Salesman David Cameron makes up to China

Britain and Western European nations are moving towards a phase in their histories where all remnants of the ‘civilizing mission’ in their foreign policies are being wiped out by the hard realities of economic decline.

By Sreeram Chaulia

After straining relations with China by meeting exiled Tibetan spiritual leader the Dalai Lama in May 2012, UK Prime Minister David Cameron effected a volte-face this week on an unabashed commercial visit that kept sensitive human rights issues at bay.
Gone is the defiance from Downing Street, which had previously rebutted Chinese demands for an apology after Cameron met the Dalai Lama by asserting that British leaders have the sovereign right to“decide who they meet and when they meet them.” 

Instead of that nonchalance and combative tone, the latest sheepish message from the UK government on the eve of Cameron’s business-centric three-day trip to China was that he had “no plans to meet Tibet’s spiritual leader again".

Correcting errors
The cost of offending China in terms of lost economic opportunities to Britain stared hard and cold at Cameron as he made this about-turn. 

Given that Cameron’s Conservative Party is a big champion of British private sector interests, there must have been immense pressure on him to discard the Dalai Lama and all the high moral ground that Britain and other Western powers occupy while dealing with authoritarian regimes.
The Chinese government had signaled last year that Cameron must “correct the error” about the Dalai Lama or pay a heavy price. 

Amidst rumors that the British premier had been “banned” from entering China, his originally scheduled tour of the country in late 2012 was postponed. 

Between that diplomatic setback and the latest warm reception Cameron got in Beijing, Shanghai and Chengdu, the United Kingdom underwent a major course correction.
However much the British government denies it is jettisoning its advocacy on behalf of self-determination and human rights of Tibetans in China, the absolute silence Cameron has maintained on issues that might irk his hosts in Beijing shows that the UK has decided it can no longer afford to press for ideals in its foreign policy.
When faced with a cold shoulder from a China that Deputy Prime Minister Nick Clegg acknowledges to be “the great economic superpower of today,” the UK felt that politics of the soul matter less than that of the stomach.

Exports as panacea
Though there is fresh market chatter about a rebound of the British economy from the crisis that began in 2008, Cameron’s austerity and business-friendly policies have undoubtedly worsened the plight and delayed a sound recovery. 

With a domestic macroeconomic policy aimed at hurting the poor and succoring the financial oligarchs in the City of London, revving up consumer spending and confidence has been a Sisyphean task for the British government. 

Hence the onus being placed by Cameron on energetically tapping into the two biggest export markets in the world— China and India.
Both the frequency of high-level engagements with China and India, and the composition of delegations that accompany British leaders when they woo these Asian powerhouses suggest that the UK is banking on them in particular to reach Cameron’s target of achieving exports worth 1 trillion pounds (US$1.64 trillion) a year by the end of the decade.
This week, Cameron brought in tow with what the BBC termed as the “largest UK trade delegation ever to visit China,” with executives of giant banking, pharmaceuticals and energy companies leading the retinue to try and prize open doors for their goods and services to reach the Chinese consumer.

Banking on Chinese reforms
Even as the UK itself is struggling to reorient from an over-financialized economy back to a manufacturing-based one, Cameron and the bevy of businesspersons who traveled with him to China have placed high hopes on an ambitious structural overhaul of the Chinese economy that is being attempted by President Xi Jinping and Premier Li Keqiang.
The timing of Cameron’s trip would have been helpful to test how deep the economic opportunity lies, following the recent Third Plenum of the 18th Chinese Communist Party (CCP) Central Committee and its promise to undertake “comprehensive and far-reaching reforms.”
Western observers are salivating at the prospect of greater market-based incentives and freedoms being permitted by the CCP. 

Despite being a darling of Western investors, China has not been viewed as a level playing field for foreign players due to the inherent systemic privileges and protections enjoyed by its state-owned enterprises (SOEs).
If the Chinese leadership successfully runs the gauntlet of reforming its economy away from over-dependence on exports and investment and towards consumption by the growing middle classes, Western countries like Britain will smell a chance of a generation of breaking through and cashing in.

