News / Asia

Health Care Bribery in China: Why it Worries Global Drug Makers

A Chinese national flag flutters in front of a GlaxoSmithKline (GSK) office building in Shanghai, July 12, 2013.
A Chinese national flag flutters in front of a GlaxoSmithKline (GSK) office building in Shanghai, July 12, 2013.
A high-profile Chinese investigation of alleged bribery at Britain-based drug giant GlaxoSmithKline is drawing attention to the growing presence of foreign pharmaceutical companies in China's booming health care market.

The recent arrest of four Chinese GSK executives implicated in the scandal also highlights the challenges facing the foreign drug makers as they deal with deep-rooted corruption in Chinese health care and Beijing's new efforts to crack down on it.

Chinese authorities announced the arrests on Monday, saying the executives are suspected of bribing doctors, hospitals and government officials to boost sales and prices of GSK products in China.

China also has placed a travel ban on the British finance director of GSK's China division, Steve Nechelput, preventing him from leaving the country.

GSK confirmed the ban on Thursday, but said Nechelput has not been questioned or detained. It also has pledged to cooperate with Chinese authorities in combating corruption.

GSK is one of 38 multinational drug companies with research and development capabilities operating in China. An organization representing those firms, the R&D-Based Pharmaceutical Association Committee (RDPAC)), said they invested $3 billion in China from 2006 to 2010.

Growth potential

Victoria Lai, a New York-based China analyst at the Economist Intelligence Unit, told VOA that foreign drug companies see China as a crucial market to grow their business as sales slow elsewhere.

"The pharmaceutical market in China is still relatively undeveloped," she said. "The size of the market is only around 17 percent of the size of the U.S. market (by value), even though the [Chinese] population is much bigger."

The EIU says pharmaceutical sales in China reached $69 billion in 2012. It predicts those sales will more than double to $166 billion in 2017.

"By then [China] will have surpassed Japan to be the world's second biggest pharmaceutical market," Lai said. "So that is something that foreign drug makers really do not want to miss out on."

Several factors have contributed to surging purchases of pharmaceuticals in China.

"Health care coverage in the country has been expanding rapidly and incomes are rising rapidly as well," Lai said. "As China grows richer, they are experiencing more lifestyle changes leading to different diseases. For example, with changing diets, more people are getting what we would call rich world diseases, like diabetes."

Besides selling drugs in China, multinational companies also have increased research and manufacturing operations there.

Deepening investment

RDPAC says its members spent about $1 billion to build 22 R&D facilities in China from 2006 to 2010. It says 70 percent of member companies also have established Chinese manufacturing plants.

Lai said foreign companies need the R&D facilities to run clinical trials of their medications before Chinese regulators will approve them. She said Chinese officials also have been encouraging the companies to manufacture the drugs inside China.

"Part of this is because they want to boost various sectors of their economy, and biotech and pharmaceuticals manufacturing is very attractive, because it counts as higher value and can generate quite a bit of output and tax income in the future," she said.

The expansion of foreign drug makers in China also has increased their risk of involvement in corrupt practices that have plagued Chinese hospitals and clinics for decades.

Bribery risks

American firms Pfizer and Eli Lilly paid tens of millions of dollars to the U.S. government last year to settle charges of corruption in foreign markets, including China.

Wang Fangqing, a Shanghai-based health reporter for SCRIP Intelligence, told VOA it is common for drug makers, foreign and local, to pay bribes to ensure that drugs are distributed in hospitals and prescribed to patients. "GSK is definitely not alone," she said.

Many Chinese medical workers accept bribes and sell drugs at artificially high prices to supplement low incomes and weak state funding for health care. Such practices are so typical that Chinese people often refer to them by the phrase Yi Yao Yang Yi, or "feeding hospitals by selling drugs."

Wang said China launched health care reform almost a decade ago to change that system. "But little has changed," she said.

EIU analyst Lai blamed the lack of progress on poor enforcement of rules against corrupt behaviors.

"Those [drug companies] that do not adopt these practices find it really hard to compete with those that do," Lai said. "They see themselves as being left behind in terms of being prescribed to patients. This is the case not just for foreign drug makers but for local drug makers as well."

The Chinese government's investigation of GSK and other recent measures indicate that Beijing is getting tougher.

Crackdown intensifies

The State Food and Drug Administration said Wednesday it will stage a six-month operation against drug industry misconduct.

China's National Development and Reform Commission also recently launched an investigation of prices charged by 60 local and international drug makers, including units of GSK, U.S.-based Merck and Japan's Astellas Pharma.

Belgium-based company UCB said Thursday Chinese regulators have visited its offices and those of other drug makers in recent days.

Beijing is under pressure to act in response to long-running public anger about the high prices of medications not covered by state health insurance plans.

But Lai said it is too early to tell if China is serious about including domestic companies in the crackdown.

"It could be another example of Chinese investigators targeting a high profile Western company just to make a point. There is a risk that it is only targeting foreign companies to give local drug makers a bit of a leg up [boost]."

