◎ We expect China’s economic situation to worsen further in the second half of 2018.
A vaccine scandal involving a major drug manufacturer based in Changchun and hundreds of thousands of Chinese children that was publicized at the start of the fourth week of July sparked a national outcry. Many Chinese, both private citizens and government officials, directed their fury towards the central government and the drug company on social media, which prompted the censors to delete social media posts in bulk.
The Changchun vaccine scandal exposes the institutional corruption inside the Chinese Communist Party (CCP) regime that is responsible for previous similar incidents. The official-businessmen collusion that led to the latest scandal also exposes the great moral degeneracy in China today. The public backlash from the Changchun vaccine scandal could have ramifications for the CCP beyond the tainted milk powder scandal in 2008.
The backdrop:
We take a brief look at the background of the Changchun vaccine scandal, other related scandals, and the public backlash.
Origins of incident
On July 15, China’s Food and Drug Administration (CFDA) ordered its provincial branch in Jilin to look into Changchun Changsheng Biotechnology Co. Ltd (hereafter referred to as Changsheng) after discovering that the company had fabricated production and testing records for rabies vaccines, and falsified equipment and production specifications.
On July 19, the Jilin branch of the CFDA announced that Changsheng (“long life” in Chinese) was charged with producing toxic vaccines. According to the Jilin CFDA, investigations into Changsheng had begun nine months ago and had just publicly made available some of its earlier findings recently. Changsheng was found to have produced and sold over 250,000 toxic doses of vaccine for diphtheria, pertussis and tetanus (DPT) to the Shandong Provincial Disease Prevention and Control Center (CDC). Investigators found that Changsheng had only 186 doses left in its inventory after the sale. Despite the implication that Changsheng had profited immensely from its toxic vaccines, it was only fined about 3.5 million yuan (about $515,000).
DPT vaccines are administered to three-month-old infants every four to six weeks until the infant is 12 months old.
Changsheng stocks plummet
After Changsheng was exposed for manufacturing toxic vaccines, its market value fell from 23.9 billion yuan on July 13 to 14.1 billion yuan on July 20. On July 23, the Shenzhen Stock Exchange announced that it was restricting the trading of shares held by Changsheng’s major shareholders, directors, supervisors, and senior executives.
Beijing fumes
Late at night on July 22, State Council Premier Li Keqiang said in a statement that, “the vaccine scandal has crossed bottom limits of morality and the people must be given a clear accounting” of events.
On July 23, Xi Jinping described the Changchun vaccine scandal as “hideous and appalling,” and ordered relevant departments and local governments to carry out a thorough investigation and deal with the matter in a timely fashion. Later that day, public security officers escorted away Changsheng chairwoman Gao Junfang and four senior executives for investigations.
On July 24, state media reported that a total of 15 Changsheng executives, including Gao, had been arrested.
Changsheng—background and corruption
Founded in 1992 and based in Changchun City, Changsheng Biotechnology was formerly a state-owned enterprise. In 2003, Gao Junfang bought the company and privatized it. Changsheng was listed in 2015 after a reverse merger. Gao and her family of three retained control over the company with 33.7 percent of company stock.
Changsheng sells vaccines to the CDC through its sales team, and has a sales network that spans all of China except Tibet, Hong Kong, and Macao. The company also exports vaccines to about a dozen other countries, including India, Cambodia, Nigeria, Egypt, and Belarus. Changsheng ranks among the top private drug producers in China in terms of manufacturing and sales volume, as well as total sales.
In 2017, Changsheng made revenue of 1.553 billion yuan (YoY increase of 52.6 percent) and a net profit of 566 million yuan (YoY increase of 33.28 percent). At the end of 2017, Changsheng bought 2 billion yuan of guaranteed wealth management products and invested only 122 million yuan into research and development. Changsheng’s R&D expenditure accounted for about 7.87 percent of its revenue, a figure far lower than the double-digit percentage spendings of other drug manufacturers in China.
