Foreign firms feel the heat in China

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Bloomberg Shanghai

CHINA’S probes into GlaxoSmithKline (GSK) and Danone highlight challenges for foreign companies in a market where they may be a bigger “prize” for regulators seeking to allay concerns that medicines and foods are unsafe.

The UK drugmaker is being probed for alleged bribery, while Danone, along with Nestlé’s Wyeth brand, Mead Johnson Nutrition and Abbott Laboratories, are being investigated for pricing that may have violated anti-monopoly laws.

Scandals including contaminated milk powder and rat meat sold as mutton have fuelled demands for the government to crack down on safety violations. Apple and Yum Brands are among the foreign companies that have had to apologise this year to consumers in the world’s second-biggest economy after Chinese authorities began investigating their operations.

Premier Li Keqiang, who took office in March, has pledged to root out consumer abuses. Chinese authorities ordered Volkswagen to recall vehicles for a defective gearbox system a day after Li was named premier.

Apple chief executive Tim Cook issued a public apology on April 1 after the company was lambasted by Chinese state media for arrogance and poor customer service.

In January, Yum Brands vice-chairman Sam Su apologised for a food safety scandal involving a former supplier.

China, the world’s biggest market for cars, personal computers and cellphones, was becoming a more difficult place to do business, according to foreign companies in the country. More than two-thirds of member companies that responded to a survey by the American Chamber of Commerce in Shanghai released in February said the regulatory environment was either “not improving” or “deteriorating”.

A senior GSK finance executive in Shanghai and employees in Beijing were detained as part of a corruption investigation, the South China Morning Post reported on Monday, citing an unidentified person from Shanghai’s drug industry.

Simon Steel, a GSK spokesman in London, declined to comment on whether any staff had been arrested.

Police in Changsha said on Friday senior GSK China executives were suspected of economic crimes and were under probe, without elaboration.

An anonymous tipster made allegations that GSK’s sales force in China was involved in widespread bribery of doctors to prescribe medication, in some cases for unauthorised uses, between 2004 and 2010. GSK had found no evidence of wrong-doing after a four-month probe into a whistle-blower’s claims of corruption and bribery, the London-based company said at the time.

Danone, Nestle’s Wyeth brand, Mead Johnson, Abbott Laboratories, Dutch producer Royal FrieslandCampina as well as local firm Biostime International Holdings were being investigated by the National Development and Reform Commission, China’s top economic planning agency, for pricing of their infant formula, the People’s Daily reported on Tuesday. – Bloomberg


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