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China’s Anti-Corruption Drive. What Next?

Posted in China Business

Had lunch the other day with a bunch of people I consider to be China experts (to the extent there is any such thing).  During our lunch, GSK’s China corruption issues came up and we mused as to what was really happening in China by way of anti-corruption enforcement.  The following views were expressed:

  • China is serious about corruption and it is starting with the pharmaceutical industry because corruption is so entrenched there. China is going after both domestic and foreign companies, but we are just hearing more about the foreign companies. This is just part of China’s desire to reduce corruption because the Chinese people are really sick of it.
  • China is focusing on its pharmaceutical industry because its citizens are unhappy with medical care pricing. Why not go after a high profile foreign company to show the people that the cause of high medical care prices is foreign companies and we the government are aggressively working to solve the problem.
  • China is focusing on foreign pharmaceutical companies because it wants to do what it can to level the playing field for Chinese pharmaceutical companies. The pharmaceutical industry is of critical importance for China (both domestically and worldwide) and it does not want foreign companies dominating this industry.
Upon reflecting on that lunch, I come up with the following takeaways (pun intended):
  • Nobody really knows where and when the Chinese government will strike next when it comes to corruption. We all just know that it is striking a lot more often than it used to and striking against a much more varied list of companies (the smaller foreign companies that have gotten hit have for the most part managed to stay out of the news).
  • If you are a foreign company doing business in China in an industry the government deems important, you should be extra worried/cautious.

What are you seeing out there?

  • Robert Walsh

    Pharma was a good target because most companies arrogantly transferred their US business model of buying physicians to China. Pharma does not give a rat’s ass about patients, but it cares very much about the doctors who write the scripts. In China doctors write scripts for branded products, vice generics, as long as they are getting some sort of kickback. But along with the introduction of price controls and an essential drugs list, China is trying to control costs of healthcare.

  • Kent Kedl

    It HAS already started in other places, Dan … the rest of the world is just not hearing about it. The aggressive attention from Chinese regulators is quite widespread throughout the healthcare sector (not just pharma) and we are seeing it also in the automotive, retail and food and beverage sectors. And its not just anti-corruption … in addition to the new attention from the Economic Crimes Investigative unit at the PSB (indicating potential charges of criminal corruption) we are seeing active inquiries from authorities on anti-competitive issues (the NDRC on pricing and the AIC on business practices) as well as tax authorities on issues such as transfer pricing.

    You are correct that the Chinese authorities are picking on BOTH foreign and local companies … but local companies are typically much better prepared to handle such inquiries. Local companies typically already know their regulators and know what to do when they arrive. They know how to show the proper “attitude” and how to work towards a solution. Foreign companies, for the most part, are quite clueless.

    So yes, buckle up … its going to be a VERY bumpy ride!