The Chinese Saga of Olympic Shame Continues.... A Chinese reformer
betrays his cause, and pays

International Herald Tribune

A Chinese reformer betrays his cause, and pays

By David Barboza
Thursday, July 12, 2007

BEIJING: Zheng Xiaoyu once ranked as one of the most powerful regulators
in China. He rose from modest beginnings to help create and lead
Beijing's version of the Food and Drug Administration in the United States.

But last March, locked up in the Qincheng Prison here, he wrote a short
confession. "Why are the friends who gave me money all the bosses of
pharmaceutical companies?" he wrote in his letter, entitled How I Look
on My Mistakes. "Obviously because I was in charge of drug administration."

In his confession, Zheng acknowledged that during his eight-year tenure,
he had accepted gifts and bribes from eight drug companies that sought
special favors: a car, a villa, furniture, cash. And corporate stock.
All told, he and his family accepted gifts valued at more than $850,000
― in a country where the average worker earns less than $2,000 a year.

For his crimes, the 62-year-old was executed on Tuesday, making him one
of the highest-ranking Chinese officials ever to be put to death.

The rise and fall of Zheng offers a rare glimpse inside China's flawed
regulatory system. He started out as an idealistic reformer. Concerned
about China's unsafe drug supply, he lobbied for the creation of the
State Food and Drug Administration. But in the end, according to friends
and associates, he was corrupted by the very system he sought to change
― even enlisting his wife and son to solicit bribes.

"There were so many companies going to him and he simply couldn't resist
the temptation," said one drug company executive who befriended Zheng in
the 1980s and did not want to be identified discussing the delicate issue.

While China's tainted exports have attracted international attention,
China's own citizens suffer most from the shortcomings of its drug
regulators. Tens of thousands of crates of unsafe pharmaceuticals have
reached the local market ― from antibiotics to vaccines, from drugs to
treat erectile dysfunction to ones to strengthen the immune system. The
government does not know how many deaths and serious illnesses have
resulted from faulty drugs.

Corruption is not the only problem, say industry insiders. Agencies
battled over who had the authority to fine companies and who was
responsible when things went wrong. The rapid growth of the drug
industry has also made it hard for regulators and their staffs to keep up.

During Zheng's tenure, for instance, his agency approved over 150,000
applications for new drugs, an approval rate that dwarfs the FDA, which
approves only about 140 new drugs each year.

And when regulators do discover counterfeit pharmaceutical operations,
powerful local officials often seek to shield companies in their area
from punishment.

As much as his own greed, all these larger problems stymied the
intelligent but nai"ve Zheng. "He was smart in a technical way," says a
drug company executive who knew him for more than 20 years. "But he
didn't have political skills. He should have never gone into government."

Zheng Xiaoyu was born in coastal Fujian Province in 1944, when China was
still being torn apart by war. He and several siblings were raised by an
aunt, friends say. Zheng was bright enough to gain acceptance to the
prestigious Fudan University in Shanghai, where he studied biology and
played the trumpet in the school band.

After graduation, he got a job as a technician at the state-owned No. 1
pharmaceutical factory in nearby Hangzhou, where he eventually rose to
become factory manager.

Colleagues remember him being passionate about his work. "He was
innovative and liked new ideas," said one retired worker who knew Zheng
well, but asked not to be identified. "In the 1980s, he even bought
computers for the factory in an attempt to computerize manufacturing and
management."

Later, in the mid-1990s, Zheng took a job in the country's
pharmaceutical regulatory administration. There he pushed the government
to create a separate body to regulate food and drug safety, one with
more power to protect Chinese consumers.

In 1998, Beijing did. The amiable Zheng headed the state agency for the
next eight years, pushing a modernization plan that was supposed to help
transform China into one of the world's leading centers for
pharmaceutical production.

To improve industry standards, the agency cracked down on fake drugs and
illegal factories. Zheng would occasionally show up at the side of
victims to grieve and declare his own fears about product safety.

He talked like a determined enforcer. "The crimes of making and selling
fake drugs haven't been uprooted," he said in a speech in 2001. "And
criminals and corrupt officials in the system should be severely
punished according to the law."

One of his boldest reforms was an effort to push new production
standards, giving companies a "good manufacturing practice" seal of
approval. Zheng promised to use the standards to weed out irresponsible
manufacturers. His agency declared that any pharmaceutical company that
did not get GMP approval by July 2004 would lose its license.

"The intention of the GMP certification was good," says Yang Yue, a
professor at the Shenyang Pharmaceutical University. "You don't know
what horrible conditions some drug makers had been in. For example, in
some traditional Chinese medicine companies, workers stirred the drugs
with their feet."

The plan had its intended impact: the industry shrank from 6,700 drug
makers to about 4,000.

But the agency's higher standards coincided with an effort by Beijing to
curb soaring drug prices. Companies were caught between the mandatory
government price cuts and the increased costs to upgrade equipment and
retrain staff members to meet Zheng's modernization plan.

Companies complained that because of their shrinking profit margins,
they did not have the money to develop new drugs. Some producers
switched to drugs not covered by the government's price caps, or simply
changed the dosage of existing drugs to maintain higher prices,
exploiting a loophole in the pricing regulations. And companies bribed
agency officials to get speedier drug approvals or other special favors.

