Growth Endangered By Anti-Corruption Campaign

BMI View: A more 'rational' use of pharmaceuticals through pharmacoeconomics, and a crackdown on illegal rebates and corruption in China's pharmaceutical market could hinder the sector's growth potential. However, over the long term, the government is likely to improve its investment in healthcare in order to retain public support.

President Xi Jinping's anti-corruption campaign has become a centrepiece of his tenure. According to the Central Commission for Discipline Inspection (CCDI), a total of 182,000 officials have been disciplined, with courts nationwide trying 23,000 corruption cases in 2013. Within the pharmaceutical and healthcare industry, a covert sex tape scandal has once more brought GlaxoSmithKline (GSK) into the spotlight. We note that in Q114, GSK continued to be negatively affected by the corruption scandal in China, with the firm's pharmaceutical and vaccines sales in China falling by 20%. Although the revenue decline in China is showing signs of stabilising, the corruption case has yet to reach its conclusion for GSK, and the firm may see more losses from its Chinese business.

We note that since June 2013, when anonymous allegations emerged that a GSK employee in China was part of widespread bribery activities, the Chinese government has uncovered further corruption in the pharmaceutical sector. Since then, it has investigated over 60 drugmakers alongside the drug pricing investigation. However, as of Q114, GSK was the only multinational to have been hit hard, with other major drugmakers continuing to enjoy double-digit growth in China.

Below Global Average Level
Healthcare Expenditure Outlook In China

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Related sectors of this article: Pharmaceuticals & Healthcare
Geography: China

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