Beggars can’t be choosers

In Shanghai, the British Prime Minister defended his drug manufacturing colossus, GlaxoSmithKline, as “a very important, very decent and strong British business”. 

Such comments flew against ongoing high profile prosecution by Chinese authorities of this company for engaging in bribery in the healthcare sector.

Glaxo’s honchos were quoted in The Financial Times that they “hope Mr. Cameron’s intervention will help bolster their case” with the Chinese government. 

But with the CCP leadership intent on teaching a lesson to Western companies that are alleged to be cheating and overcharging Chinese consumers, the pressure will be on Britain to ensure that its corporations behave ethically in a country where foreign businesses are forever under the scanner for misdeeds.
These days, one does not hear British politicians complaining in the usual Western tone of contempt and frustration about the difficulties and obstacles posed to their companies in China’s regulatory snake pit. 

The bilateral relationship is now so asymmetrical in Chinese favor that everything and anything a British Prime Minister says in China is measured by the yardstick of whether it might upset the hosts and ruin the dreams of British companies. 

Presumably, if a Labour Party government were ruling the UK today, it would not have been as amenable to the lobbying interests of British corporations that desperately want a larger share of the Chinese pie.
As the old adage ‘beggars can’t be choosers’ aptly sums it up, an economically struggling UK has lost the leverage to try and hold China to account either on human rights or on the ambience for doing business. Cameron reckons that he might as well shut up, appease the Chinese and get on with bagging whatever economic deals they find it beneficial to grant.
Even a hitherto taboo area like Chinese companies acquiring majority stakes in Britain’s nuclear power plants, which fall under the category of critical national security infrastructure, is now up for grabs. 

Cameron really means it when he proudly proclaims, “no country in the world is more open to Chinese investment than the UK.”

Realist turn of declining powers
It is not unsurprising to see the UK abandoning the human rights and democracy-promotion components of its foreign policy towards China in order to satiate the hunger of British corporations. 

The precedent of British Petroleum (BP) influencing the decision to release the convicted Lockerbie bombing perpetrator, Abdelbaset al-Megrahi, in 2009 and send him back to Libya is an open secret.
Britain and Western European nations are moving towards a phase in their histories where all remnants of the ‘civilizing mission’ and the ‘white man’s burden’ in their foreign policies are being wiped out by the hard realities of economic decline.

Salesman David Cameron walks along the Bund with Lisa Pan, vice president of Chinese mobile gaming company Rekoo, in Shanghai December 3, 2013. 

Throughout the Cold War and even after it, Western European powers have embraced and worked with authoritarian regimes even as they put on a grand charade of promoting human rights. 

Now, ground down by a long economic depression, the preaching content in their foreign policies is losing its decibels.
The economic realism which Cameron displayed by promising to “respect” and “understand” China is a sign that the much-touted civilizational values-based leadership of Western Europe has met its nemesis at the hands of a new multipolar world order. 

The rise of China, and of other emerging economies like the BRICS formation, is setting a limit to Western liberalism and forcing a more hybrid international normative environment in which self-interest is speaking louder than altruistic universal principles.

Gateway to Europe or getaway?
One of the carrots the British Prime Minister has dangled on his China visit is that he would deploy his“full political weight” behind a proposed comprehensive China-European Union Free Trade Agreement. 

He even critiqued fellow EU members who “want to shut China off behind a bamboo curtain of trade barriers.” 

This was a jibe at France, Italy, Spain and a few Eastern European countries that are directly competing with Chinese state-subsidized manufacturers.
Cameron’s positioning of Britain as a more “complementary” economy with China, compared to some of its European peers, may be factually correct. 

But it further enables Beijing to divide the EU right down the middle as it did recently in the case of tariffs on Chinese solar panel imports. 

