Corruption is perhaps the easiest charge to raise in China, such is its pervasiveness. While the pharmaceutical industry globally has repeatedly been found guilty of bribery, in China it is one of the most basic requirements of doing business. Whatever GSK?s sins may be, the company has clearly become a political target of the Communist Party. Not only has it been roundly attacked in the state media, but all mention of it has been censored on the internet and banned from social media, as the party moves to quash any questioning voices.
And there remain plenty of important questions about what has happened. Why, for example, have GSK executives and staffers been placed under extra-legal detention, rather than formally arrested? Why has a British fraud investigator disappeared and what is his connection to the case?
Why have key pieces of evidence been announced loudly by Gao Feng, the head of the investigation, before the process has finished? Why, if GSK used 700 middlemen to funnel bribes to doctors, has only one of them been publicly named?
There are questions for GSK to answer as well. Can it really be true, as Sir Andrew repeated yesterday, that the company had no idea what four of its most senior executives in China, including the head of operations, human resources and compliance, were up to? If that is the case, perhaps Mark Reilly, the head of the Chinese operation who fled back to London earlier this month, should be sacked for negligence.
Why did the company perform such an enormous volte-face, admitting guilt over the affair, just one month after boldly declaring that it had spent four months and ?significant resources? to ?thoroughly investigate each and every claim? and found ?no evidence of corruption or bribery in our China business??
The precise nature of the political game that is under way is unclear. What began with a regulatory probe into a dossier of suspicious sales information has snowballed into a movement against a number of companies, all of them European.
?Why are only European companies involved in this?? asked the rival pharmaceutical company executive. ?Is something going on between China and Europe? Is GSK doing something that Pfizer wasn?t? I do not think so.?
Last August, the US Securities and Exchange Commission said that Wyeth, a subsidiary of Pfizer, had bribed doctors in China with cash to recommend its products, using fake invoices to cover the payments. Pfizer settled the case without admitting guilt. Hao Junbo, a lawyer at the Lehman Law Firm in Beijing, immediately submitted a case to the Chinese authorities demanding an investigation, but Pfizer remains untouched.
Whatever the truth of Pfizer?s actions, the Chinese accusations against GSK have a hollow ring to them. The authorities have painted the company as a fiendish foreign multinational ramping up prices for poor Chinese patients, but drugs companies have little control over the final price of their products in China.
While many medicines in China are dramatically overpriced, it is the hospitals that decide the mark-up on prescriptions, and indeed rely on that mark-up for a large share of their income. GSK may have bribed doctors to win market share, but its actions did not affect the price of its drugs.
Some have suggested that GSK has fallen victim to China?s stated desire to boost the fortunes of its own drugs companies; others believe that GSK is being made a scapegoat to force the rest of the sector to behave better. Internally, the company believes it has fallen foul of its well-connected former head of government affairs, who has now brought the might of the Communist Party to bear. That, at least, may have provided the initial impetus for the investigation to be transferred from regulator to police.
Yesterday another ominous warning was issued by Xinhua, the state news agency. ?It will not be surprising if more pharmaceutical companies and hospitals, domestic or international, are to be involved in probes in the days to come,? it said in an editorial. ?Big international firms should shoulder [their] due responsibilities to bid farewell to malpractice, setting a good example and serving as a wake-up call for domestic pharmaceutical companies.?
AstraZeneca has seen two of its sales managers taken in for questioning, and while the company maintains that it is an unrelated investigation, the timing of the police?s arrival is worrying. At least two other international drug companies ? UCB, a Belgian firm, and Baxter International ? are also mired in investigations.
Meanwhile, it emerged that more than 1,000 doctors in 73 hospitals in the south-eastern city of Zhangzhou have been investigated for taking kickbacks. If the Chinese government really believes that ?323 million was paid out by GSK to Chinese doctors and health officials, presumably there will be more arrests shortly.
Other companies should beware, because in China there remains no line between business and politics. In recent years there has been plenty of political pushback against foreign firms who are perceived to have grown rich on the backs of Chinese customers. Apple, Volkswagen, Walmart and Hewlett Packard have all found themselves accused of exploiting Chinese consumers. The barbs against Apple continue to make news in China, with a story in the People?s Daily yesterday accusing the company of not paying all the donations it pledged to victims of an earthquake in Sichuan.
For years the Chinese government has been trying to boost its local vaccines industry, but it has found that patients preferred to trust serums developed and made by GSK. Now the company has misjudged its hand and given the government, and the economic interests behind the government, an opportunity to attack.
Few foreign firms, historically, have managed to crack China?s market. Those that do come under increasing pressure from the government, especially if they compete against local firms. The struggle between GSK and the Chinese authorities has yet to be played out, but already the lesson to other companies is clear: always remember that in China, the Communist Party is investigator, judge, jury and executioner.
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