Those officials included Zheng, according to court records. His wife,
Naixue, and son, Hairong, eventually formed a consulting company in
Shanghai that helped solicit bribes from companies.

Court records show that when a company named the Double Dove Group
sought to register disposable syringes, it offered shares to Zheng's
wife; his son received a used Audi, consulting fees and property in
Shanghai.

When a Beijing drug maker needed approval to import more Madame Pearl's
Cough Syrup from Hong Kong and to distribute a new intravenous drug, the
company's chairman helped Zheng's wife pay for a villa and then went
shopping with her for furniture. Decorating fees came to about $30,000.

The court offered detailed accounts of other bribes: secret payoffs at a
Beijing hotel, checks handed to Zheng in his office; and instructions
for Zheng's son to fly to Hong Kong, where he got over $120,000 that he
later told prosecutors he put away for his parents' retirement.

At least eight other senior drug agency officials have been accused of
taking bribes, according to court records and the state-controlled
media. Zheng's top deputy, Hao Heping, the director of the medical
devices division, accepted cash, expensive golf memberships and a Honda
Accord.

Cao Wenzhuang, head of the drug registration division, accepted at least
$300,000 in gifts and bribes. Both men also worked with their wives to
solicit the money.

The court that handed down Zheng's death sentence said at least six
drugs that had been approved by the State Food and Drug Administration
during his tenure were fake. The agency's current leaders say hundreds
of fake drugs are on the market at any given time ― some approved, many not.

According to state-run media accounts, prosecutors began hearing from
informants about corruption at the highest levels of the SFDA beginning
in 2002, when a drug regulator who had worked with Zheng was sentenced
to death for corruption. (That official received a reprieve and was
never executed.)

Soon, several other agency officials came under scrutiny. One drug
industry insider, who asked not to be named discussing government agency
rivalries, said bureaucratic battles also worsened between Zheng's drug
watchdog and the Ministry of Health, which had primary oversight over
the drug market before Zheng's agency was formed. That fight, according
to this official, could have led his rivals to inform on Zhang.

In June 2005, Zheng Xiaoyu quietly stepped down as director of the State
Food and Drug Administration. Rumors spread that he was under investigation.

But Zheng's arrest did not come until a year later. In the meantime, he
remained head of the China Pharmaceutical Association, even attending
high-level government meetings, according to China Vitae, a Hong Kong
Web site that tracks government officials.

About the same time, Zheng's wife and son, sometimes at his direction,
began returning some of the gifts they had received from drug company
executives, including the $30,000 dividend Hairong had been paid for his
stake in the Double Dove property. Naixue returned some of her
consulting fees.

After attending a December 2006 meeting of the Beijing Pharmaceutical
Association, Zheng was questioned by the government's disciplinary
agency, according to court documents.

Two months later, the State Council, China's highest governing body,
held a special meeting to consider Zheng's crimes. Prime Minister Wen
Jiabao attended. The council was told that Zheng had "neglected his duty
to supervise the drug market, abused the administration's drug approval
authority, took bribes and turned a blind eye to bad practices by
relatives and subordinate officials."

Zheng was officially arrested in March. Soon after, the entire Zheng
family was undergoing intense interrogation. All three members confessed
to soliciting and accepting bribes.

"Some money wasn't given to me directly, but through Naixue and
Hairong," Zheng wrote in his confession. "Naixue was retired and stayed
at home. Hairong was just a student. So their target was still me.
Indirect ways were easier for me to accept. So I agreed, consented. This
was bribery."

Eventually, the court found him guilty of accepting bribes from eight
drug companies, condemned him for dereliction of duty for failing to
police the drug industry or his subordinates and creating regulatory
schemes that allowed dangerous drugs to come to the market.

Industry officials say Zheng probably accepted many more bribes, but the
government did not need evidence of any more to ask for the death penalty.

Many drug company officials still defend Zheng, arguing that he was a
good man, undone by temptations that would have corrupted many people.
They say that the industry was plagued by dishonesty that no regulator
could have controlled; and that in a country where counterfeiting is
rampant in all types of industries, where doctors and hospitals
regularly accept kickbacks, that Zheng was made a scapegoat for national
ills.

Zheng's lawyer pleaded for leniency, saying his client had cooperated
with the authorities and, at times at least, had actually worked to
improve the drug industry.

But on July 10, the state-run media issued a terse statement: "Zheng
Xiaoyu, former director of China's State Food and Drug Administration,
was executed Tuesday morning with the approval of the Supreme People's
Court."

Whether Zheng's wife and son will be tried is not clear.

The day after his execution, the agency Zheng Xiaoyu had helped found
said it was dismantling his drug approval system and putting in place
new measures to bring transparency to the drug approval system. The
agency also said it would start making unannounced visits to check on
drug factory production.

Industry analysts say Beijing will have to do a great deal more to solve
the country's food and drug safety problems "If the head of the drug
agency is corrupt," said James Shen, a longtime industry analyst in
Beijing and the publisher of Pharma China, "you can imagine how corrupt
the whole system is."
Notes:

International Herald Tribune Copyright (c) 2007 The International Herald
Tribune | www.iht.com