With Germany and Britain seemingly more complaisant towards China, while other European industrial exporting nations are less sanguine about Chinese predatory export policies, the idea that the UK can be a gateway for Chinese businesses to the rest of the European common market is not persuasive.
Right wing political pressures within the UK for a ‘Brixit’, or exit of Britain from the EU, and the heat Cameron’s Conservative Party is facing from the anti-EU UK Independence Party, render his ‘full political weight’ in the EU unappealing to China. 

Cameron’s pledge of a referendum on Britain’s membership of the EU if he gets re-elected in 2015 has lost Britain a lot of its attraction in economic terms globally, from the United States all the way to China and India.

Age of salesmanship
Eleanor Byrne-Rosengren, a critic of Cameron’s abandonment of the Tibetan cause, has caustically described him as a “salesman” rather than a “statesman.” 

Why should we even expect a middle power that is predicted to be pushed out of the ranks of the top 10 economies of the world in the near future to exude statesmanship?
The empire on which the sun never set is long gone. 

The idealistic bullhorn which was used for partisan purposes on rival states has now been cast aside. Cameron has brought Britain down from its historic pedestal of moral self-importance to bow to reality.

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China: Red restoration

Foreign companies are looking for signs that tough tactics are no more than short-term political moves

By Jamil Anderlini

Historic perspective: Xi Jinping has used symbols of the past to halt the erosion of party legitimacy

In the tranquil surroundings of the Diaoyutai State Guest House in Beijing two weeks ago, Chinese President Xi Jinping was almost effusive as he welcomed an all-star group of global capitalists.
“Many of you are renowned entrepreneurs and business leaders in the world today and you all have profound insight into the global economy,” Mr Xi told the likes of Mike Duke, Walmart CEO, Indra Nooyi, the head of PepsiCo, Muhtar Kent, Coca-Cola chairman, David Rubenstein, Carlyle Group founder, and Maurice “Hank” Greenberg, the former AIG boss. 

“Your suggestions are a very important source of inspiration for the Chinese government.”
These comments were intended to signal that the world’s second-largest economy remains open for business. 

But many international businesses have picked up a different, more worrying signal during Mr Xi’s tenure. Since he came to power a year ago, foreign companies have been targeted by corruption investigations, price-fixing accusations and state media-led smear campaigns.
“The perception amongst foreign investors is that it is getting harder to do business here,” says Michael Crain, Beijing director of administration for law firm Bingham McCutchen, which advises international companies doing business in China. 

“In most of the government investigations and media exposés this year the focus has definitely been on the behaviour of foreign companies.”
Mr Xi’s friendly tone at the guest house was in stark contrast with the nationalist rhetoric, communist revivalist symbolism and crackdowns on all perceived challenges to Communist party rule that have characterised his tenure since he took power.
As the most senior members of the party gather for a crucial meeting this week, global companies that rely on China for an ever-increasing share of their sales and profits will be listening closely to see which message Mr Xi chooses to send.
Chinese leaders have suggested that this meeting, known as the Third Plenary session of the 18th CPC Central Committee, will be the most significant since the 1978 gathering that transformed the country. 

Few expect detailed policy initiatives to be announced but it will set the tone for an administration that is expected to rule until 2023. 

This meeting, and the signals that come out of it, could determine how global companies fare in the world’s most enticing market.
A strong dose of nationalistic, neo-Maoist rhetoric could portend tough times for foreign investors, while a continuation of the welcoming language used at the Diaoyutai meeting may signal an improvement in their fortunes.
When he was installed at the top of the party, many within the Chinese system were hopeful Mr Xi would push bold economic and political reforms, including strengthening the legal system and reducing the role of the state in the economy.
But Mr Xi has instead fallen back on the tools and symbols of the past in an attempt to halt the erosion of party legitimacy.
This “restoration” of Communist imagery and tradition has been fuelled by a heavy dose of nationalism and has been accompanied by a wave of government attacks on foreign businesses in selected industries.
GlaxoSmithKline, the pharmaceuticals company, recently revealed that its medicine and vaccine sales in China had fallen 61 per cent in the third quarter from a year earlier, following a high-profile investigation into the company’s alleged bribing of officials and doctors.
Many in the industry say GSK’s alleged practices, some of which it has acknowledged, were far from unusual and that most domestic Chinese competitors are much more brazen in paying bribes.
The government has also launched industry-wide investigations into pricing of medicines and milk powder and in August levied its biggest ever penalties for pricing violations, fining six infant milk formula companies a combined $110m.
Late last month, Japan’s Meiji Holdings became the first international company to pull out of China’s baby formula sector, saying it could no longer compete in a market that is expected to double in value by 2017 from its current $12.4bn.
The decision came after Meiji was forced to lower prices by the government investigation and after local media reported Beijing would give Rmb30bn ($5bn) to Chinese milk-powder makers to help them compete with foreign rivals.
“These actions are about strengthening the legal system, purifying the market environment and protecting consumer rights but they also show how China doesn’t need these foreign enterprises any more,” says Bao Dike, managing editor of the PKU Business Review.

