1 Talking Point 5 Week in 60 Seconds 6 China and the World Week in China 7 China Consumer 9 Banking and Finance 11 Property 13 Rise of the RMB 15 M&A 26 July 2013 16 Society and Culture Issue 203 19 And Finally www.weekinchina.com 20 The Back Page Bitter pill m o c . n i e t s p e a t i n e b . w w w As UK pharma giant is caught up in corruption row, will other firms soon get the same treatment? Brought to you by Week in China Talking Point 26 July 2013 Wrong medicine GSK bribery headache reveals seedy side of China’s healthcare boom Condition critical: the Chinese office of the scandal-hit pharmaceuticals giant GSK he word “tabloid” has its origin 1880, Wellcome hosted some of the stepping the mark are also im - Tin compressed medicine most spectacular parties of the day, mense. This time last year GSK tablets, a technique that invigorated networking with the cream of Eng - parted with $3 billion – the biggest the pharmaceutical industry in the lish society and paying for sumptu - healthcare fraud settlement in US late nineteenth century. Henry ous banquets at scientific and history – for promoting its drugs Wellcome, the pharma entrepre - medical conferences. with unsavoury tactics. And as of neur, coined the term in 1884 by Endorsement from people of in - last week, GSK found itself in simi - blending the words “tablet” and “al - fluence boosted his company’s pro - larly troubled waters with the Chi - kaloid” to denote the new product file and sales, and Burroughs nese authorities too. being offered by his firm, Bur - Wellcome grew into a pharmaceuti - roughs Wellcome. ‘Tabloid’ became cal major that was later merged into How did GSK’s difficulties begin? one of the most powerful brand today’s GlaxoSmithKline (GSK). The The first sign of problems in GSK’s names in business history, so much Shanghai office that Wellcome set China business became public as so that it passed into general use for up in 1908 also marked the begin - early as March. An anonymous other items in compact form, most ning of GSK’s heritage in China. whistleblower alleged that the com - notably the tabloid newspaper. But in the modern-day drug in - pany’s research head in China, Zang P h o t o Wellcome introduced other mar - dustry, the dividing line between ac - Jingwu, had fabricated data in a pa - S o u r keting masterstrokes too, including ceptable giveaways and overly per published in 2010 in the scien - c e : R e lavish hospitality. Having moved to aggressive marketing seems to be tific journal, Nature Medicine. u t e r s London from the United States in growing thinner. The costs for over - GSK withdrew the paper and 1 Week in China Talking Point 26 July 2013 Zang was sacked in June (he claims he has been made a scapegoat for the errors of colleagues). A co-author of the dissertation also resigned. More damaging leaks then fol - lowed a few days later. The Wall Street Journal cited another anony - mous source as claiming that GSK’s sales staff were involved in wide - spread bribery between 2004 and 2010. Doctors in China were pro - vided with “speaking fees, cash pay - ments, lavish dinners and all-expenses-paid trips” in return for prescribing GSK’s products, the article suggested, citing the tipster’s Ideal for GSK executives looking for pain relief in China emails which were sent to GSK’s top executives in January. the police began their investiga - agency in question would then use While GSK was investigating the tions by looking into the activities the excess budget to “clear all the allegations, police in Beijing, Shang - of a Shanghai-based travel agency roadblocks in the medical network” hai and Changsha raided the drug called Linjiang International. The with pay-offs, Liang says. giant’s regional offices late last newspaper described Linjiang as a He then confessed that he con - month. Since then, at least four sen - “husband-and-wife firm” but found trolled annual “conferencing fees” ior managers – all Chinese nationals it strange that the agency hasn’t worth several hundred million – have been detained by police for arranged any travel at home or yuan. Putting this into perspective, ‘economic crimes’. The unit’s fi - abroad, only organising business Liang said GSK’s China revenues nance director was briefly barred conferences in China. Thanks to its were Rmb4 billion ($651.7 million) from leaving China. GSK has since business ties with GSK, Linjiang’s in 2012, and that “conferencing replaced its China head Mark Reilly annual revenue had spiked to “sev - fees” are part of operating expenses with Hervé Gisserot, one of its two eral hundred million from a few that typically equate to 30% of the top European