Changsheng chairwoman Gao Junfang made the Forbes China 400 rich list in 2017, ranking 371th with a net worth of 6.7 billion yuan.
Changsheng’s small sales team of 25 staff made the company a gross profit margin of 91.59 percent in 2017, the highest in the industry. Sales expenses totaled 583 million yuan of which 442 million yuan (75.95 percent) were documented as “promotion service fees.”
A mainland Chinese reporter found that Changsheng was involved in 12 cases of bribing CDC staff in the provinces of Anhui, Henan, Fujian, and Guangdong between 2001 and 2017. All those who accepted bribes in the 12 cases were prosecuted, but Changsheng staff were only charged in four cases.
After the Changchun vaccine scandal broke, an article titled “King of Vaccines” was widely circulated on Chinese social media. The article claimed that Gao Junfang and former shareholders Han Gangjun and Du Weimin bought over established vaccine companies at a very low cost using capital operations. The article also claimed that Gao, Han, and Du had secured over half the country’s vaccine market share through bribery, and that the company had somehow survived many previous rounds of investigations into whether it was producing toxic or fake vaccines.
Perpetrators unpunished
According to an article that was widely circulated on Chinese web portal Sina and social media after the latest vaccine scandal, Shanxi Province and Shandong Province encountered severe problems with toxic vaccines several years back, but the “two mysterious ordinary people” who were behind the scandal got away scot-free. The article claims that nearly 100 children in Shanxi were either disabled or killed after receiving toxic vaccines in 2007, but an investigation of the vaccine batches by the Shanxi CFDA in 2008 found no problem with the vaccine.
The article claims that the 2007-2008 Shanxi vaccine scandal was obscured by the larger Sanlu tainted powdered milk scandal. As a result, the “mysterious” perpetrators of the Shanxi scandal escaped punishment, and even moved to Shandong in 2013 to continue manufacturing toxic vaccines.
Injustices after scandals
Due to the Sanlu milk powder scandal, Sun Xianze, then director of the CFDA’s food safety coordination department, was subjected to administrative disciplinary action in 2009. The scandal, however, did not seem to have a lasting effect on Sun’s career progression. In June 2011, he was made director of the CFDA’s information center, and was promoted to CFDA deputy director in 2012. In 2014, Sun was the director of drug safety at the CFDA when another scandal involving toxic vaccines in Shanxi emerged. He was only removed from his post in February 2018.
In contrast, Wang Keqin, the investigative reporter who broke the Shanxi vaccine scandal, was fired on July 18, 2011. Also, some rights defense lawyers who represented victims of the vaccine and milk powder scandals have since been persecuted to varying degrees by the CCP. For instance, Tang Jingling, one of the earliest batch of Chinese rights defense lawyers involved in scandal cases, remains imprisoned today.
CCP censors ‘tsunami’ of criticism
The Changchun vaccine scandal triggered a wave of public fury on the Chinese internet. The CCP propaganda apparatus has thus far handled the “tsunami” of criticisms per past tactics, such as censoring news and comments about the incident online and banning independent investigations and reporting.
Before the vaccine scandal broke, the CFDA published an article on its official Weibo account on June 12 which implied that all vaccines in China are safe and asserted that importing vaccines from abroad out of safety fears was “superstitious” behavior. The article claims that all China-made vaccines meet the national standard. Wang Huaqing, the CDC’s immunization planning chief expert, was quoted in the article as saying that there is no significant difference in the quality and safety standards of vaccines produced in the mainland versus those from overseas.
On July 23, the official Weibo account of the local procuratorate in Xinxiang County, Henan Province forwarded the June 12 CFDA article with added profanities. The post received widespread attention on social media before the procuratorate deleted it and posted an apology.
Some WeChat users have complained that restrictions were imposed on their group chats where users started discussing the vaccine scandal. For instance, messages from individual users to group chats that bring up the vaccine issue cannot be viewed by others in the group, while users who try to circulate the “King of Vaccines” article mentioned above face restrictions on their account.
