.
CombatingcorruptionisaverybigchallengeforusinChina,saysacountrycompliance
headatoneFortune500company.Itstheecosystemwelivein.
Theproblemforcompaniesthathaveadaptedtothelocalecosystemisthattheclimatehas
nowclearlychangedandthenewadministrationunderPresidentXiJinpingismuchless
willingtotolerateblatantcorruption.
SeveralpeopleintheChinesepharmaceuticalindustrysayGSKsbehaviourinChinawas
nowherenearasbadasthatofitsdomesticcompetitorsorevensomeofitsforeign
counterparts.
ButtheauthoritiesappeartohavepickedGSKasanexamplekillingthechickentoscare
themonkey,astheChinesesayinggoesinordertoreininsomeofthemoreextreme
corruptionintheindustry.
Followingtherecord$3bnfineitwasforcedtopayintheUSin2012forillegaldrug
promotion,failuretoreportsafetydataandfalsepricereporting,GSKwasarelativelyeasy
targetforBeijing.
ThecaseisalsotiedupwithreformofChinasbrokenhealthcaresystem,whichisplagued
bycorruption,poorqualitymedicalstaff,overprescriptionofdrugsandovercrowding.
Oneofthemostdamningallegationsoutlinedbypoliceisthatthecompanypaidforits
bribesbyinflatingthepricesofitsmedicinesinChina,someofwhichweremorethanseven
timesmoreexpensivethaninothermarkets.
Thecostsof[GSKChinas]enormousbriberyandillegalactivitywereinfacttransferredon
toChinesepatientsandthestatesfinancesthroughexcessivelyhighdrugprices,policesaid
inastatementcarriedbystatemedia.
AlthoughGSKisstillwaitingtoheartheformalchargesagainstit,intheChinesejustice
systemsuspectsareconsideredguiltyoncetheCommunistpartysaystheyare.
ThroughoutthebriefingbypoliceonWednesday,officialsstatedtheirallegationsas
undisputedfacts.
Policeinvestigatorsareabletomakesuchboldstatementseventhoughnochargeshave
beenlaidbecauseofthewaytheChinesesystemworks.
Chinahadaconvictionrateof99.93percentin2013andinallhighprofileorsensitive

casestheconvictionandsentencingisapoliticaldecisionmadebypartyofficialsinsecret
meetingsbeforethetrial.
Oncethepolicehavefinishedtheirinvestigationtheypassacasetotheprosecutorsoffice,
whichthenissuestheformalcharges.Onlyonveryrareoccasionsdoestheprosecutorrefuse
tocarryoutthepolicesrecommendation.
GSKscasehasnowbeenhandedovertotheprosecutorsofficeinthefarflungsouthern
provinceofHunan,whereGSKexecutivesandthecompanyitselfaremostlikelytostand
trialinaprocessthatwillbetightlymanagedfromBeijing.
Fromthecompanysperspective,theonlysavinggracefromthewholeaffairisthefactthat
thepolicehavemadenomentionofanyculpabilityonthepartoftheparentcompany,and
seemtohaverestrictedtheirallegationstoGSKsChinabasedsubsidiaryandexecutives.
Thatwillbenocomforttothoseexecutivesortothemanyatothermultinationalcompanies
whowillbeworriedaboutwhenaknockcouldcomeattheirdoor.
RELATEDTOPICS China corruption, China, China - Politics & Policy

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