China’s campaign against corruption and corporate bad behaviour is often accused of focusing on foreigners while turning a blind eye to domestic malfeasance.
When Beijing handed out its biggest ever pollution fine this week, it targeted a US company for the crime of open-air spray-painting. That a foreign venture should be shamed in this manner, rather than one of the many smoke-belching coal-fired utilities that ring China’s capital, seems to speak of a skewed sense of priorities.
At first sight, the accusations brought by the Chinese authorities against GlaxoSmithKline seem to fit a similar pattern. The police investigation is part of a wider crackdown by the state on unfair pricing practices. The government believes that Chinese consumers often pay far more for goods and services than they should and the pharmaceuticals industry is an important focus of this inquiry. True, some domestic businesses have been roped into this probe. But most of the high-profile targets to date have been foreign.
Still, the severity of the charges levelled at GSK is striking. Mark Reilly, the company’s former head in China, and many others, are accused of orchestrating a scheme by which GSK staff offered illegal incentives to purchase the company’s medicines. GSK staff allegedly concocted expense claims to hide the payment of cash bribes to doctors who prescribed the drugs.
This, the police claim, had the effect of artificially raising drug prices and distorting competition. At a briefing this week, they alleged that GSK drugs cost up to seven times more than they did in other countries because of such practices. The case has now been handed to the Chinese prosecutor who must decide whether to pursue it in the courts.
GSK must clearly answer any charges that are brought by the Chinese authorities. But the matter should not rest there: it resonates far beyond China. The company may also face prosecution under British and US bribery legislation.
In July GSK admitted that some of its Chinese executives had broken the law, and sacked several it claimed had gone rogue. What is not clear is to what extent the company was aware of the activities in China. Claims that executives attempted to suborn government officials are especially worrying. GSK needs to investigate exactly what happened to establish who knew what and whether people higher up in the organisation may have encouraged or turned a blind eye to any wrongdoing.
The Chinese authorities are right to crack down if companies have been abusing the healthcare system. But if they wish to eradicate malfeasance they should lift their eyes beyond large corporations and address some of the shortcomings in the healthcare sector.
The Chinese government does not pay hospitals enough to cover the cost of treating patients, leaving a shortfall that must be made up elsewhere. Patients who cannot afford to pay often struggle to get treatment. Even the luckier ones sometimes endure unnecessary procedures, peddled by hospitals seeking extra fees. Drugs, to which healthcare providers add a 15 per cent mark-up as a source of income, are liberally prescribed.
Doctors, too, are disgruntled. They struggle to make ends meet on wages that are low even by Chinese standards. In a country in which bribery remains a problem, hardship among doctors makes it almost inevitable that some will look for kickbacks to supplement their meagre incomes.
None of this excuses improper conduct by drugs companies or the medical profession. Still, enforcing the law is only part of the solution. The powerful incentives for misbehaviour must be removed. Corporate prosecutions are necessary where rules have been broken. They should not, however, be the end of the story.