“It’s not just that we don’t need foreign companies to provide jobs and tax revenue, it’s also a fact that these foreign companies are occupying the market that belongs to [Chinese] state and private enterprises.” 

...

The group of international business leaders that lined up at the State Guest House in late October to pay homage to President Xi were all members of the advisory board of the Tsinghua University School of Economics and Management.
This extraordinary who’s who of global industry shows just how important the Chinese market has become to many multinational companies and how the balance of power has shifted markedly in favour of the mandarins who control access to this market.
Conspicuously absent from the event were Tsinghua board members Andrew Witty, CEO of GSK, and Tim Cook, CEO of Apple.
Mr Cook was forced to issue a humiliating public apology and a promise to improve customer service policies in April following an intense campaign of criticism from state media.
In March, Volkswagen recalled 380,000 vehicles in China after state television said they were unsafe. 

In recent weeks several state media reports have targeted Samsung for its smartphone warranty policies and Starbucks for overcharging for its lattes.
Since KFC was the target of state media stories last December alleging food safety problems, sales at its parent Yum Brands have slumped by over 10 per cent this year.
“The government is very aware of the enormous value of the Chinese market for multinationals and it is becoming more ruthless in ensuring that the money is kept in the family rather than letting outsiders grab the fat profits that are available now,” says Kerry Brown, professor of Chinese politics at Sydney University. “Politically it is also a very easy populist move to beat up on foreign companies; much easier than taking on big Chinese companies and their powerful domestic backers.”
In the government investigations of the pharmaceutical and milk-powder sectors, Beijing appears to have adopted a traditional strategy known as “killing the chicken to scare the monkey”.
By pursuing foreign companies the authorities are sending a message to entire industries that they intend to clean things up in order to provide quality products at reasonable prices in industries about which the public is concerned.
By forcing multinationals to lower prices and improve their offerings they are hoping to raise the bar for domestic competitors as well as provide concrete examples to the masses of how their lives are improving under the new administration.
The series of government investigations has been accompanied by a boisterous wave of media campaigns targeting popular global companies for alleged violations of consumer rights.
These have often been led by the largest state media outlets, particularly state broadcaster China Central Television, and have been juiced up with inflammatory accusations of racism and disdain for Chinese consumers.
“We are actually witnessing two different things: one is the exposing of foreign companies’ bribery and bad behaviour in China and the other is CCTV’s ridiculous populist reports that are not necessarily directly ordered by the top leaders,” says Li Huafang, an independent economist and popular newspaper columnist.

. . .

Mr Li and many other analysts believe that what appears to be a concerted and organised campaign of economic nationalism is more likely just fallout from Mr Xi’s much broader domestic political agenda.
By this logic, companies such as GSK, KFC, Mead Johnson, Apple and Starbucks are collateral damage in the new president’s campaign to consolidate his power, shore up Communist party legitimacy and avoid political instability.
The two sides of this campaign are Mr Xi’s ruthless handling of any perceived challenges to continued one-party rule and his efforts to address the main complaints of his citizens.
In that sense, it is not contradictory for Mr Xi to personally praise global capitalists while some of their businesses are targeted under his watch. 