One popular post on Chinese social media reads: “Indians turn fake medicine into real medicine, while the Chinese turn real medicine into fake medicine. In India, peddlers of fake medicine are arrested, while peddlers of fake medicine in China strike it rich. May I ask what morality is this!”
Meanwhile, some Chinese netizens have taken to leaving comments on the official Weibo account of the U.S. Embassy in Beijing because CCP censors are more cautious with scrubbing that account. Some comments include: “This is the only place in China where we can speak”; “My heart is completely broken; even children vaccines can be faked”; “Living in a country with no hope.”
In the evening of July 22, the 103-storey Guangzhou International Finance Center carried a scrolling electronic advertisement which read, “Changchun Changsheng Chairwoman Gao Junfeng, Go to Hell with Your Family.”
The big picture:
The CCP propaganda apparatus started to lose control over the narrative in China since the Sino-U.S. trade talks and even more so following the imposition of U.S. tariffs. Chinese citizens took to the internet to complain that they have been duped by the CCP’s rhetoric on trade and America’s intentions towards China and the Chinese people.
The Changchun vaccine scandal appears to be deepening the Chinese people’s understanding that the root cause of many societal problems in China today stems from CCP policies and rule.
Our take:
1. The Changchun vaccine scandal has sparked outrage from mainland Chinese of all walks of life (CCP cadres, civil servants, middle-class workers, etc.) due to the significant health and safety consequences of using toxic medicine. For many Chinese, this is the return of the 2008 milk powder scandal, which prompted many to purchase milk powder in large quantities when overseas. This new buying habit left many foreigners annoyed as the milk powder in their local pharmacies had been nearly all bought up by the Chinese, and China became an international joke. In recent years, Chinese with means are known to travel to Hong Kong to get vaccinated, resulting in a scarcity of vaccines in the semi-autonomous Chinese city.
2. Chinese netizens have drawn comparisons and parallels between the Changchun vaccine scandal and the June 2018 Chinese film “Dying to Survive.” [1] They point out that ordinary Chinese citizens suffering from illnesses have run afoul of the law for smuggling medicine from abroad, while Chinese officials and businessmen get rich (Fortune China 400-rich, in the case of Changsheng’s chairwoman) from the manufacture and sale of toxic medicine to the Chinese people. Worse, the colluding officials and businessmen sometimes migrate overseas and are never brought to justice. The various social injustices have strongly agitated the Chinese people, leading to the popular sentiment on the mainland that the CCP regimes simply does not look out for the people’s interest at all.
3. The Changchun vaccine scandal exposes official-business collusion in the Chinese regime and the CCP’s continued censorship of truth and facts. The lack of morality in the system and society ensures that tragedies like that in Changchun, Shanxi, and Sanlu are a recurring constant under CCP rule. When the morally vacant complete dominates the regime’s ruling class, the CCP would almost certainly lose the goodwill of the people. Chinese leader Xi Jinping may have consolidated power to a high degree in the regime, but he faces an impossible task in reforming the malevolent system. In fact, Xi faces the very real danger of being swallowed up by the CCP regime.
4. We expect China’s economic situation to worsen further in the second half of 2018. And if China’s economy worsens, the CCP’s political legitimacy, which is built on bringing economic prosperity, would be greatly eroded.
As the economy goes from bad to worse and the grievances of the Chinese people rapidly pile up, the probability of tremendous change in China would rise accordingly. Businesses in China must take into account the political risks faced by the CCP regime when making contingency plans.
[1] “Dying to Survive” is based on the real-life story of Lu Yong, a cancer patient who smuggled cheap but unapproved cancer medication from India to China and was prosecuted by the authorities for doing so in 2014. The film was a box office hit, and sparked intense debate in China about the CCP raising the price of imported drugs to the mainland. Later, Chinese premier Li Keqiang publicly called for cheaper and more accessible cancer drugs to be made available in China.
