Was China’s immense GlaxoSmithKline bribery fine justice, pricing leverage or both?

GSK executives may be behind bars soon.
GSK executives may be behind bars soon.
Image: Reuters//Danish Siddiqui
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A Chinese court has fined British pharmaceutical giant GlaxoSmithKline (GSK) 3 billion yuan (about $488 million) for bribing hospitals, doctors, and government officials—the largest penalty ever levied by a Chinese court, according to the state-run Xinhua news agency. Several GSK executives will spend between two and four years in jail, though Reuters is reporting that Mark Reilly, former head of the company’s China operation will be deported instead.

Fines on foreign companies behaving badly in China have steadily ticked higher over the past year as authorities have ramped up corruption and anti-monopoly investigations into companies including Microsoft, Daimler, Qualcomm, and more. In August, China fined a dozen Japanese auto-parts makers 1.24 billion yuan, its largest anti-trust fine to date. Before that a boiler maker in Beijing, part of a joint venture with a US company, was charged a record 300,000 yuan penalty for pollution violations.

In the case of GSK, its fine is equivalent to the amount of money the company is accused of funneling to doctors and officials through travel agencies. Observers have questioned why the firm was been targeted for a corruption probe—including a takedown of two investigators hired by GSK—in an industry where bribery is notoriously rampant.

Experts suspect that one motivation behind these investigations may be to pressure foreign firms to lower the prices (paywall) of their goods and services offered in China. Recently, Jaguar, Toyota, and Audi lowered the prices of their cars and car parts following a spate of anti-trust probes into the industry. Chinese authorities, for their part, have vehemently denied accusations that they are specifically targeting foreign firms.

GSK hinted today that its ordeal may result in lower prices as well. In a “statement of apology to the people of China” posted to its website today, the company pledged to “regain the trust of the Chinese people” saying, ”GSKCI will also increase access to its products in both city and rural areas of China through greater expansion of production and through price flexibility.”