GlaxoSmithKline executive prevented from leaving China

July 17, 2013

China has stepped up its anti-corruption campaign against GlaxoSmithKline, blocking a senior executive of one of the world’s largest pharmaceutical companies from leaving the country.

The government has previously detained four executives, all Chinese nationals, accusing them of a range of wrongdoing, such as bribing doctors and others to boost sales. But the travel restrictions imposed on the company’s head of finance in China, Steve Nechelput, are unusual because China does not often block foreign executives from leaving the country.

London-based GlaxoSmithKline (GSK) said in a statement Wednesday that Nechelput “has not been questioned or arrested, nor is he one of the individuals in detention.” The firm said he remains the finance director for the firm’s Chinese operations.

The company, however, has issued an apology. Chinese police have accused GSK of paying 3 billion yuan ($489 million) in bribes to travel agencies, doctors and consultancies over six years to increase sales and prices of its drugs, according to Chinese news reports.

In a news release, GSK expressed its concern and disappointment over these “serious” and “shameful” allegations “of fraudulent behavior and ethical misconduct by certain individuals at the company and third-party agencies.” It pledged to cooperate with the Chinese authorities and “take all necessary action required by the outcome of this investigation.”

One of the Chinese nationals detained in the case, vice president and operations manager Liang Hong, told China’s biggest TV station Tuesday that he had funneled the money through travel agencies by arranging conferences, some of which were never held.

The head of GSK’s China operation, Mark Reilly, a British national, left the country shortly after the police raided the company’s China offices in late June.

The aggressive probe against GSK comes as part of a broader crackdown on corruption. In a news conference Wednesday, Shen Danyang, spokesman for the Ministry of Commerce, said the investigation of GSK is part of the country’s efforts to create equal competition opportunities for domestic and overseas investors.

He insisted the probes “were not targeting foreign enterprises but improving the investment environment.” The government firmly opposes “any form of commercial bribery,” and enterprises breaching Chinese laws “will be punished,” Shen said.

Preventing a foreign executive from leaving the country is bound to create a stir among Western companies, some analysts said.

“Whether it is going to create a problem for the expatriates who live in China, certainly it will have a negative impact, but I do not think it will be dramatic,” said Siva Yam, president of the United States of America-China Chamber of Commerce.

But he noted: “It does not matter if they are foreign or Chinese, if they have committed a crime based on the local law then they have a problem.”

The actions against GSK come as China’s health care market is expanding rapidly. By 2016, it is bound to become the second biggest in the world behind that of the United States, analysts predict. According to a McKinsey report, it is expected to grow to $1 trillion by 2020, from $357 billion in 2011.

The Chinese government has identified its own health care industry as one of the seven priority areas for future development. The country’s pharmaceutical firms have been investing heavily in research as they try to catch up with their Western competitors.

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