Investigations Prompt Cheaper Prices On European Imports

Following a series of Swiss companies under scrutiny in China, Tetra Pak, a food packaging company, is under investigation for its business practices.   The New York Times’ David Barboza reports that the State Administration of Industry and Commerce offered “few details about why it was looking into Tetra Pak” last week but “analysts” said that these types of investigations are typical in China:

Analysts say it is not unusual for the government to investigate the pricing practices of Chinese and international companies. Although most prices in China are set by market forces, the government maintains control over large parts of the economy, including energy and telecommunications prices.

The government closely monitors health care costs, including the prices of certain types of drugs. With costs skyrocketing, the price of infant milk formula has recently become a growing concern in China, partly because of worries about the quality and safety of domestic brands.

In response to the government investigation, several international brands, including Nestlé and Danone, have announced price cuts — as much as 20 percent — on infant milk formula sold in China.[Source]

After food prices were lowered as a response to price-fixing investigations, the South China Morning Post reports that drug companies caught up in previous bribery scandals including GlaxoSmithKline will now be probed for “transfer pricing as well:

The NDRC will examine 27 companies on cost issues and 33 for pricing. The investigation is to understand the cost and pricing situation within the companies, and to adjust drug prices in a timely manner, the agency said.

In addition to GSK and Merck, other foreign companies being investigated over costs include Astellas, Novartis’ generics unit Sandoz, Boehringer Ingelheim, Baxter International and Fresenius.

An investigation team from NDRC will visit the companies involved between July and October, the agency said.[Source]

However, Helen Thomas of The Wall Street Journal argues that while the investigations of drug pricing are “unsettling”, pharmaceutical companies will likely continue to increase their profit from sales in China.  Currently, these sales only account for “2 % to 5%” of revenue for European companies:

But pharma groups should benefit as a larger chunk of China’s vast population gains access to their products. And longer term, there is the chance to improve profitability as more patented, innovative medicines are introduced to the market. Companies actively seek to get their patented drugs on another list eligible for partial reimbursement, argues Deutsche, despite the increased risk of unilateral price cuts. And new drugs are launched in China on average five to seven years after their international debut, a lag the government wants to remedy by encouraging local clinical and research investment.[Source]