Glaxo and the ugly side of China Inc.

On Friday morning, China woke up to news that homegrown e-commerce giant Alibaba had raised $21.8 billion in its initial public offering - the largest by any company in the United States. Just as commuters were going home, state-owned media announced that authorities had fined London-based pharmaceutical giant GlaxoSmithKline a record $489 million and given several executives suspended prison sentences for ordering the bribing of doctors and hospitals. These are the two faces of China Inc., and they should give Alibaba’s eager new investors pause.

I have no inside knowledge of what Glaxo executives did - or didn’t do - in China. The London-based company has published an apology, effectively copping to some dodgy dealings. But the company’s experience during a long investigation and secret trial underscores how opaque, unpredictable and downright unfair the world of business remains on the mainland. If Jack Ma’s Alibaba speaks to the new China - booming, modern and international - the Glaxo affair is a sober reminder of the old.

No one, for example, really knows what to make of today’s court decision. Glaxo appears to be rolling over and accepting a ruling it might appeal in any other nation. Shareholders seem relieved over a settlement deemed much smaller than originally feared.

Yet given the lack of transparency surrounding the whole process, neither does anyone know what motivated Chinese authorities to go after Glaxo nor who they might target next. Was whatever the company’s executives did really worse than the activities of numerous other competitors angling for profits in China? Where do the boundaries for winning business deals lie in a corporate culture that’s so thoroughly infested with graft and rule-bending? Does this case suggest China is looking to clean up the sector and level the playing field for everyone? We can’t say because China won’t tell us.

Already, an antitrust crackdown on foreign companies from Microsoft to Qualcomm has raised fears that China is trying to hobble Western companies in favor of their local competitors. Maybe that’s good news for companies like Alibaba that are clearly in official favor. But as I wrote a couple of days ago, Ma’s continued success depends on the whims of a secretive government that could turn on his U.S.-listed company at any moment, for any reason. What if Alibaba’s push into online banking unnerves China’s state-owned banks? It’s impossible for investors to know when the whole thing might hit a Chinese wall of political meddling.

Again, Glaxo could be guilty as sin. But the way this 15-month investigation has been conducted can only hurt China in the long run. Whatever temporary benefit may accrue to homegrown Chinese companies is more than offset by evidence of how arbitrary and fickle the Chinese regime can be. I’m sure that’s hardly the picture Jack Ma wanted to project on his big day.

by William Pesek Bloomberg View columnist based in Tokyo