managers. million” in just a few years. price of GSK’s drugs. Police are now examining more That makes the kickback industry How serious are the allegations? than 700 “travel agencies” of a sim - a lucrative one: the People’s Daily Many of the highest-profile corrup - ilar kind on allegations that they reckons there are so many middle - tion probes in China are conducted may have served as conduits for il - men like Linjiang that these shady in secret, with little public view of legal payments and perks to doc - entities have to compete with each what might be going on behind tors, medical staff and government other for business. In doing so, kick - closed doors. But the Chinese au - officials across the industry. backs are soon flowing back to phar - thorities have been unusually trans - maceutical executives themselves, parent in the GSK investigations, How does the system work? it claims. with extensive briefings given to Liang Hong, one of the senior GSK As WiC has reported before, journalists. In a rare appeareance managers detained, was paraded many listed firms in China carry last week, Gao Feng, head of the eco - on CCTV to confess his wrongdo - bulky entertainment and meeting nomic crimes investigation unit at ing. According to Liang, the phan - fees in their operating expenses. the Ministry of Public Security, even tom “travel agencies” were estab - (WiC194). But the proportion of accused GSK of acting like “the ring - lished because of anti-corruption these expenses seems especially leader” of a “criminal organisation”. rules imposed on drug firms which high for Chinese pharmaceutical “We found that bribery is a core made it difficult to deal directly and drug-distribution firms. In the part of the activities of the com - with a customer. When a “travel case of Fosun Pharmaceutical, P h o t o pany,” Gao told journalists. “To boost agency” helps to organise a med - which is controlled by Shanghai bil - S o u r their prices and sales, the company ical conference of 100 executives, a lionaire Guo Guangchang, Rmb308 c e : R e performed illegal actions.” pharmaceutical firm would typi - million was spent on staff costs last u t e r s According to the People’s Daily, cally pay for a 150 attendees. The year from sales expenses totalling 2 Week in China Talking Point 26 July 2013 Rmb1.5 billion. But Rmb226 million was spent on conferences, Rmb240 Planet China million on marketing, Rmb203 mil - Strange but true stories from the new China lion on travelling and Rmb431 mil - lion on unspecified “others”. MARRIAGE, THEN MORTGAGE Many people get married for love. But in Similar expense ratios apply to Beijing there is a new breed of woman who views the whole thing in a far state-run heavyweights such as more transactional light. Known as huntuo , these ladies sell their wedding Sinopharm, which accounts for vows to those from outside the capital who want to buy a property, but aren’t about a tenth of China’s drug distri - eligible. As WiC has pointed out before, Beijing has restrictions on who can bution market. buy property (imposed to stymie prices). Those without a Beijing hukou (household registration) need to have paid tax in the city for five years to Is GSK the only guilty party? qualify as a buyer. Enter the huntuo – which roughly translates as ‘trust fund Apparently not. The Chinese police bride’ – who will marry you, enabling you to jointly to buy a property. You pay said these 700 agencies have a wider a fee, then she divorces you, but you keep the property. The practice has range of clients, while the New York been going on for a while but made headlines again last week when China Times has reported that Linjiang National Radio reported on the activities of one particularly enterprising lady was used by companies including who has clocked up three marriages and three divorces in less than five months. The radio station said officials were investigating her marital affairs Roche, Sanofi, Novartis and Merck. but from a legal point of view were a bit stumped. Currently there is no limit All of these companies have since to how many times someone can get married and divorced within a single severed links with Linjiang. year. It’s thought the huntuo ladies charge around Rmb20,000 per betrothal. Economic crimes boss Gao Feng has delivered a blunt message that others could soon face GSK’s isation list published in 2006. drugs. As a result, hospital pharma - predicament too. Expenditure has increased over cies become a breeding ground for “We have also found some clues the years. (McKinsey projected last bribery (for an example, see of illegal money transfers involving year that it would grow from $357 WiC114).