China and bribery: Be forewarned: By Amit Ben-Yehoshua

September 15, 2014

Chinese Business Economy

In social conversations of business people operating in China, you’ll often hear the bombastic declaration: “There’s nothing you can do about it – That’s just the way it is in China – If you don’t give bribes, there’s nothing for you to do in China.” To back themselves up, they go on to say, “When in Rome, act like a Roman.” And I answer: “Even though I’ve been living in China for eight years already, I’m neither Roman, nor Chinese –and don’t be confused – neither are you.”
What a Chinese person can do a foreigner cannot. Sometimes the reverse is also true – what a foreigner can do would raise a lot of suspicions if it were a Chinese person.
The scandal involving the GlaxoSmithKlein (GSK) pharmaceutical company, which began last year, and the signs of which are still rocking the pharmaceutical market in China, illustrates the extent of the danger inherent in the mistaken assumption that in China, bribery is a must.
The GSK company is suspected of systematically giving doctors all over China benefits totaling 500 million dollars in order to promote the sales of its medications in China. According to allegations, the benefits were given in a number of forms: cash, sexual services, and invitation of the doctors to prestigious academic conferences. Likewise, according to suspicions, the company’s employees received payments from buyers, including illegal commissions, and issued fictitious invoices. One must keep in mind that GSK is presumed innocent and the reports are merely allegations.
The scope of the investigation of GSK and additional international pharmaceutical companies operating in China has sent clear warning signals to everyone working in the pharmaceutical market in China, especially the foreign companies, that the authorities in China will not tolerate the existing situation.
The eradication of bribery is one of the flagships of the president of China, Xi Jinping, who defined bribery as one of the main evils in China, in a bid to eradicate the phenomenon. Since he took office last year, approximately 182,000 Chinese government officials have been prosecuted in order to get the message across that the administration will pursue the ‘small fry’ as well as the ‘sharks’ – or in the picturesque Chinese terms: the long arm of the government will pursue the “tigers”(senior government officials) and the “mosquitoes” (junior government officials).
The giving of lavish gifts is a common method of bribery in China, from fine wines and Gucci or Prada bags to gifts of jewelry and diamonds. The culture of bribery is deeply rooted in China and Asia, and damages the economy profoundly. A buyer who receives bribes will prefer the supplier who bribed him rather than the supplier of the highest quality and professionalism.
Near the time that President Xi took office, there was a tragic train accident in the Shangxi Province that claimed many victims. The public was outraged by the failure of the train’s control system. While the public clamored for explanations regarding the accident, the media filmed a middle management official who was responsible for hygiene and safety. During the filming, one could see that he was wearing an expensive watch, worth many times more than a civil servant’s monthly wages. Public outrage drew the authorities’ attention to the manager, who was interrogated about the source of the funds for the expensive watch. The manager was prosecuted and sentenced to 14 years in prison on charges of corruption.
This week marks the “mid-autumn” festival, when hundreds of millions of Chinese send their friends and customers fancy moon cakes. Most of the cakes are sold at affordable prices of 150-300 yuan (90-180 NIS). However, there are cakes on the market for thousands of yuan (an average Chinese worker’s monthly wages) and are used as a cover for illegal money transfers. Rumor has it in China that the manufacturers of the luxurious packages are complaining that orders have decreased by over 50% following the Chinese president’s new policy.
The story of GSK in China reflects the stories of many foreign companies – on the one hand, huge opportunities for expansion, and on the other hand, many risks. Beware of misleading advice sometimes offered by company managers saying, “Don’t worry, it’s okay in China”. Very simply – avoid bribery like the plague.

The article was originally published at Calcalist, Israel’s leading Financial Newspaper.

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