Keeping up with the GlaxoSmithKline/China story has been hard - every day or two there's a new twist. But here's what's going on so far:
Four GSK executives have been arrested on charges of bribery. Hospitals, doctors, officials of all kinds - the accusations are the the GSK people jacked up prices and sales figures by greasing people everywhere they thought necessary. Report have it that travel agencies (to inflate the costs of meetings and trips as a form of payment), high-priced consultation deals, and good ol' sexual favors were involved. In addition to the four executives who've been arrested, China has told GSK's financial director for that unit that he's not allowed to leave the country.
A mess indeed, and pretty much the last thing that GSK was in the market for, I'll bet. I am, sadly, not amazed at the idea of large organized bribery in the Chinese market. Nor, I'm sure, are the Chinese authorities. The country has a well-publicized problem with corruption, with high-level officials regularly being removed from their positions amid accusations of all sorts of malfeasance. Even if you mark some of that up to political maneuvering and score-settling (which I'm sure are factors, too), the country's current system of authoritarian capitalism is an invitation to such behavior on every level. Every country in the world has this sort of thing to some degree - who you know, who you're related to, who owes you favors, who you've paid off - but the combination of China's one-party system and its huge business boom of the last decades combine to make it a particular problem there.
It also combines to breed conspiracy theories. You might wonder if GSK is in trouble because their behavior was particularly noticeable or on a large scale, of if there's some other reason that we're not seeing. It's impossible to say, and not very fruitful to speculate on, but it's not a line of thought that can be dismissed easily, either. Perhaps the idea was pour encourager les autres. This article is along those lines:
A Chinese bribery investigation into British drugmaker GlaxoSmithKline (GSK.L) has sent tremors through multinational pharmaceutical firms in China, prompting at least one to review how they do business in the country.
Experts said foreign companies across the spectrum were watching closely to see what happened to GSK and its four detained Chinese executives given bribery and business go hand-in-hand in the world's second biggest economy. . .
Pharmaceutical companies are at the mercy of Chinese regulators in getting products licensed for import or manufacture in China, or to get them listed on the national drug registry. They typically rely on hired distributors to get their drugs to market and into hospitals. . .
. . .According to sources with knowledge of the industry, China's sophisticated and thriving market for fake documents also allows local employees to provide forged paperwork to more senior or global managers.
Efforts made by drug firms at compliance training can even backfire, as some employees learn how to avoid detection.
That Reuters piece also mentions speculation that the Chinese government is leaning hard on drug companies for better pricing, as it faces mounting health care costs, and you can't rule that one out, either. That's the problem - you can't rule much of anything out at all.