Will China's Price Gouging Accusations Have Any Impact on Johnson & Johnson and Other Eye Care Companies?

Source: Wikimedia Commons

Yet another industry has run afoul of China's antitrust laws, this time seven companies in eye care that were accused of fixing prices. 

According to the National Development and Reform Commission, the eye care companies -- including Johnson & Johnson (NYSE: JNJ  ) , Valeant Pharmaceuticals' (NYSE: VRX  ) Bausch & Lomb, and Nikon -- exerted too much control over dealer pricing policies, going so far as to control terms of product promotions. If dealers didn't comply, they faced financial penalties from the manufacturers, including even seeing their supplies halted. The agency fined the seven firms a total of $3.1 million, with the largest fine of $1.4 million assessed against the French eye care firm Essilor. J&J was fined $577,000 while Bausch & Lomb received a $596,000 levy. Nikon's fine was under $300,000.

Only the latest 

This latest episode follows last year's major price-fixing scandal involving infant formula that saw the NDRC impose more than $100 million in fines against international suppliers including Nestle, DanoneAbbott Labs, and Mead Johnson Nutrition. It was alleged the formula makers took advantage of mothers leery of domestic suppliers after instances of tainted milk and formula caused the death of hundreds of infants and children and sickened thousands more. Mothers were willing to pay triple the cost of domestic formula by having relatives in foreign countries buy up local stocks and ship them back to China.

Before that, the NDRC accused six LCD panel makers of fixing prices, imposing fines that totaled $56 million against the likes of Samsung, LG Electronics, and four Taiwanese manufacturers. Late last summer it was collecting data from foreign automakers on the price they charge for cars under the suspicion they were setting minimum prices. Jewelry firms were also fined.

Eyecare, however, has come under particular scrutiny following allegations made last summer by a Chinese daily newspaper that Alcon, the eye care unit of Novartis (NYSE: NVS  ) , was bribing doctors to promote its medications, which itself was preceded by bribery allegations for the promotion of Alcon's lens implants.

The paper apparently has a history of alleging bribery and price fixing against international companies, also leveling charges against Eli Lilly, Sanofi, GlaxoSmithKline, and AstraZeneca. Whether true or not -- nothing has been found to date -- China's State Administration for Industry & Commerce said it was going to launch a probe of the pharmaceutical and medical device industries, investigating the higher prices Chinese consumers were paying for health care products. It might very well be the latest price-fixing allegations and fines were an outgrowth of this query.

Riding the growth

China, of course, remains a rapidly growing emerging market and even though that pace of growth has scaled back dramatically over the past few years, it remains far ahead of most other economies. The economy expanded at a 7.7% clip last year, well ahead of the 1.9% growth experienced in the U.S., let alone the euro region, which remained negative. Even the darling of the EU, Germany, barely inched forward 0.4% last year.

That's creating situations where income levels are rising. As the middle class expands they're looking to tap into global consumer trends. The companies themselves have sought to expend greater amounts of money in China to take advantage of the opportunity. Although emerging markets remain just a small part of Johnson & Johnson's overall business, within those countries China and Brazil drive the majority of the growth. Earlier this month J&J said it planned to introduce more than 30 major products in China by the end of 2016 in its medical devices and diagnostics divisions.

Other companies have similarly bold plans, and while it might seem they're trying to take advantage of the situation in China, the country's rapid market expansion likely plays a larger role in the rapidly rising price environment. The government is fearful of upsetting its growth, which explains the massive cash infusions it's made into its economy to keep it moving. Higher prices would be a reflection of such distortions.

Apparently, though, it's easier to accuse companies of gouging consumers than to admit what impact its own policies might play. Thus, antitrust fines might simply soon become a cost of doing business in China.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2980564, ~/Articles/ArticleHandler.aspx, 9/3/2015 11:20:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


Today's Market

updated Moments ago Sponsored by:
DOW 16,536.73 185.35 1.13%
S&P 500 1,973.14 24.28 1.25%
NASD 4,794.74 44.76 0.94%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 11:04 AM
ABT $44.71 Up +0.47 +1.05%
Abbott Laboratorie… CAPS Rating: *****
AZN $32.52 Up +0.84 +2.65%
AstraZeneca plc (A… CAPS Rating: ****
DANOY $12.31 Up +0.04 +0.29%
Groupe Danone (ADR… CAPS Rating: **
GSK $40.92 Up +0.28 +0.69%
GlaxoSmithKline CAPS Rating: ****
JNJ $93.79 Up +0.44 +0.47%
Johnson & Johnson CAPS Rating: ****
LLY $82.77 Up +0.96 +1.17%
Eli Lilly & Co. CAPS Rating: ****
LPL $10.13 Up +0.46 +4.76%
LG Philips LCD Co.… CAPS Rating: *****