In a commentary published Thursday, Chinese state news agency Xinhua denied any attempt to "sacrifice international firms to give domestic companies unfair advantages."

Xinhua said Beijing is "firmly opposed to commercial bribery in all forms." It vowed that malpractice by "any enterprise -- Chinese, foreign or jointly-funded -- shall be punished."

Michael Lipin

Michael covers international news for VOA on the web, radio and TV, specializing in the Middle East and East Asia Pacific. Follow him on Twitter @Michael_Lipin

You May Like

Video Russia’s Syrian Escalation Tests Obama’s Crisis Response

Critics once again question whether president has been slow to act on Syrian conflict, thus creating opening for powers like Russia More

Ancient African DNA Shows Mass Migration Back Into Africa

First genetic analysis of ancient human remains in Africa suggests massive migration from north around time of Egyptian empire More

NASA: Pluto Has Blue Sky

New photos also reveal the presence of water ice More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Hungary Criticized for Handling of Refugeesi
Henry Ridgwell
October 08, 2015 8:02 PM
Amnesty International has accused Hungary of breaking multiple international and European human rights laws in its handling of the refugee crisis. As Henry Ridgwell reports, thousands of migrants and refugees continue to travel through the Balkans to Hungary every day.

Video Hungary Criticized for Handling of Refugees

Amnesty International has accused Hungary of breaking multiple international and European human rights laws in its handling of the refugee crisis. As Henry Ridgwell reports, thousands of migrants and refugees continue to travel through the Balkans to Hungary every day.

Video Iraqi-Kurdish Teachers Vow to Continue Protest

Sixteen people were injured when police used tear gas and rubber bullets to disperse teachers and other public employees who took to the streets in Iraq’s Kurdish north, demanding their salaries from the Kurdish Regional Government (KRG). VOA’s Dilshad Anwar, in Sulaimaniya, caught up with protesting teachers who say they have not been paid for three months. Parke Brewer narrates his report.

Video Syrian Village Community Faces Double Displacement in Lebanon

Driven by war from their village in southwestern Syria, a group of families found shelter in Lebanon, resettling en masse in a half-built university to form one of the biggest settlements of its kind in Lebanon. Three years later, however, they now face being kicked out and dispersed in a country where finding shelter as a refugee can be especially tough. John Owens has more for VOA from the city of Saida, also known as Sidon.

Video Bat Colony: Unusual Tourist Attraction in Texas

The action hero Batman might be everyone’s favorite but real bats hardly get that kind of adoration. Put more than a million of these creatures of the night together and it only evokes images of horror. Sarah Zaman visited the largest urban bat colony in North America to see just how well bat and human get along with each other.

Video Device Shows Promise of Stopping Motion Sickness

It’s a sickening feeling — the dizziness, nausea and vomiting that comes with motion sickness. But a device now being developed could stop motion sickness by suppressing certain signals in the brain. VOA’s Deborah Block reports.

Video Making a Mint

While apples, corn, and cranberries top the list of fall produce in the US, it’s also the time to harvest gum, candy, and toothpaste—or at least the oil that makes them minty fresh. Erika Celeste reports from South Bend, Indiana on the mint harvest.

Video Activists Decry Lagos Slum Demolition

Acting on a court order, authorities in Nigeria demolished a slum last month in the commercial capital, Lagos. But human rights activists say the order was illegal, and the community was razed to make way for a government housing project. Chris Stein has more from Lagos.

Video TPP Agreed, But Faces Stiff Opposition

President Barack Obama promoted the Trans-Pacific Partnership on Tuesday, one day after 12 Pacific Rim nations reached the free trade deal in Atlanta. The controversial pact that would involve about 40 percent of global trade still needs approval by lawmakers in respective countries. Zlatica Hoke reports Obama is facing strong opposition to the deal, including from members of his own party.

Video Ukranian Artist Portrays Putin in an Unusual Way

As Russian President Vladimir Putin was addressing the United Nations in New York last month, he was also being featured in an art exhibition in Washington. It’s not a flattering exhibit. It’s done by a Ukrainian artist in a unique medium. And its creator says it’s not only a work of art - it’s a political statement. VOA’s Tetiana Kharchenko has more.

Video Nano-tech Filter Cleans Dirty Water

Access to clean water is a problem for hundreds of millions of people around the world. Now, a scientist and chemical engineer in Tanzania (in East Africa) is working to change that by creating an innovative water filter that makes dirty water safe. VOA’s Deborah Block has the story.

Video Demand Rising for Organic Produce in Cambodia

In Cambodia, where rice has long been the main cash crop, farmers are being encouraged to turn to vegetables to satisfy the growing demand for locally produced organic farm products. Daniel de Carteret has more from Phnom Penh.

Video Botanists Grow Furniture, with Pruning Shears

For something a bit out of the ordinary to furnish your home, why not consider wooden chairs, crafted by nature, with a little help from some British botanists with an eye for design. VOA’s Jessica Berman reports.

VOA Blogs