Anti-foreign wave grows with new Glaxo probe
A corruption probe against Glaxo is the latest in an anti-foreign campaign likely to last through the end of the year.
I don't usually consider myself paranoid, but the rapid acceleration in Beijing-led probes against foreign firms seems to be hinting at a wave of growing anti-foreign sentiment that could bode poorly for multinationals in China in the months ahead. That's my assessment following news of the latest probe against European drug giant GlaxoSmithKline (London: GSK) for allegedly giving out bribes. Such periodic waves of backlash against foreign firms used to be common in China, and usually followed periods of openness and rapid expansion. In this case, I suspect this latest crackdown could also be designed to divert attention from China's sudden economic slowdown, which has left many average Chinese suddenly feeling uneasy about the future.
This particular case looks a bit like another case involving bribery accusations three years ago against Brazilian mining company Rio Tinto (Sydney: RIO). That case saw four Rio Tinto officials, including an Australian citizen, ultimately convicted of accepting millions of dollars in bribes and stealing state secrets, and sentenced to seven to 14 years in prison. While some of the bribery claims were probably true, that case was also highly political due to frequent clashes between China and Rio Tinto over prices, most notably the price the Brazilian firm charged for iron ore.
I would obviously need to see more information on this latest GlaxoSmithKline case before making an informed assessment on whether or not the probe is politically motivated. But based on my knowledge of the pharmaceutical industry and how it operates globally, it's quite common for the big drug makers to lavish doctors and hospitals with expensive gifts and vacations in a bid to sell their products. While I don't personally approve of such practices, largely on ethical grounds, no one outside of China seems to think such selling tactics are illegal.
This growing wave of investigations doesn't seem to have a strong common theme, except for the fact that all are targeted at foreign firms and seem aimed at discrediting those companies in the eyes of Chinese consumers. In that regard, the campaign does look rather like some of the previous crackdowns by Beijing against foreign firms that have become too powerful in the domestic market. Look for this current crackdown to continue probably through the rest of this year, as Beijing looks for external scapegoats to draw attention away from the sputtering domestic economy and the growing influence of foreign firms.
Bottom line: A corruption probe against Glaxo is the latest in an anti-foreign campaign likely to last through the end of the year.
To read more commentaries from Doug Young, visit youngchinabiz.com