No magic pill to beat graft

The central government's investigation of British drug giant GlaxoSmithKline has exposed systemic corruption in the mainland pharmaceutical industry, but analysts say the arrests of the GSK executives will have limited impact without measures to remove incentives for graft.

GSK's problems on the mainland are part of the global corruption in the drug industry, which also engulfs developed markets such as the United States, the analysts say.

Mainland police allege that GSK, listed in London and New York, used travel agencies to funnel nearly three billion yuan (HK$3.8 billion) in kickbacks to doctors, hospitals and others who prescribed their drugs. At least four executives from GSK's mainland operation have been detained.

"We do not think this is a widespread anti-foreign company campaign," said John McFarland, head of fraud prevention at Hill & Associates, a Hong Kong risk consultancy. "There has been some comparison to Rio Tinto but that case was different from GSK, as there is no suggestion of state secrets yet."

In 2010, Stern Hu, an Australian employee of Anglo-Australian mining giant Rio Tinto, and three Chinese employees of Rio Tinto were jailed on the mainland for stealing commercial secrets and taking bribes. They were originally charged with stealing state secrets, but those charges were dropped.

Rob Morris, managing director of advisory firm AlixPartners, said the pharmaceutical industry on the mainland had "high exposure to corruption risk" because decisions on which drugs to use were often taken by a single doctor, making that doctor the target of bribery. "There are many ways to provide a doctor something of value," he said. "Apart from a straightforward bribe, it could be an unwarranted discount or excessive free samples or attendance at a symposium."