No immunity

Resignations and arrests in the aftermath of Changsheng vaccine scandal


The latest reshuffle of Hong Kong’s blue-chip stock index earned a mixed reaction last month. The departure of Bank of East Asia, Singtao Daily reported, was “an unexpected one” given the lender’s market capitalisation is greater than five of the 50 other constituents in the HSI (market value is one of the most important criteria in selecting index members).

The Hong Kong Economic Times said the decision was not all that surprising as the key index is already heavily weighted towards the banking sector. It also noted that recent reshuffles have ejected long-term Hong Kong brands to make way for younger firms from mainland China (Cathay Pacific and Li & Fung were replaced by Country Garden and Geely Automobile respectively, see WiC388).

The newcomer that is displacing Bank of East Asia is Sino Biopharmaceutical, a leading biotech and pharma firm controlled by Tse Ping. He’s a member of the billionaire Dhanin clan, the Thai family that controls Charoen Pokphand, or CP Group, which has diverse business interests in China (see WiC242).

Sino Biopharmaceutical is actually the second firm of its kind to be included in the HSI since May, following the inclusion of CSPC Pharmaceutical (see WiC409). Both companies are now worth more than HK$100 billion ($12.8 billion), after their share prices more than double this year.

The sector’s strong performance has been underpinned by perceptions of policy support, with biotech and pharmaceutical firms identified as priorities in Beijing’s “Made in China 2025” industry plan.

The central government is keen to support homegrown drugmakers, says news portal Jiemian, to meet the rising demand for healthcare products (at the same time it is pushing for reforms in the state-run medical system; for more on this topic see WiC418).

One of the challenges is the way that local governments protect their own champions, sometimes with malign consequences. That was exposed again last month, when it emerged that one of the biggest vaccine makers Changsheng Biotech had fabricated production data on rabies shots (see WiC419) and that local regulators had turned a blind eye.

More problems have come to light as the authorities try to clean up the mess. Later, it reported that Shenzhen-listed Changsheng had produced nearly 500,000 substandard DPT vaccines (used to innoculate babies against diphtheria, pertussis and tetanus), which was roughly double the previous estimate.

So far 18 people, including a number of Changsheng’s senior bosses, have been arrested and local media outlets say they are expected to face prosecution. Liu Changlong, the mayor of Changchun city where Changsheng is headquartered, has also resigned. He might consider himself lucky: senior officials don’t always have the option of stepping down with a resignation letter. Plenty get visits from the Party’s anti-graft commission and a stint behind bars.

Prior to Liu’s resignation, six senior officials at the country’s food and drug regulator were also sacked, while others have been ordered to “make profound self-examinations”, Xinhua reports. The news agency added that the central province of Hubei has also removed six government officials from their posts in relation to another shoddy vaccines case involving Wuhan Institute of Biological Products.

The Changsheng case highlights that the officials “did not provide sufficient supervision, strong enough oversight, nor were they strict enough in their inspections,” a posting on the website of the China Food and Drug Administration (CFDA) acknowledged.

Red tape may be partly responsible for the failures in governance and there are calls to make sure that overlapping roles are eliminated as part of the restructuring of the CFDA and two other agencies. A new super agency – the State Administration for Market Regulation – is now tasked with overseeing food and drugs, as well as consumer and industrial products.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.