GlaxoSmithKline in China: Bitter pill GSK shares the desire of the Chinese authorities to root out corruption. So declared GlaxoSmithKline, a British drugs giant, this week as it struggled to respond to a scandal in China. Four executives, all Chinese nationals, have been arrested on accusations of, among other things, paying nearly $500m in bribes to doctors and officials to boost sales of the firm's treatments. Chinese state television broadcast an interview in which one of the arrested executives gave details of the alleged bribery scheme. Another executive, who is British, has been told not to leave China. GSK said it would co-operate with the investigation. Scandals involving the marketing of medicines are not just a Chinese phenomenon. Big Pharma's business model for peddling its pricey pills, which includes inducements such as "educational" conferences at lavish resorts, has led to abuses even in countries with well-paid doctors and a strong rule of law. A year ago America's Justice Department announced a $3 billion settlement with GSK, after prosecutors had accused the firm of illegal promotion of its drugs. In China, however, that seed falls on fertile soil. For a start, doctors are woefully underpaid. And perverse incentives in China's official policies, says a report from the World Health Organisation, let hospitals and doctors make money from selling medicines. Never mind if patients really need all those pills. The chief investigator in the GSK case, Gao Feng, said this week he was looking into other foreign drug firms" activities but was not yet sure they had done anything illegal. Corruption is pervasive in other areas of Chinese corporate life. A local expert who investigates wrongdoing in business insists it has got worse in recent years, as fraud schemes have got "tighter, smarter and bolder." Multinationals that have put local Chinese managers in charge of their operations in the country are often the most vulnerable to jiggery-pokery. While sales are booming, the top brass at headquarters are happy to give local managers a free hand. Sometimes they may suspect murky dealings, but are reluctant to appear ignorant of Chinese cultural traditions such as guanxi (roughly translated, the importance of good connections). As a result, they are failing to mind the store. Transparency International (TI), an NGO that tracks corruption trends, ranks China 80th out of 176 countries in its latest corruption-perceptions index. That middling ranking, which reflects how outsiders perceive levels of corruption, is bad enough. But to get a true sense of how bad things are, it is better to ask locals, as TI also does in many countries. However, when it tried to persuade Chinese market-research groups to conduct surveys, none would accept the job. The researchers deemed the very questions too "sensitive" to ask. China's new leaders acknowledge the seriousness of the problem, and say they are making a priority of tackling corruption. But well-intentioned central directives often fail to achieve much. Local bureaucrats typically respond to them by doing whatever it takes, at the least trouble to themselves, to give the appearance of meeting their quotas. A good example is how officials responded to a recent suspected fiddle involving foreign trade. A few months ago there was a surge in the monetary value of exports from Shenzhen, a region with a huge electronics industry, even though the numbers of containers being shipped remained flat. Unless iPads had been replaced by gold bars, it seemed that some exporters were colluding with banks and shipping firms to inflate invoices. The aim was to make money illegally by arbitraging the different rates offered for the yuan inside and outside China. Official investigators pounced. But unable or unwilling to find and jail the actual crooks, says an industry source, officials have instead been strong-arming innocent shipping firms. These are now being squeezed to under-invoice future shipments from Shenzhen, and to claim instead that goods are leaving from other ports. Because then the trade figures would show superiors in Beijing that the local investigators had "solved" the problem of invoice-faking in Shenzhen. When looking for easy targets to fulfil their quotas of corruption-bashing, local officials may find it simpler to pick on foreign firms than on local ones that have good connections with local or national politicians. For its part, the central government has rejected suggestions that, in the case of GSK among others, it was singling out foreign multinationals for punishment while letting domestic firms continue corrupt practices. Nevertheless, it does give the news media - all strictly state-controlled - free rein to do some foreigner-bashing from time to time. GSK's legal problems, however they turn out, are evidently not a simple case of foreigner-bashing. But unless the authorities become just as strict with domestic firms, little progress will be made in stamping out corruption in business. Assuming China's new leaders are sincere in wanting this, the task they face is enormous.