Johnson & Johnson bribe case casts shadow on foreign firms in China [People’s Daily]

July 7, 2010

A pedestrian walks by the Siemens headquarters in Beijing. The company was fined $1.3 billion in 2008 for offering $23.4 million in bribes to Chinese officials and public hospital doctors. Photo: CFP

Analysts and experts said China should write new rules to ensure that companies conduct business properly in China and to create a level playing field for enterprises given recent allegations that several foreign companies were involved in corruption and bribery.

For a long period of time, foreign companies in China have tried to differentiate themselves from their domestic counterparts by highlighting efficiency and integrity.  However, there are concerns now about whether foreign companies could remain corruption-free after reports surfaced that Johnson &Johnson reportedly bribed people in China.

Experts said the business approval process in China is centralized and just a handful of people control power.

As a result, large domestic enterprises have pushed foreign companies to offer kickbacks to get ahead.  Due to the lack of supervision over foreign companies, the situation may turn serious.

“International firms in China are facing a big challenge and are in a dilemma about whether to do as the Romans do (bribing others) or to maintain their baseline of legitimate business,” Wang Zhile, director of the Research Center on Transnational Corporation, Ministry of Commerce, said in an interview with China Business News in April.

Slow process

Johnson & Johnson Medical (Shanghai) Ltd allegedly bribed Zhang Jingli, former vice director of the State Food and Drug Administration (SFDA) who was removed from the post for corruption on July 13 [sic].

Zhang helped with drug applications and medical product registration, the Democracy and Law Times, a newspaper under China Law Society, reported Monday.

The company denied the allegation, and said they have contacted the related authority for an explanation.

“We have no idea of the investigation or about the official bribery case the media reported recently, neither have we ever received any information about the case from the authority,” Jiang Ke, the company spokesman, told the Global Times Monday.

Despite the denial, the report has triggered concerns about the integrity of foreign companies in China.

“Bribery comes from the complicated and sluggish administrative approval process,” Ma Guangyuan, a famous financial commentator and economic observer, told the Global Times.

Big bureaucracy

The Regulations for the Supervision and Administration of Medical Devices stipulates that a producer or agent of some medical devices, including those implanted in humans, life supporting equipment and those that have risk to the body, need SFDA approval.

The rule says the approval process should not take more than 90 working days.

However, the paper, quoting an unidentified industry representative, said the period could last two years because the administration is understaffed.

An agent for Johnson &Johnson (Shanghai) said that each year, as many as 10,000 products need approval from the SFDA.

“The earlier they get the approval, the larger the opportunity to get more sales,” the representative said.

The sales of Johnson &Johnson medical devices is growing fast in China and accounts for 30 percent of the market.  Johnson & Johnson and another drug giant, Roche, almost dominate the market with a 70 percent share, according to the report.

“Market does not wait for products.  Compared to the huge profit the company could earn by jumping the queue, the bribes [sic] is just a small cake [sic],” the agent was quoted as saying.

Other foreign-owned companies have been accused of corruption.

A 2007 survey by the consultancy company Anbound showed that 64 percent of the 500,000 corruption cases between 1996 and 2006 were associated with international trade and foreign investment.

On April 22, Shi Wanzhong, a high-ranking official from China Mobile reportedly took $5 million in bribes from German firm Siemens as an advisory expense.

On April 13, US cosmetics company Avon suspended four executives for allegedly funding overseas trips to France, Canada, New York and Hawaii for Chinese government officials.

A gift or bribe ?

In March, German automaker Daimler was charged in the US with offering bribes to foreign government officials in at least 22 countries.

According to a file released by the US court, during 2000 to 2005, Daimler paid at least 4.17 million euros in “commissions” and “gifts” and offered lavish vacations to Chinese government officials.

In return, the car company received contracts worth 112 million euros from Chinese firms.

“It is a hidden rule that foreign companies need to establish connections with the government.  Huge profits come from government procurement orders.  Some government departments will not bargain for a lower price,” a retired employee of a foreign company told the Global Times.

Wang Yukai, a professor specializing in public administration in the National School of Administration, told the Global Times that the root of corruption lies in cultural and legal problems.

He said most employees at foreign companies are local people, who know the “rules of the game.”

“As known to most Chinese, the closer the relationship with the authorities, the easier to do business.  Most of the employees in foreign firms are Chinese who know clearly how to deal with officials,” he said.

He added that the country must improve fairness in the business environment.

“Some resources are monopolized.  It is hard for foreign firms to stand out in China if they have no connections,” he said.

Commentator Ma said the penalty for corrupt practices by foreign companies is not harsh enough to deter them from wrongdoing, and added that supervision of business rules should not rest in the hands of just a few people.

“When power only lies in the hand of a few people, it is likely they will abuse it,” Ma said.

Supervision needed

Wan Jun, a researcher at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, said China lacks a mature law to regulate market players and impose supervision on overseas companies.

Some overseas countries, such as the US, have laws that prohibit companies from bribing government officials of other countries.

However, he said the Chinese government should not take all the blame.

“Similar cases of government officials taking bribes could also be found in other countries.  And China may have loopholes in its legal system for monitoring and punishing commercial corruption, but this does not mean that the government should suffer all the blame alone for creating an unhealthy business climate,” Wan told the Global Times earlier.

Source: Global Times

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