China's scandals get worse

Posted by: Bruce Einhorn on May 21, 2006

More sci-tech scandals in China. I’ve blogged (here and here) about Chen Jin, the Shanghai engineer who has been fired from Shanghai Jiaotong University after being accused of faking what had been acclaimed as China’s first home-developed digital signal processor. In this week’s print edition of BusinessWeek, I have a story that looks at charges and countercharges involving other Chinese academics. The cases are important, but nobody ever died or suffered severe bodily harm from a fake DSP chip. The same can’t be said about the victims of two gruesome cases currently getting headlines in China, cases that dramatically show the severity of the country’s problems with fraud in the world of science and technology.

First, there’s the scandal surrounding a drugmaker called Qiqihar No. 2 Pharmaceutical Co., based in the northeastern province of Heilongjiang. The government has shut down Qiqihar and banned the sale of its drugs following the discovery that the company had used an industrial material called diglycol as a non-active ingredient in one of its medicines. Diglycol can cause acute kidney failure. Eleven people have been hospitalized after taking the diglycol-tainted medication, and five have died. Another case in the news now, just as frightening, involves a breast enlargement treatment called Ao Mei Ding that’s been on the market in China since 2000 and has led many of the 300,000 Chinese women who have taken it to suffer from painful, bloody or disfigured breasts. According to the China Daily, the government has banned the sale of Ao Mei Ding.

Give the Chinese government credit: it is allowing the media to report on all of these scandals. Amidst all the turmoil, Beijing is trying to present the government as acting responsibly, forcing out officials responsible for allowing all of these misdeeds. “China has stepped up the accountability of officials in a drive to build a clean and efficient government,” declares the People’s Daily. But the scandals aren’t just about a few bad apples. The problems are the direct result of some basic problems in the way business gets done in China today. Consider the case of Ao Mei Ding. The company that makes it is owned by the Fu Hua Group of Shenzhen. What does Fu Hua own in addition to a pharma company? A small chain of hospitals – hospitals where women received Ao Mei Ding. In the U.S., it’s unthinkable for a Pfizer or a GlaxoSmithKline to own hospitals. Not in China. The China Daily also reports that Fu Hua back in the 1990s was a distributor of a similar product made by a Ukrainian company; when that partnership ended Fu Hua started making a version of its own. Foreign companies often complain about Chinese partners that end up becoming competitors by selling a similar product at a much lower price. And there’s the problem of what seems to be extremely lax supervision from government regulators: Ao Mei Ding won approval back in 2000, without thorough testing. And Qiqihar produced several other fakes, according to the People’s Daily. How did this happen? Here’s the People’s Daily, describing the presence of the toxic ingredient diglycol: “The company’s quality inspectors failed to discover the problem.” If China wants to be taken seriously as a place for discoveries of new medical treatments and production of new drugs, we’ll need explanations better than that.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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