New Tune For GSK, Woes For PetroChina In Anti-Graft Sweep

GSK cleans up business practices

China’s ongoing anti-graft sweep continues to gain momentum as we approach the end of the year, with major new developments in the headlines from British drugmaker GlaxoSmithKline (GSK) (London: GSK) and domestic energy giant PetroChina (HKEx: 857; Shanghai: 601857; NYSE: PTR). In the former case, GSK is taking the revolutionary step of saying it will no longer pay doctors anywhere in the world to promote its products. In the latter, media are reporting that another top PetroChina official has been detained and resigned as he assists with ongoing investigations of corruption at the state-run giant.

Both news bits look quite positive to me, as they show that fat cat executives at major state-run enterprises who have grown rich from accepting bribes for years will finally have to face some justice. At the same time, big multinationals like GSK are also cleaning up their acts, providing strong affirmation that both domestic and international companies may someday be able to do business in China without having to resort to questionable practices like bribery and lavish gift giving.

Let’s start with GSK, as that’s perhaps the most revolutionary and encouraging news to me. The company’s chief executive Andrew Witty has said in an interview that his firm will formally end its practice of paying doctors to promote its drugs. (English article) In the interview, Witty denies the decision was directly related to the probe of his firm in China that began over the summer. That investigation saw GSK accused of channeling some 3 billion yuan ($500 million) in bribes to Chinese doctors and other medical professionals over several years in exchange for promoting its drugs.

I know from one of my good doctor friends in the US that big drug companies have paid doctors for years to promote their products, though he tells me the practice has eased over the last decade. So it’s possible that Witty’s move is simply an extension of the ongoing trend. Still, I have to believe the timing of Witty’s announcement means the China scandal played at least a part in GSK’s decision to formally end a practice that basically equates to bribery, regardless of whether it’s in China or west. The case shows the growing clout that China is assuming not only in local business affairs within its borders, but also on the world stage.

From GSK let’s move to PetroChina, which was one of the first major firms to come under scrutiny in Beijing’s current anti-corruption campaign at major state-owned enterprises. Media are reporting that Wen Qingshan, the chief accountant at Kunlun Energy (HKEx: 135), PetroChina’s gas distribution arm, is cooperating with an anti-corruption investigation. (Chinese article) PetroChina said in a separate statement that Wen had resigned as a supervisor of the company. (company announcement)

There’s not much more detail in the latest reports, though this kind of pattern has become quite typical. In most instances, an executive at a major state-run firm quietly comes under investigation for corruption, and the story is leaked to the media when investigators feel they have enough evidence to make a strong case. The media reports are usually followed by public announcements disclosing the executive’s resignation. The current campaign has seen similar probes at a wide range of major state-run firms, from telecoms giant China Mobile (HKEx: 941; NYSE: CHL) to leading aluminum producer Chalco (HKEx: 2600).

This latest report does look slightly different from earlier ones, as it’s the first I’ve seen targeting a top accountant. Such a move could mark an important shift in the probes, since it could mean the government’s anti-corruption watchdog may be targeting top accountants who could help to implicate many other officials within their companies. If that’s the case, we may see the number of probes quickly grow in 2014, targeting not only top-level officials but also an increasing number of mid- and lower-level managers.

Bottom line: GSK’s decision to stop paying doctors to promote its drugs and a new probe at PetroChina show the Chinese anti-corruption campaign continues to gain momentum and influence.

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