Foreign companies and corruption in China

The BBC claims that bribes are routinely paid by major foreign pharmaceutical firms operating in China. From what we know, is it possible to say how much do the foreign companies contribute to widespread corruption in China? Are they the internal part of the system or in a way they do not have choice on the Chinese market, or is it both?

Andrew Nathan, Professor of Political Science, Columbia University

My view it is a bit of both. On the one hand, the Chinese business environment demands a great deal of personal favours being done in the normal course of events, which is not always at a scale we would call corruption, sometimes it is just good manners Chinese style, but with big money flowing around it does often attain a scale that is considered corrupt. Pharma marketing is very competitiver and the marketing staff of the international companies in China are Chinese, so they do business the Chinese way. And in the Chinese environment the forces on the other side of the scale — the media, the courts — are weaker than in the West so the problem is less under control. Corruption is a serious problem in China.

On the other hand, the pharma industry on the marketing side is extremely competitive not only in China but worldwide, and a great deal of market power is concentrated in the hands of physicians and hospitals. So in the West as well as in China, the marketing side of the pharma industry is often caught doing favours for doctors, whether they invite them to big conferences in fancy places, or give them various gifts, or give them research contracts. Some of these practices are legal but they are still a form of improper influence. The practices are more closely regulated than in China and both the media and the government prosecutors present more of a realistic threat to corrupt companies and doctors so the problem is probably more under control than in China, but it’s still there.

So it’s both the environment, and the industry.

Lawrence C. Reardon, Associate Professor of Political Science, University of New Hampshire

In order to enter or expand their business within China, domestic and foreign companies are obligated to pay a high entry costs, which have become normal business practices that range from entertaining party and government officials by hosting elaborate dinners, providing expense-paid trips to exotic areas, or outright bribery.

While such behaviour is not unique to China, the lack of transparent rules and procedures force domestic and foreign companies to rely on their “relationships” with individuals, who are able to overcome local obstacles to product introduction and market expansion. Both Chinese and international companies thus use bribery to overcome the lack of a transparent business environment in order to pursue profits.

When Xi Jinping and Li Keqiang began their anti-corruption drive upon taking office, the new leadership realized that this was a cancer threatening the entire country, which has been estimated to have cost the country over US $3.6b over the past five years. There is a tendency in the international press of looking at the current investigation of foreign pharmaceutical company’s bribery practices, price fixing among baby formula producers, etc. as a measure solely directed against foreign firms. Instead, there should be a wider perspective adopted, in which the anti-corruption campaign started in fall 2012 has now begun to involve foreign firms, who are guilty of trying to pursue their businesses in an opaque, corrupt environment.

Corruption campaigns come and go in China, and are often used as a tool to clean house. But the house continually gets dirty. Until the CCP realizes that the business environment must be more open and adopt international business practices, the corruption and bribery will remain endemic to the system.

David Goodman, Professor of Chinese Politics, University of Sydney

On the question of the role of foreign companies in sweetheart deals in China, one can only assume that this is the way the system operates. Do they have a choice and in any case the Chinese side may well scalp funds in the time-honoured manner. The key question I think is the extent to which additional facilitating activities (payments or otherwise) are actively provided by foreign companies.

Again, one can only assume that something of the sort occurs. It’s a universal phenomenon, no ?

Zhiqun Zhu, Associate Professor of Political Science and International Relations, Bucknell University

I think this is more of a problem with the Chinese system. Corruption is rampant. Giving bribes is not unusual. Do in Rome as Romans do. So many foreign companies have also followed the practice in China. And yes, they do contribute to corruption in China, but the deep roots are in China itself.