Xi Jinping is shaping up to be the most powerful Chinese leader since the death of Mao, and he’s using two of the most powerful political forces in China to build his position. Anti-corruption and nationalism are the keys to Xi’s strategy, and China’s astute president seems to have figured out a way to harness them both. This week, for example, China fined pharmaceutical giant GlaxoSmithKline nearly half a billion dollars, in the biggest yet penalty imposed during Beijing’s current campaign against foreign firms. The move to hit Glaxo, which was caught bribing government officials, plays into two of Xi’s biggest current programs: the push to use of anti-trust regulation to penalize foreign firms, and the anti-corruption purge that is cracking down on graft throughout Chinese government. The New York Times reports:
The scale of the $487 million fine dwarfs previous criminal penalties on companies doing business in China. It comes at a time when numerous automakers, technology companies and other multinationals are also under investigation by the Chinese authorities and are nervously watching for what penalties might be imposed on them.
Previous large fines against foreign companies include $40.5 million on the Audi unit of Volkswagen last week and a total of $200 million in fines levied last month on a dozen Japanese auto parts and bearing manufacturers; those fines were for violations of antitrust laws.
Glaxo’s case was unusual in that it involved accusations of criminal bribery by the company to persuade hospitals and doctors to administer or sell Glaxo pharmaceuticals to their patients. The company said it was contrite.
Several of the company’s executives, come Chinese and some not, were also convicted of corruption:
After a one-day trial held in secrecy, the court also sentenced Glaxo’s British former country manager, Mark Reilly, and four other company managers to potential prison terms of up to four years. The sentences were suspended, allowing the defendants to avoid incarceration if they stay out of trouble, according to Xinhua, the official news agency. The verdict indicated that Mr. Reilly could be promptly deported.
China’s laws are almost certainly being applied with prejudice against firms that aren’t Chinese, and most observers believe that the choice of which officials to investigate and which to spare is often motivated as much by politics as by zeal for the letter of the laws.
But from Xi’s point of view, and from the point of view of many Chinese patriots, so what? Favoring hometown teams over foreign rivals doesn’t strike most Chinese as a bad thing to do, and as we have written previously, it is not a historical aberration for a rising economic power to give domestic firms a leg up on the foreign competition through trust-busting or tariff laws. In fact, the U.S. used punitive tariffs and corporate espionage to boost its economy during its period of rapid industrial growth in the nineteenth century. It’s hardly surprising, then, that a corrupt foreign pharmaceutical firm, even one playing by the rules of the game in China such as they are, would get caught in Xi’s net.
As for the corrupt Chinese officials caught up in the net, if there is one thing ordinary Chinese want to see, it is party bigwigs and crooks getting their comeuppance. Xi can prosecute as many corrupt officials as he likes and benefit hugely from it; his popularity will grow among ordinary Chinese, and the powerful people in China will understand that their only hope of staying out of jail, much less holding onto their wealth, is to stay on Xi’s right side.
At this point, Xi appears to be setting himself up as an authoritarian reformer and technocratic modernizer. He is concentrating power rather than decentralizing it out of the belief that only a very strong hand can make the changes China needs to revamp its economic model and move onto the next stage of development. The short term benefits of this approach can be substantial, especially when the authoritarian reformer is as skilled and smart as President Xi appears to be. But the long term cost of delaying the work of effective decentralization and the creation of a more democratic and broadly based political order is also very high.
There are good arguments against the course that President Xi seems to have chosen, but in today’s China they don’t matter very much when it comes to facts on the ground. Xi is in charge, and the next moves are up to him.