That is because those attacks are not an end in themselves but rather a side-effect of his primary goals.
The rough treatment of some foreign businesses “stems from Mr Xi’s need to establish his authority, to impose his will; this is a very common tactic among new rulers”, says Wang Lixiong, a prominent political writer. 

“We need to wait until he has consolidated power to see what his real intentions are.”
One popular interpretation of Mr Xi’s conservative lurch is that he is consolidating power by adopting what is described in China as a traditionalist “leftist” approach in preparation for an eventual move to the more liberal reformist “right”.
But so far there has been nothing to suggest he will eventually shift direction.
“I don’t see any evidence from his background or persona or from the way that the current system is structured to suggest that Xi is moving to the left because he wants to move to the right,” says François Godement, professor of political science at Sciences Po and director for strategy of the Asia Centre in Paris. 

“We’ve really had all indications to the contrary and this seems more like wishful thinking.”
The good news for international companies is that, for now, many of them are still being formally welcomed by Mr Xi.
As long as they can show that their investments and operations in China support or at least do not get in the way of efforts to garner support for the party and its leadership, they will probably be allowed to stay and even thrive.
But “increasingly multinational companies will in all sorts of subtle and not subtle ways be made to adapt their behaviour to meet the political and economic needs of the party”, Mr Brown says. 

“It is quite a rational response for the government in Beijing to leverage this great prize which is their domestic market.”

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Rehabilitating history: Xi turns to Mao to tighten the party’s grip on the future
Anyone wanting to know which way the political winds are blowing in China just needs to read the propaganda signs posted all across Beijing.
As the Communist party prepares to hold the third plenary session of the 18th CPC Central Committee, those signs lay out the central themes of President Xi Jinping’s term so far – conservatism, traditionalism and shoring up authoritarian one-party rule.
Along with countless billboards proclaiming Mr Xi’s “Chinese Dream” slogan – or the “great rejuvenation of the Chinese nation” – several motifs from a bygone era jostle for attention.

“Study Lei Feng, devote yourself to others, upgrade your behaviour” commands a large poster in a chic Beijing neighbourhood.

This “obey morality and observe good manners reminder notice” refers to a legendary propaganda character, Lei Feng, from the early 1960s whose fictional exploits are the subject of ridicule and cynicism for many ordinary Chinese people today.
Lei Feng was supposedly a soldier in the People’s Liberation Army who secretly washed his comrades’ socks at night, revered Mao Zedong and died at the age of 21. 

Although someone called Lei Feng probably existed, the posthumous propaganda campaigns describing his life of selfless devotion to Mao, the party and modest good deeds are almost certainly fabrications.
It might seem counterproductive to reach for a discredited and outdated symbol to shore up legitimacy. 

But the Lei Feng campaign is part of a wider effort by Mr Xi to rehabilitate history and explain why the party should remain in charge.
“Xi is drawing from the register of the 1950s and particularly the early 1960s when the party launched successive Leninist political movements,” says François Godemont, a professor of political science at Sciences Po.
“He is trying to bring about a ‘red restoration’ and consolidate his grip on power.”
The result is a barrage of language not heard in China for decades as Mr Xi promotes the Maoist “mass line” governance method and orders cadres to carry out “criticism and self-criticism” sessions.
In the past three decades, Chinese leaders have tried to play down the Maoist era from 1949 until 1976 to avoid subjects such as the Great Leap Forward and the Cultural Revolution.
But Mr Xi has explicitly said the Mao era should be rehabilitated.
This is partly because much of his legitimacy derives from his pedigree as the son of Xi Zhongxun, a communist guerrilla leader who went on to be a senior official under Mao but was purged in the early 1960s.
By referring to the period before his father’s fall from grace, Mr Xi is seeking to boost his own image as the son of a revolutionary founding father.
A less savoury aspect of his campaign has been the arrest of hundreds of people considered to be political “troublemakers”.
“All the signs are that what Xi wants is to strengthen the system and his own position, rather than risk structural change that would reduce the power of the existing establishment,” says Jonathan Fenby, director of China research at Trusted Source.

