Flies in the ointment

GSK case no cure for Chinese corruption

The charges of bribery levelled by Chinese authorities against three executives of drugmaker GlaxoSmithKline may make it appear Beijing is as tough on corruption as it ought to be. Behind the façade is a broken healthcare system and a government many foreign groups don't know how to handle.

GSK was accused of paying bribes back in 2013 to get its drugs into Chinese hospitals. It has already apologised for misdeeds, though says its UK-based head office was unaware of the goings-on. Now, a state investigation has alleged that the then-head of its China unit, as well as its Chinese-born head of human resources and legal counsel, encouraged staff to pay kickbacks amounting to "billions" of yuan. The case is in the hands of prosecutors.

Authorities gain if they find graft went to the top of GSK's China operation. President Xi Jinping has talked of catching "tigers" as well as "flies." But the breeding grounds go unaddressed. China's medical system is underfunded and overloaded. Patients bribe doctors for treatment, and practitioners are sometimes happy to accept payments for selling certain drugs. So, endemic is the graft that online retailer Alibaba launched a service last May designed to clean up abuses in the way medical appointments are arranged.

Fixing China's health system, and addressing the demand side of the bribery equation, is a slow task. Spending on healthcare is just over five per cent of GDP compared with more than nine per cent in the UK, according to the World Health Organisation. New rules introduced late last year prohibit linking doctors' pay to drug sales and could see companies who bribe placed on blacklists, even if prosecutors don't bring a case. But while foreign-company executives may seem disposable, China can't afford to scare away would-be clinicians as its population ages and sickens.

Meanwhile, GSK seems to have fallen foul of a Byzantine system. The company focused its response to the investigation on the security ministry that led the assault, according to a person familiar with the situation. But many other agencies have a say in regulating China's markets. Fragmented institutions make it hard for foreign companies to know when to apologise for what, and to whom. They also make it easier for would-be rule breakers to find loopholes. GSK's misfortune brings lessons, but a cure for China's graft fever remains distant.