Graft busters zero in on Sinopharm

Former senior executive of mainland's largest drug distributor latest to be detained in a corruption scandal engulfing the industry

PUBLISHED : Monday, 13 January, 2014, 12:27am
UPDATED : Monday, 13 January, 2014, 12:27am

A senior executive of the mainland's largest drug distributor is the latest industry official to be investigated for alleged corruption in a widening scandal that started in July last year, when the authorities looked into claims that international drug makers including GlaxoSmithKline bribed doctors and government officials to lift sales.

State-backed Sinopharm, which is listed in Hong Kong, said in a stock exchange statement yesterday former vice-president Shi Jinming was detained on Friday in relation to corruption claims.

Xu Yizhong, a former general manager of Sinopharm Holding Distribution, a subsidiary of the group, was also involved in the same investigation, it said.

The company did not reveal further details of the allegations but said it had formed a committee, led by the company's chairman and president, to review the group's internal controls.

Shi resigned from his positions at Sinopharm and its subsidiaries last Tuesday.

Sinopharm said the event had no material impact on its operation so far.

Kenny Tang Sing-hing, a general manager at AMTD Financial Planing, said he did not expect the scandal to have much effect on Sinopharm's share price.

"Unlike private enterprises, sudden resignations of state firms' bosses will not deal a major blow to their strategies and operations as their positions will be assumed by other officials, while private firms are more reliant on the personal business relations built by their top brass," Tang said. "What's more, the whole industry will be affected by the anti-corruption drive, not just individual firms."

Shares of Sinopharm's rival Shanghai Pharmaceutical have fallen 0.2 per cent since the firm said it was investigating an allegation that a subsidiary paid 766,500 yuan (HK$981,900) to bribe staff at 31 hospitals to boost drug sales.

Sinopharm shares have gained 5 per cent in the past three months as investors bought stocks in industries expected to benefit from Beijing's policies to boost domestic consumption.

"As China's population is ageing and people's income rises, demand for pharmaceutical products and medical services will rise, benefiting the sector," Tang said.

An internet search showed Shi started his career with Sinopharm's Group in 1989 after he graduated from university.

There has been a series of allegations in the media since the probe into GlaxoSmithKline, which Beijing said paid doctors for travel to conferences and lectures that never took place. The government was likely to charge GSK's Chinese executives but not the British drug maker itself, Reuters reported.

GSK last month became the first major global drug company to announce it would no longer pay doctors to promote its products and would stop tying salaries of sales staff to the number of prescriptions doctors write, effectively ending common industry practices that critics have long held as conflicts of interest.