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China Is About to Crack Down on J.P. Morgan

An aggressive Beijing could be very bad news for the bank -- and lots of other Western businesses operating in China.
BY JAMILA TRINDLE

J.P. Morgan Chase & Co.'s tangled web of legal troubles just got a little knottier.
The bank said Friday that other countries are looking into the firm's hiring of people close to government officials in Asia, which could mean China is investigating the firm's practices. 

If that's the case, J.P. Morgan could be facing a whole new front in its battle to resolve a raft of investigations in the U.S and U.S. companies could be in for greater scrutiny of their China operations.
The bank is already dealing with U.S. authorities looking into whether it violated anti-bribery laws by putting well-connected people on the payroll in exchange for business.

The New York Times reported in August that the inquiry relates to the hiring of two former Chinese employees who are children of powerful executives in Chinese state-owned companies. 

But the involvement of Chinese authorities could mean the bank would face a sprawling, unpredictable investigation.
"It's a scarier prospect in terms of transparency and rule of law being a bit more of a concern in China than here in the United States," said Mike Koehler, assistant professor at Southern Illinois University School of Law.
China has not routinely targeted foreign companies for bribery, but an aggressive investigation of U.K. pharmaceutical company GlaxoSmithKline that included detaining Chinese executives of the company earlier this year has raised concerns China is cracking down. 

The case is not yet resolved, but the drug maker reported last month that sales in China have already dropped by 60 percent.
"This is signaling a new emphasis in going after bribery and it's easier to go after the bribe giver than the bribe taker," said Daniel Chow, professor at Ohio State University College of Law.
Mr. Chow said China's more aggressive stance toward foreign companies is part of a broader crackdown on graft in reaction to a number of high-profile embarrassments involving allegedly corrupt Chinese officials.
Because the Chinese legal system is so opaque and moves quickly, U.S. investigators sometimes fear Chinese authorities will come in and start arresting people before they can collect the evidence required for American cases, according to former U.S. officials who've worked on anti-bribery cases.
"Sometimes as a prosecutor you fear the involvement of the local gendarme because you have no control over them," one of the former officials said.
In contrast, U.S. investigations can often take years to conclude. 

J.P. Morgan said in a regulatory filing Friday that it had received subpoenas and document requests from U.S. regulators about "hiring practices relating to candidates referred by clients, potential clients and government officials." 

The Justice Department is interested in the same practices, the company added.
"Separate inquiries on these or similar topics have been made by other authorities, including authorities in other jurisdictions," the bank said in the filing. 

A spokesman for J.P. Morgan declined to comment on whether China was one of them.
The bank also said that the SEC was interested in the J.P. Morgan's "engagement of consultants in the Asia Pacific region."
The disclosure comes as the bank is also facing legal battles on several other fronts. 

After emerging from the financial crisis seemingly unscathed, J.P. Morgan has faced an onslaught of legal issues over the past several months.
The bank has been trying to wrap up an array of mortgage-related investigations into a grand settlement with the Department of Justice. 

A preliminary agreement had J.P. Morgan paying over $13 billion to the government, but negotiations keep getting snagged. 

Those talks relate to the mortgages the bank bought, sold, and packaged into complex investments before the housing market crashed, as well as the mortgage businesses of two banks that it bought during the financial crisis.
The bank also paid over $1 billion in penalties to the U.S. government earlier this fall to settle allegations related to the "London whale" trading debacle -- large derivatives positions that caught the attention of other traders in early 2012 and ultimately cost the bank over $6 billion. 

What, if anything, J.P. Morgan will have to give to Chinese authorities is very much an open question.

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China Makes Life Hard for Multinationals

Beijing has decided it no longer needs to worry about the concerns of multinationals now that China’s own industries have matured and the country has ample capital. 

By Dexter Roberts 

Glaxo’s Humphrey humiliated

China fired a warning shot for foreign business in late July. 

A senior official in a closed-door meeting in Beijing admonished the in-house counsels of more than two dozen European and U.S. multinationals, saying their China operations may be investigated for anticompetitive behavior. 

Come clean and confess, the official from China’s planning commission advised his audience. 

Shortly afterward, Chinese authorities announced a record $110 million in fines on five overseas baby formula makers for price fixing. 

One Chinese company was penalized.
Pharmaceutical giant GlaxoSmithKline is being investigated for alleged corrupt practices; the company says it is cooperating. 

Bayer and Eli Lilly have been visited by regulators, but they aren’t aware of active investigations. 

Chinese media has recently reported that the pricing practices of foreign carmakers may be next. 

“Chinese customers are expecting a fall in prices following the announcement of the inquiry,” the China Daily wrote on Sept. 16.
One Western diplomat who asked not to be identified because he was not authorized to comment says the government wants to make sure that foreign companies understand that the Chinese are in charge. 

Davide Cucino, president of the European Chamber of Commerce in China, says the government’s new attitude undermines China’s commitment to open markets. 

“We believe there is a fundamental and ideological view among the Chinese government that we have to be treated as foreign.”
China has long looked at foreign companies as a source of capital, technology, and managerial know-how as it builds up its own businesses into global players. 

For years that meant offering low tax rates, inexpensive land, and other benefits to foreign enterprises while steering them into joint ventures with local partners. 

Beijing has decided it no longer needs to worry so much about the concerns of multinationals now that China’s own industries have matured and the country has ample capital. 

The government is acting “to favor local companies. This is very much in line with China’s aspiration of developing its own leaders,” says Michael Thorneman, managing partner at Bain in Shanghai.
China’s National Development and Reform Commission (NDRC) has led the crackdown.

Its weapon of choice: a five-year-old antimonopoly law, plus pricing regulations that hark back to China’s planned economy. 

The commission didn’t respond to faxed questions. 

“There has been a focus on trying to take the costs out,” says Sarah Butler, managing director of Greater China at Booz, noting pressures the authorities have put on drug companies to reduce prices. 

“But then China has this tendency where the big hammers come out.”
Some companies have paid doctors and hospital administrators to prescribe their drugs. 

The concern is that the foreigners are being unfairly singled out. 

“To my knowledge today, no Chinese [drug] company has been investigated,” says Bruno Gensburger, head of the pharmaceutical working group of the European Chamber.
In the baby formula industry, the NDRC contacted nine companies about the practice of setting minimum sales prices for their distributors, which is illegal in China, though common in the U.S. 

Three of the nine, including Nestlé’s Wyeth division, quickly cut prices to avoid fines. 

“They want to get one of them to give in so then they all cave,” says Lester Ross, a partner at WilmerHale in Beijing, who represented one of the companies involved. 

One challenge for overseas companies is figuring out the local environment—what connections to officials a Chinese business partner might have, whether the partner’s finances are sound, or how energetically regulations will be enforced. 

That opacity has led many multinationals to hire private investigators such as British citizen Peter Humphrey. 

In August, Humphrey, who had worked as an investigator for Glaxo, was formally arrested along with his American wife. 

Both are suspected of being “involved in operating illegal research companies and trafficking personal information,” reported the official Xinhua News Agency on Aug. 26. 

Humphrey is still in jail after making a public confession and apology on national television. 

His wife is detained as well.
A big question is how long the crackdown will last. 

One suggestion from the Western diplomat is that President Xi Jinping and Premier Li Keqiang are temporarily encouraging a harder line to beef up their credentials as economic nationalists.

They need the added credibility as they prepare far-reaching reforms that will reduce the influence of powerful state enterprises.
The Chinese are keeping up the pressure. 

On Sept. 16, broadcaster CCTV reported that Danone’s baby formula maker Dumex, which was already punished for price fixing, now faces claims that they are paying hefty “sponsorship fees” to encourage staff at hospitals in Tianjin to sell its baby formula. 

Dumex says it is “extremely shocked” by the media report and will immediately launch an internal investigation.

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